The JV agreement outlines all the resources each entity will contribute to accomplish a common goal.
The joint venture agreement cost will vary depending on the type of agreement, the level of capital you contribute, and the total scope of your project.
A joint venture allows you to operate as a separate legal entity yet proportionally split profits from a shared project.
As with any written contract, you must include specific terms and clauses to protect your organization’s best interests. Here are 12 things you should have in a joint venture agreement or a joint venture contract.
1. Business Information
Joint venture agreements legally bind two separate entities together for a specific purpose. To start the agreement, you should list:
- The businesses involved
- What the businesses do
- Relevant information about the businesses involved
Here is an article about joint ventures and how they work.
2. Member Names and Addresses
In any joint venture agreement, you should include the information below for all the members who will participate:
- Contact information
The JV contact should include legal names only, current addresses, and phone numbers to reach each member.
By law, a joint venture's members are individuals who contribute capital, resources, and other assets to achieve the shared objective.
The JV member will have to be able to sign on the company’s behalf. This is why JV members are typically directors or C-level executives.
Here is an article about joint ventures and partnering with other businesses.
3. Joint Venture Type
A joint venture can involve a contractual partnership, or they may wish to establish a separate legal entity with their partner for the venture.
The type of joint venture you use will ultimately influence the rest of your joint venture contract and your joint venture agreement cost.
Below are the four common types of joint ventures.
- Project-based joint venture. This temporary partnership between two entities is designed to achieve a specific objective.
- Functional joint venture. A partnership between two companies who want to mutually benefit from each others’ skills, knowledge, and resources.
- Vertical joint venture. This is a joint venture between buyers and suppliers in the same supply chain.
- Horizontal joint venture. A contract between two companies that sell the same goods or services and want to reach new markets through their partner.
Here is an article about how joint ventures compared to partnerships, franchises, and other business models.
4. Purpose of the Agreement
Every contract needs a clear purpose or objective to be legally valid.
This could be to create a new business as a joint venture or to enter into contractual consortiums with other businesses. Consortiums are groups of two or more businesses that work together to achieve a shared goal.
In a joint venture, some companies prefer to remain separate. In contrast, others want to create a new entity without merging their original businesses.
In addition to the structure of the joint venture, you need to clearly describe your objective and reason for joining the joint venture.
Here is an article about joint ventures vs. consortiums.
5. Duties and Obligations
The JV agreement establishes duties, obligations, responsibilities, and expectations for all parties. The scope of obligation and duties may vary by entity. Some joint ventures are 50/50, but many others have one organization providing more of a particular asset or resource than the other.
For example, small businesses with a particular market in a geographical region may enter a joint venture with a much larger corporation. In this case, the larger business would supply greater funding and resources. In contrast, the smaller business promises access to their market.
Here is an article about duties in a joint venture.
6. Voting and Formal Meeting Requirements
This portion of the agreement can outline the voting rights of the JV members and any formal meeting requirements they have.
Most importantly, voting rights help affirm who is in charge of the venture’s operations and who has the greater ability to make decisions about the project.
Managing a joint venture can quickly become difficult without proper organization and delegation. Voting rights can help establish a decision-making hierarchy and clarify who holds the greatest authority over the project.
Here is an article that explores joint venture decision-making.
7. Percentage of Ownership Assignment
The contract must state how the companies will proportionally split profits. For example, will there be an even divide, or will payments be based on the percentage of ownership?
For example, suppose a company is performing 70% of the work and output. In that case, the members will need to decide if they are entitled to 70% of the profits while the others split the remaining 30%.
Each joint venture group must negotiate and decide the appropriate measurement for their efforts and payment. Be sure to describe this method in detail, so there is no confusion about how much each member will receive.
Here is an article by the Small Business Association that explains more about managing joint ventures.
8. Intellectual Property Rights
Joint ventures require sharing knowledge, resources, and, often, intellectual property. You and your business partners can protect their intellectual property through a confidential agreement.
Describe how each partner may access, use, and distribute intellectual property over the venture. Furthermore, if new intellectual property is created for a separate joint entity, establish ownership rights among members.
Here is an article on everything you need to know about intellectual property rights.
9. Profit or Loss Allocation
A profit or loss allocation clause outlines how earnings and financial losses will be distributed among partners.
This clause can reflect the percentage of ownership each member has, preventing unfair advantages among certain shareholders.
Profit and loss allocation can also reflect each member's tax obligations regarding their ownership and role in the joint venture.
Here is an article to learn what taxes are required in a joint venture agreement.
10. Dissolution Terms
Dissolution terms outline what processes members must follow to end the joint venture. This can prevent one party from closing a separate entity or prematurely dissolving the agreement.
Many joint venture dissolution terms require a vote if there are more than two parties. Generally, mutual consent is the most important element of joint venture dissolution.
Suppose there is no mutual consent, such as with two parties in disagreement. In that case, they can outline the steps for dispute resolution in this provision.
Here is an article with more information about exiting a joint venture.
11. Noncompete and Confidential Agreements
A non-compete or noncompetition agreement can protect each party’s business in the joint venture. For example, the JV agreement may have a noncompete clause that prevents individual companies from selling in the same market as the joint entity.
A confidentiality agreement requires members to keep details of the joint venture private. However, because joint ventures require sharing knowledge and resources, you must take steps to prevent copyright infringement and theft of intellectual property.
Here is an article about non-competition agreements.
12. Signatures of Members
Signatures from all joint venture members officiate the joint venture contract. Therefore, when singing, ensure that you have clear signature lines for each party and a dateline to give the contract an effective date.
Signatures should use each party’s first and last legal name, as well as their company title and any formal designators.
Here is an article about legally binding signatures.
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