Joint venture agreements

 

A joint venture agreement is a legally binding contractual agreement between two or more parties, either individuals or more commonly businesses, to work together.

They differ from mergers in that each party to the agreement retains an independent identity. The scope of the joint venture agreement thus defines and limits the areas of collaboration between the parties.

Why use a joint venture agreement?

Traditionally, parties wishing to collaborate on a specific project enter into joint venture agreements. This may be to:

  • Research and develop a new product
  • Enter into new markets previously unavailable to them, either because of geography or expertise

Joint venture agreements are used because they are flexible, allowing all parties to define and limit their exposure to a project, and to retain their individual identities. Responsibilities can then be allocated according to each individual’s strengths.

Joint venture agreements are not for everyone however. It can take considerable time and negotiation to find suitable partners that fit the business ethos of your organisation sufficiently to form a lasting partnership.

Drafting a joint venture agreement can be complex and expensive, so getting it right is of paramount importance. Joint venture agreements can go wrong, if the aims and objectives are not made clear at the outset, or if there is an imbalance in the inputs brought in to the joint venture, or the benefits taken from it.

How does it work?

A commercial lawyer will advise on the precise terms of the written agreement that underpins the joint venture, including:

  • The financial contributions of the parties
  • The ownership of assets, including intellectual property
  • How profits, losses and liabilities are to be shared
  • How management and control will be allocated
  • The broader objectives of the joint venture
  • How to deal with any disputes including termination of the joint venture agreement

The most common format for a joint venture agreement is the formation of a new company, jointly owned by the various parties to the joint venture agreement. This format allows:

  • The share capital to be split according to the amount of input each party will have into the project, thus ensuring a fair outcome
  • The parties to divide control of the venture appropriately from the outset

Ensuring that the new company is properly formed, and that its Articles of Association are properly drafted are particularly important for companies born from joint venture agreements. This is best achieved with help and legal advice from a company law solicitor with experience in the formation and drafting of joint venture agreements.

For further information on hiring a lawyer for your business, see our information page on commercial lawyers.

Are you thinking about entering into a joint venture agreement, or unsure what the best way forward for your business is? Contact Law can put you in touch with a specialist company and commercial solicitor, dealing with contractual matters. Please call us on 0800 1777 162 or complete the web-form above.

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