A joint venture agreement is a cooperative enterprise entered into by two or more business entities with the purpose of a specific project or other business activity
A joint venture agreement is for the mutual benefit of the parties. In other words, the main reason for a joint venture agreement is usually a specific project. A joint venture can take the form of an informal cooperation (which could be only a handshake) or of a formal cooperation (through an agreement) and they can be for long term or short term.
Also, the business entities entering into a joint venture have the possibility to create a distinct legal entity for this joint venture which could take the form of a corporation, limited liability company or partnership. Partners will agree on how to contribute the assets, equity share and manage the entity. On the other hand, the business entities entering into a joint venture also have the possibility to forego creating a distinct legal entity and to remain independent entities operating under the joint venture agreement. In this case, they share the management, profits, and losses proportionally to the percentage interest they specified in their contract (the joint venture agreement).
If parties agree to enter into a joint venture agreement, the agreement should include specific aspects such as the name of the two companies involved, their legal form, and the principal place of business. Also, the joint venture agreement can include the specific purpose of the joint venture, the resources to be used, such as capital, personnel, physical equipment, facilities, know-how or intellectual property.
Lastly, the joint venture agreement should include a termination clause, having in mind that not all the joint venture agreements will terminate at the conclusion of the project. When preparing a joint venture agreement parties should, first, understand what is a joint venture agreement, and, second, to be flexible and open to negotiations and listen to the other prospective partner’s opinions and ideas.
Through joint ventures the companies are provided with expertise that they did not have before and that are very costly to acquire in such a short time. By entering into a joint venture, parties exchange the expertise, know-how and trained personnel to be able to realize the specific project. Another great advantage is that, in case of a joint venture failure, both parties would lose less than they would have lost had they invested everything by themselves. Further, as stated already, parties basically start a new business without investing the entire capital by themselves.
Of course, joint ventures present risks as well. For instance, a local company can acquire experience and know-how from a bigger company and after the termination of the joint venture, the local company can become a possible competitor for the larger company. Also, some of the joint ventures may require a longer time of formation and adaptation, having in mind the different cultures and the different speed of integration of all of the companies involved.
Business lawyers specialized in Joint Venture agreements