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Corporate Social Responsibility (CSR) and Sustainability

All The Things You Should Know About Joint Venture Agreement

A partnership in the form of a joint venture is a great thing for two parties to merge their resources and efforts in order to make success in the business world. It’s not just about the question of can you start a business on your own. It’s also about the question of – should you do this? 

You see, running a sole proprietorship is a bad idea for a number of reasons. You get someone to share administrative tasks with, someone to share responsibility with and someone to share the costs of running an enterprise with. Second, you get someone who understands exactly how you feel, seeing as how they’re in the same situation. Still, in order for all of this to work, it needs to be put into writing. Therefore, here’s what you need to know about making a joint venture agreement.

What will be contributed by each party?

The first question worth asking is the question of the contribution of each party to the venture. For instance, is the workload going to be split 50/50? The importance of figuring this out early on can avoid future disagreements in regards to each party’s jurisdiction. This is why describing this in detail may be the most important part of the equation. Who is in charge of the operations is another question worth taking into consideration.

Who owns what?

Another thing worth mentioning is the fact that the initial investment and the ownership of the company may not be 50/50, to begin with. If that is the case, it’s important that you clearly state who owns what. This is also where you might want to look for the services of a specialist. For instance, if your joint venture belongs to the construction industry, what you want is some help from reputable construction lawyers. This field alone is so broad and the prospect of forgetting, overlooking something is quite realistic.

What is the term of the arrangement?

Another thing you need to keep in mind is the fact that a lot of co-owners don’t want to sign the contract indefinitely. This makes them include the end date, after which they can prolong the contract if they feel so inclined. This gives everyone the flexibility and legal insulation they need. You see, terminating such cooperation is not something that people do lightly, which is why, they might want to have an option to wait it out, instead. By having a clearly specified term of the arrangement, they can plan for this much more efficiently.

What about intellectual property?

One of the questions that you also have to tend to is one of intellectual property. Sure, your venture may have its IP in the form of logos, slogans, company colors, products and services, however, do the parties have the right to use them outside of the joint venture. Unless this is clearly defined and specified right away, you’re exposing your venture to the risk of causing a serious problem further down the line. So, why not resolve it right away and be done with it?

What happens to the finances?

As a sole proprietor, you get to choose what happens to the revenue from the venture. So, what happens if there’s more than one owner? How much gets reinvested and how big of a share of a profit does each party get to keep. This is often determined by the question of the initial investment, however, if one party makes a bigger initial investment and the latter takes a larger share of the workload on their back, this might be a tad harder to determine. It’s far better to state this clearly before it becomes a problem.

What happens if one party is indisposed?

Provided that each party has its own share of duties and one party gets stuck in circumstances that prevent them from performing their duties, what happens next? This could be a medical emergency, a family emergency or ordinary negligence by a party that got engaged in a different project that they can’t currently take their mind off? What are the consequences of temporary measures that a joint venture will take in order to solve this issue? Once each party is aware of potential ramifications, they’ll think twice before stepping out of the line.

What happens if there’s a conflict that can’t be resolved?

One of the issues that people are often reluctant to discuss is the issue of a conflict that can’t be resolved. What happens then? Is there a mediation clause that requires a neutral third party to help you come to a solution? Another option is taking the issue straight to court. Lastly, the dissolution of a joint venture agreement might be the best option if the issue is major and the desire to part ways is mutual. All in all, this is something that will eventually come up. Sure, the issue doesn’t have to be major but this is a risk that you just can’t afford to take.

Hiring a professional

The last thing you need to keep in mind is that although you can put virtually anything in writing, this document won’t be legally binding by verified by proper legal authority. There are some arrangements that are outright illegal, regardless of how convenient it would be for you and your partner. Following a verbal agreement is one thing but if you want to make this agreement legally binding, you need to A) put it in writing and B) use the correct form. The latter part is why you need some legal aid.

In conclusion

As you can see, the more thorough you are, the better, due to the fact that every unforeseen situation is something that can put you in a rough spot. This way, both parties are well familiar with their duties, responsibilities and rights, which makes the landscape of business partnership quite easy to navigate. All in all, it’s for the best that you let professionals write down this agreement and ensure that it is read and reviewed by a legal expert. 

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