A joint venture agreement is a partnership between two or more companies to undertake a business venture together. It forms its own corporation, limited liability company or partnership specifically for the joint venture. This allows the companies to have separate legal status while working together.
These joint venture agreements can be short term or long term depending on the nature of the agreement. While similar to a partnership, joint ventures are not partnerships because they involve companies instead of individuals.
When forming this type of agreement, it’s advised to consult with an attorney who specializes in drafting business contracts so that the terms are legally documented and your legal interests are protected throughout the partnership.
There are multiple reasons companies would want to form a joint venture. Many times it has to do with either company having something the other desires to advance their business. For example, two companies form a joint venture to produce a product – company A and company B. Company A specializes in hardware and company B specializes in software. The two work together through a joint venture to create a computerized device that makes use of each other’s expertise.
Another common joint venture is in real estate. Two or more companies may form a joint venture to handle the building of a new section of property. One may specialize in financing and the legal side of the property, while the others focus on the contractor work itself and managing the construction site. This allows all of the companies to make best use of their expertise while coming out ahead together.
Below are some additional examples of when a joint venture may be used:
Entering a foreign market – A foreign company looking to enter into a marketplace often looks to form a joint venture with a domestic company in that marketplace. This allows the foreign company to sell their goods and services while the domestic company handles the legal side, taxes, etc.
Combining resources – A smaller company lacking the clout in an industry and/or resources to pursue their business goals may look to form a joint venture with a company that does.
Saving money – Oftentimes one company specializes in an area of expertise that the other doesn’t. In this case it is financially wiser to form a joint venture to make use of each other’s expertise instead of going through the expense of acquiring all of the expertise themselves individually.
Joint ventures can vary in length depending on the complexity of the business partnership but these contracts are generally around 20 pages in length. Within these pages contain provisions such as identification of the partners, objectives, goals, role and responsibilities, etc. Here’s a PDF sample of a Joint Venture Agreement from the State of Michigan’s website. This example shows a partnership agreement between two healthcare companies.
Forming a joint venture normally involves the legal process of creating a memorandum of understanding, a joint venture agreement, sorting out any ancillary agreements, and obtaining regulatory approval. This protects all parties and spells out details such as profits and losses and how decisions are made regarding the joint venture. Below is a more specific listing of what is generally covered by a joint venture agreement:
Joint ventures are variable by nature due to the amount of parties involved and the purposes for setting it up. Because of this, it is strongly recommended to reach out to a business law attorney specializing in joint venture agreements to make sure all parties involved are protected and the agreement is properly set up.
At Hoeg Law, we assist companies and business owners with setting up partnership agreements and provide top quality legal guidance through these agreements. If you have questions about joint ventures or business partnerships, contact our law firm today.
