What is Joint Venture Agreement Drafting?
A joint venture is when two or more parties work together to achieve a goal. They typically combine their money and other resources to complete it. A joint venture is governed by a joint venture agreement.
Drafting this legal contract requires careful consideration for important aspects of the working relationship, such as parties’ roles and how authority is executed.
Read the rest of this article to learn what key terms should appear in a joint venture agreement, tips for drafting it, and how a lawyer can assist with the process so that the agreement is legal and clear.
What are Key Terms in a Joint Venture Agreement?
A joint venture agreement usually contains the following terms to govern the working relationship between parties.
- Purpose. Both parties’ goals are outlined as well as the reason for the specific project they’re working on.
- Duration. This describes how long the joint venture will last and when it can be terminated.
- Roles. The parties’ roles and duties must be clarified so that everyone knows what they’re responsible for doing to prevent misunderstandings.
- Contributions. This specifies the assets and/or capital that parties contribute to the venture.
- Profits and losses. Based on what parties have contributed to the joint venture, profits and losses must be distributed fairly. The agreement should outline clear distribution processes.
- Control or authority. This section explains how decisions will be made by both parties.
- Confidentiality. This is sometimes included in the contract to protect information exchanged between parties, such as client lists or trade secrets.
- Dispute resolution. If there are disagreements between parties, the agreement should state the method to resolve them, such as mediation or arbitration.
What are Tips for Drafting a Joint Venture Agreement?
When writing a joint venture agreement, there are some important tips to bear in mind so that the contract is thorough and well executed.
Specify the Structure
The joint venture structure, such as if it’s a corporation or limited liability corporation (LLC), must be included as it will impact various aspects of the project, such as taxes parties need to pay and how operations are run.
Negotiate Profits and Losses
How profits and losses are distributed between parties must be included, but you can also negotiate that they are determined according to factors other than what each party has contributed to the joint venture, such as by considering achieved project milestones.
Include a Confidentiality Clause
It’s common for sensitive business information to be shared between parties, so a confidentiality clause must be included to protect intellectual property (IP) and shared data.
Have a Discussion with Parties
Prior to drafting a joint venture agreement, you should discuss your strategy and define your goals as this will help you align your expectations, making it easier to draft a solid contract.
Draft a Term Sheet
Prior to the agreement, it’s common for parties to negotiate a term sheet that lays the groundwork for various terms, such as profit distribution, governance, and more. This is another way to ensure you and the other parties agree on terms before finalizing them in the contract.
Get it Reviewed
If the other party’s legal counsel has drafted a joint venture agreement, it’s worth asking a lawyer to review it so that they can identify any hidden risks or unfair clauses that put you at a disadvantage.
Should You Hire a Lawyer for Joint Venture Agreement Drafting?
It’s always advisable to hire a lawyer to draft your joint venture agreement because these contracts can have serious financial or legal consequences.
If you don’t have contract-drafting experience, you could make mistakes that cost you in the future or result in disputes. A common one is overlooking important issues or considerations, such as liability and deadlock situations.
A lawyer can help you in various ways during the agreement drafting process, such as by:
- Structuring the deal. This must be done correctly according to both parties’ needs.
- Identifying risks. These are easy to miss, such as regarding tax obligations.
- Negotiating on your behalf. This can help you gain more favorable terms.
- Drafting other documents you require. An example is the term sheet.
- Checking compliance. A lawyer ensures that the agreement complies with all relevant laws to prevent legal disputes.
- Including a definitions clause. This explains important terms in the document so that all parties understand what they’re signing.
- Including provisions. An example is a right of first refusal. This lets partners buy shares before they're offered to third parties. It’s a way to afford existing partners more control over the joint venture.
- Outlining exit strategies. There should be early termination processes included to give you a way to exit the agreement should this be required, protecting your interests. They’ll also include information about post-termination duties.
Where to Find a Lawyer for Joint Venture Agreement Drafting
If you need to find a lawyer to draft your joint venture agreement, you don’t have to search far and wide, or cold-call traditional law firms that can increase your legal expenses.
Use an online legal platform like ContractsCounsel, one of the largest online legal marketplaces where you get access to a curated network of vetted lawyers.
To request that a qualified lawyer draft your joint venture agreement, follow these five easy steps:
1. Go to the ContractsCounsel marketplace and post your project for free.
2. Include a few details, such as the type of joint venture, so that lawyers will be better informed of what you need.
3. Wait for lawyer bids. You’ll receive multiple bids from lawyers directly on the platform who can assist you.
4. Once you receive the lawyer bids, you should review the lawyers' profiles. There’s lots of info on the platform to help you choose a lawyer, such as their location, client ratings, years of experience, and field of expertise. This transparency will help you choose the most suitable lawyer for your requirements.
5. Connect with a lawyer and hire them to draft your joint venture agreement.
