Since new business starts ups have become a big thing of late, we have noticed that many organisations are joining forces in a joint venture.
Joint ventures are different from a normal partnership or a Limited company. Knowing the difference and what is needed for both parties to be legally liable and compliant is important.
WHAT IS A JOINT VENTURE EXACTLY?
A joint venture pertains to two parties collaborating, bringing their own strengths and working together towards one goal.
Examples of such collaborations could be an accountant and a website designer joining forces to present a workshop. What about food subscription boxes? Have you noticed an increase in these since the pandemic took hold?
A food subscription box has the chef creating the menu and then collaborating with a packaging organisation to bring a really great product to the customer.
HOW DOES A JOINT VENTURE DIFFER FROM A PARTNERSHIP?
When you enter into a joint venture, it is usually a coming together of two organisations with complementary strengths for one particular project. A partnership on the other hand is two or more people entering into a business contract.
In a joint venture you will find that the two parties will split the profits less any costs involved.
JV AGREEMENTS – WHAT YOU SHOULD KNOW
Entering into such an agreement can be extremely beneficial to both parties. It also brings a different dimension to a business offering. Something which can be appealing to potential clients and customers.
However, it is very important that you have a proper JV Agreement in place before proceeding with any business related practices.
Things to have set out in your agreement should be the following:
- Nature of the business, as well as what will be expected from both parties. What will each party be expected to bring to the project?
- Duration of the joint venture
- Sharing of profits, risks and liabilities
- Intellectual property – This is a big one, and we have written an article about it and how to protect your IP. But the reason you should be aware of this one is because intellectual property will be created from the venture. It is good to know who will get to use the IP and in what capacity as the project continues
- Confidentiality clauses
- Disclaimers
- Clauses explaining the extent to which the JV parties will be entitled to receive information about the venture, such as financial information.
- Who will be the main project manager/decision maker?
- Termination clause
WHAT HAPPENS WHEN IT IS ALL OVER?
When the duration of the joint venture has expired, it can sometimes become a little vague as to what happens next.
Who can take what with them as they leave the project? To what extent can they use the intellectual property derived therefrom?
These are also all considerations that need to be placed in writing in the JV Agreement. Having a legal consultant oversee this process will benefit you greatly in the long run.
If the joint venture was very client based and client information was derived as a result, there needs to clear guidance as to what happens to that information. Can each party take information which they personally obtained? Can the information be used for future business undertakings?
Whatever the terms are when the joint venture project concludes need to be completely and wholly stipulated in the JV Agreement.
WHEN CAN A JOINT VENTURE BE A DISADVANTAGE?
As profitable and beneficial as a joint venture can be, just like with any business partnership, there can be disadvantages.
Here are some of the things that could go wrong:
- Communication between parties is unclear
- The parties involved in the JV want different things
- The level of expertise and investment do not match
How can you avoid these kinds of things happening? Simply put, having a proper Joint Venture Agreement legally drafted. This will ensure that everything that is necessary for a successful project partnership is included, and known by all parties involved.
Is a joint venture something you are now considering?
Let us help you. As legal consultants who have been in the business for many years and draft many legal documents, including Joint Venture Agreements. We can ensure that the legal side of things is taken care of while you take care of business.
