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What is a Joint Venture Agreement?
Joint venture agreements, also called JV agreements, are contractual consortiums of two parties. They usually seek to join both party’s resources to achieve a specific objective. The party’s benefit by receiving proportionately split profits and distributed ventures.
There are two types of joint venture agreements, including:
- Type 1. Contractual
- Type 2. Separate legal entity
Contractual joint ventures exist solely through a written contract. In contrast, a separate legal entity is formed through a corporation or limited liability company (LLC). You must put your joint venture agreement in writing to protect your rights if a dispute arises.
Here is an article on Joint Ventures .
How Joint Venture Agreements Work
Joint venture agreements are accommodating and can be drafted to merge companies of any size on specific projects. Doing so allows targeted outputs to be delivered more efficiently and effectively. The contract ensures that all parties understand their rights, responsibilities, and limitations.
The steps below outline how joint-venture agreements work:
- Step 1. Discuss opportunities with potential partners
- Step 2. Hire business lawyers to offer legal advice
- Step 3. Select the correct type of joint venture
- Step 4. Draft the first iteration of your joint venture agreement
- Step 5. Pay your taxes correctly and promptly
- Step 6. Seek ongoing advice to maintain legal compliance
- Step 7. Enter JV agreement amendments as necessary
Although JV agreements are similar to a partnership agreement , there are still several differences. A joint venture agreement is used in the commission for a single activity for a specified period. Partnership agreements indicate an ongoing, long-term relationship.
Key Elements of a Joint Venture Agreement
The most essential element of a joint venture agreement is evaluating if the chosen partner is right for your company. Ask yourself if the relationship truly strengthens your market position. After deciding on the right partnership, move the relationship forward by drafting a joint venture agreement that includes specific provisions.
Below, we’ve outlined a checklist of the 10 key elements of a joint venture agreement:
- Business address
- Joint venture types
- Purpose of the agreement
- Names and addresses of members
- Duties and obligations
- Voting and formal meeting requirements
- Assignment of percentage ownership
- Profit or loss allocation
- Dissolution terms
- Non-compete and confidential agreements
While the list referenced above is a great start, you may need to include other provisions within your agreement. Business lawyers can learn more about your business relationship and draft a joint venture agreement that satisfies both party’s needs. This strategy will ensure you avoid making legal mistakes that haunt you in the future.
Here is an article on Joint Ventures and Income Statements.
Examples of Joint Ventures
Well-known companies and small businesses alike engage in joint ventures. It’s a great way to achieve synergies that either entity would not be able to accomplish without each other.
The list below outlines examples of joint ventures:
Joint ventures for construction companies allow both parties to maximize their earnings and outputs. Types of joint ventures in construction companies include:
- Type 1. Contractual joint ventures
- Type 2. Equity joint ventures
- Type 3. Combination joint ventures
- Type 4. Non-integrated joint ventures
- Type 5. Integrated joint ventures
Automotive joint ventures are emerging through technology in today’s market. Types of joint ventures in automotive companies include:
- Type 1. Manufacturer collaborations
- Type 2. Rideshare company ventures
- Type 3. Government and school contracts
- Type 4. Industry consortiums and engagements
- Type 5. Supplier relationships
Joint ventures for technology companies are perfect since they allow for maximum flexibility. Types of joint ventures in technology companies include:
- Type 1. Affiliate partnerships
- Type 2. Financing agreements
- Type 3. Vertical joint ventures
- Type 4. Project-based joint ventures
- Type 5. Application programming interfaces (API) JVs
- Type 6. Retargeting/republishing joint ventures
- Type 7. Functional joint ventures
Joint ventures for retailers can be a smart and fun way to revitalize the consumer shopping experience. Examples of high-profile retailers engaging in joint ventures include:
- Example 1. Starbucks and Barnes & Noble
- Example 2. Home Depot and Pinterest
- Example 3. Pottery Barn and Sherman Williams
- Example 4. Doritos and Taco Bell
- Example 5. Ben & Jerry’s and the Tonight Show
Image via Pexels by Eunice Lui
Here is a list of more joint ventures to review.
Qualified joint ventures are created specifically for married couples. They can achieve special tax considerations and efficiencies by using this structure type. Moreover, a qualified joint venture allows both spouses to receive social security and Medicare credit for the tax year.
For married couples to receive tax benefits under the qualified joint venture classification, then the relationship must meet the following elements:
- Element 1. The married couple files a joint return
- Element 2. Both spouses participate in the business’s operation
- Element 3. The married couple doesn’t want to enter into a partnership
Regardless of the project, a joint venture is an easy way to create market benefits for both parties. There are endless opportunities regarding joint ventures. However, you must have a solid joint venture agreement to ensure that everyone is on the same page.
Joint Venture Agreement Samples
Joint venture agreement samples allow you to anticipate what the agreement may include. However, no two business situations are alike, which means that the terms contained in a sample may not apply to your situation.
Here are a few joint-venture agreement samples:
- Sample 1. Small Business Association’s (SBA) joint-venture agreement
- Sample 2. Securities and Exchange Commission’s (SEC) joint-venture agreement
The above-referenced set of joint venture agreement samples are perfect for reviewing since they are used by government entities. They apply to other business situations instead of your specific goals, which means hiring business lawyers to draft an original agreement for your project is the most practical approach.
Joint Ventures and Taxation
Joint ventures are usually taxed as partnership business entities, corporations, or LLC. If the joint venture is taxed as a corporation business formation, it’s subject to double taxation on corporate and shareholder profits.
In contrast to partnership agreements, joint ventures aren’t recognized by the IRS as a taxable entity. As such, your joint venture agreement establishes how taxes are paid.
You must also consider the taxation of profits and account for them correctly. Depending upon the type of deal you are facilitating, this usually straightforward process can quickly become challenging.
Getting Help with a Joint Venture Agreement
Getting help with a joint-venture agreement starts by speaking with business lawyers. They can provide you with the legal help you need to draft and execute the perfect document while avoiding common and not-so-common legal mistakes. A business attorney can also offer more complex services include contract negotiations and revisions on your behalf.
It’s helpful to organize a dossier of essential documents surrounding the joint venture. Some items to bring to your initial consultation include:
- Meeting and telephone call notes
- Communications between you and the other party
- A short description of how you would like the deal structured
- Names, addresses, and phone numbers of both parties
- Copies of operating agreements
- Copies of relevant licenses and certifications
Business lawyers are experienced in translating it into the best joint venture agreement for your specific situation based on the information provided. Even if you already have a contract in hand, your attorney can conduct a simple or complex review that ensures the agreement is legal and fair.
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