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What are joint venture agreements
What are joint venture agreements and how do they work
Joint Venture Agreements (JVAs) are a business arrangement where two or more parties can come together to collaborate on a certain project or business venture. JVAs can allow different companies to pool their resources, expertise and capital for a particular goal while still maintaining their separate legal identities. A joint venture could be a great solution for businesses looking to enter into new markets, share risks or combine strengths.
The structure of a JVA can vary greatly depending on its purpose. Whether for a short-term collaboration or for a long-term partnership, having a well-structured and robust JVA is essential. This is why access to legal advice is invaluable and can help ensure you fully understand the terms of the agreement and to avoid potential disputes.
Understanding the different types of joint ventures and their legal implications
The structure of the JVA can vary depending on the parties’ needs. The most common types of joint ventures are contractual joint ventures, where the parties agree to work on a contract together and corporate joint ventures, where a separate legal entity is formed which is usually a company.
Each type of joint venture will come with its own set of implications. A contractual joint venture will usually be simpler, relying on a legally binding agreement that outlines the responsibilities and contributions of each party. In contrast, a corporate joint venture will require additional consideration of company law, taxation and shareholder agreements due to the specific company being set up.
Given the importance of deciding on the right type/structure of venture, a solicitor is essential to guide you through the process. They can help ensure legal compliance, mitigate risks of unintended liability and avoid potential disputes from arising.
How to structure a joint venture agreements
A properly drafted JVA will outline the key terms of the agreement such as the purpose of the joint venture, the contributions of each party and how the joint venture company will be governed.
- Purpose: The JVA should outline the goals and scope of the agreement. Whether is a launch for a new product, market expansion or resource-sharing arrangement, the parties need to be clear on what they are trying to achieve.
- Contributions: The agreement needs to specify what each party will be contributing. Whether it is intellectual property, financial capital, technology or another resource. In drafting, a solicitor will need to ensure the contributions are well defined and the ownership and usage rights are well protected.
- Governance: One of the most important aspects of a JVA is the governance. The agreement will need to outline how decisions will be made, who has authority and the voting rights of the parties. For example, will all the decisions require unanimous consent or will one party have a stronger vote? A well-drafted governance structure is critical in ensuring the JVA operates without ambiguity.
- Profits and Losses: The division of profits and losses is another essential part of the agreement. Usually, this would be proportional to each party’s contribution but this can vary. A solicitor can help determine a fair and legally sound allocation that reflects the parties’ best interests.
Please note that when a joint venture company is formed, these decisions will need to be reflected in the company’s articles and formation documents.
How to protect your business from risks in a joint venture agreements
A joint venture won’t be without its risks. The nature of sharing responsibilities means that the parties may also be exposed to liabilities arising from the other party’s actions. Therefore, it is crucial that the JVA outlines how the risks will be shared, any indemnities and liabilities under the agreement.
Tax considerations will also play a significant role in the structuring of the JVA. For example, a JVA with a joint venture company may have different tax implications for the parties involved. It is therefore important that the JVA will be structured with tax efficiency in mind. Please note, here at WSP, we do not advise on taxation and would work in tandem with your accountant who could advise you on this.
How to end a joint venture agreements
Although joint ventures are incredibly useful, they do not have to be a permanent arrangement. In drafting a JVA, it is crucial to have a clear exit strategy outlined that allows the parties to end the agreement and avoid disputes.
Termination strategies could include having a buyout or a mechanism for ending the agreement if it no longer serves its intended purpose. The JVA should also contain what happens in the event of a breach of the agreement or dispute.
A well-drafted termination clause ensures all parties are clear on their rights and obligations when ending the JVA. A solicitor can help guide you through these considerations, ensuing the terms of termination are fair and legally binding.
How WSP Solicitors can help
A well-structured Joint Venture Agreement is essential for protecting your business interests, managing risks, and ensuring a smooth collaboration. At WSP Solicitors, our experienced team can guide you through the process, from drafting key terms to structuring a fair exit strategy.
Get in touch today to discuss your joint venture plans and ensure your agreement is legally sound. Contact us at contact@wspsolicitors.com or call us at 01453 847200. We have offices in Stroud and Gloucester, ready to assist you.
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