Understanding Joint Venture Agreements
Joint Venture Agreements: Key Elements You Need To Know
A joint venture agreement is a contract that legally ties two or more parties together to form a single-entity partnership. Because there is a lot at stake with any joint venture, having an iron-clad contract is critical. The following are key elements every joint venture contract should have, according to contract lawyers.
The Contributions of Each Party
Getting a joint venture off the ground means each party needs to contribute something. This can mean start-up capital, services, advising, and more. Explain this within the contract in detail. For example, if each party must contribute capital, exactly how much is each contributing. If one party is offering a service, what is the scope of this service and how often will it be rendered? Word this in a way that removes ambiguity.
Percentage of Ownership and Revenue
It is tempting to say that each party owns equal shares of the business and gets equal parts of the revenue, but a better idea is ensuring that the percentage of ownership and profit reflects what each party is contributing. It is important to look at this in terms of more than capital. Sometimes, offering services and functioning as a consultant can have more authentic value than just investing money into a business.
With most business ventures, there will be numerous day-today responsibilities that keep the company operational. Your joint venture agreement should outline what these operations responsibilities are and who is in charge of them. In many cases, these will be delegated to employees or outsourced to someone like an accountant. However, even if it isn’t one of the parties of the venture completing the work, your contract should still specify who is.
A Start and End Date
Every contract should specify the date it goes into effect as this determines at what point the parties are being held to the other terms in the agreement. In some cases, an exact end date may also be beneficial. If you see your agreement as open-ended, you could specify a review or renewal date rather than an end.
Restrictions on Branding and Intellectual Property
Because each party has ownership of the venture, they are likely to assume they have the right to use branding elements and intellectual property as they please. However, misuse of these items can negatively impact the joint venture. Clearly outline any restrictions on the use of branding and intellectual property in the joint venture to prevent disagreements and protect the business.
Contingency for One or More Parties Not Meeting Their Duties
When outlining this, consider two distinct possibilities: a party not being able to perform their duties due to something such as an illness, and a party being unable to perform their duties due to their own choice. In the first case, you might want to give the party a chance to recover and make up for their lacking contributions, while in the other, it is best to default to consequences.
Termination of the Contract
Your joint venture agreement may need to end abruptly for any number of reasons, including one or more parties wanting out of the agreement or the failure of the business. Your termination clause needs to specify how this will be handled, including who must cover what expenses and if a party must pay a specific amount to leave the agreement.
Finding Contract Lawyers Near You
Creating a joint venture agreement can be stressful, as you do not want to leave any loopholes in the language you use. Instead of attempting to craft an agreement on your own, turn to ContractsCounsel.com. Through our boutique marketplace, you can receive quotes from vetted attorneys who not only create joint venture agreements but also understand the nuance of your industry. Work with ContractsCounsel.com to get the help you need at a price that works for you.