Joint ventures (JV) are quite common when two or more parties want to start a new project or reach a particular goal. However, prior to entering such an agreement, it’s important that each venturer is protected. By outlining each partner’s expectations in the beginning, they’ll most likely avoid conflict down the road. The goal is to protect each individual’s business as well as the relationship between each party.
Each JV agreement is unique depending on the needs of each partner. Thus, it’s critical that you maintain transparency and communication as well as seek legal counsel while drafting your business arrangement. Keep reading below to find out more about joint ventures and key considerations prior to entering one.
What is it?
As hinted above, a joint venture (JV) is a business arrangement where multiple parties agree to work together to conduct another business activity separate from their own. As a result, each partner is obligated to contribute their resources including, but not limited to, capital, physical equipment, intellectual property, and personnel. They are also responsible for the profits, losses, and costs associated with the business activity.
Why Might you Consider Signing a JV Agreement?
Joint ventures give individuals the following:
- The opportunity to pursue different business ideas
- Greater quantity and more diverse resources
- More capacity
- Access to markets and distribution channels
Key Considerations before Signing
Before you enter a JV, it’s important to discuss the following points with all parties involved. That way you’ll know exactly what you’re getting into and what’s expected of you. Note that the list is not exhaustive, but a starting point.
- Scope of the JV
- Specific obligations of each party
- Equity participation by investors
- Future use of capital
- Management composition
- Financial arrangements
- Profit distribution
- Restrictive covenants
- Casting votes
- Exit clauses
- Dispute resolution
- Force majeure clauses
At Sodagar & Co., we can assist with the preparation of your joint venture agreements and set up structures to suit your business objectives. Please contact us to see how we can be of service.