Drafting Joint Venture Agreements
What is a Joint Venture Agreement?
A joint venture agreement is a contract that creates a legal relationship between two or more parties that agree to come together to achieve a certain business objective.
The reason companies form joint ventures is typically related to a specific project. Often, joint ventures create new business entities to which the owners contribute capital, hold equity, and agree on how the entity is managed.
What are the key terms of a Joint Venture Agreement?
Contribution of Each Party: clause that outlines the amount of each party will contribute to the venture which can be capital, services, advising, etc.
Percentage of Ownership and Revenue: clause that lays out how much ownership each party has in the venture or new entity.
Operations Responsibility: section that defines who is in charge of what operations on a day-to-day basis.
Start and End Date: section that outlines the day the venture comes into effect and the day it ends.
Restrictions on Branding and Intellectual Property: section that defines limitations on use of branding and intellectual property to make sure there is no misuse.
Contingency for One or More Parties Not Meeting Their Duties: section that defines what happens when one of the parties is not, or is unable, to fulfil their duties.
Termination of Contract: sections that outlines how the agreement is terminated and under what conditions.
What issues to keep in mind?
Operational Responsibilities – With most business ventures, there will be day-to-day operational responsibilities that need to be handled for the business to run smoothly. It is imperative these responsibilities are clearly and succinctly outlined since no one wants to enter into a new relationship with bad expectations of their responsibilities.
Restrictions on Branding and Intellectual Property – When entering into a joint venture, parties can often assume they have the right to use branding elements of intellectual property as they please. Make sure you limit restrictions to not risk the misuse of your assets.
Contingency for Party Not Meeting Duties – Every business venture leaves the possibility of a party not performing their duties. Make sure you are covered by outlining exactly what happens when this is the case. You do not want to be left with a bad partner and no way to change behavior.