When two people form a business, it may be called a partnership. When two companies join together, it’s called a joint venture. As you might imagine, the companies usually negotiate and agree on their responsibilities, tasks, obligations, and rights. All that negotiation should result in a joint venture agreement. If you are interested in forming a joint venture, here’s what you need to know about joint venture agreements.
Together for a Purpose
Joint ventures aren’t just formed on a whim. There’s at least one good reason the companies want to work together. Joint venture agreements set forth details about that purpose, like:
- The scope of the work;
- Each partner’s responsibilities;
- Initial contributions;
- Everyday operations of the joint venture; and
- How profits, if any, will be shared.
The complications involved with joining two companies are best set out in writing.
Framing Joint Venture Agreements
Choosing the joint venture’s business entity is one important decision. The legal structure chosen affects many other decisions. Technically, joint ventures could be considered a partnership, but the legal structure could be a limited liability company, corporation, partnership, or any other business structure that works.
Companies typically address the following issues in their joint venture agreements:
- State, federal, and international laws and regulations;
- Effect on each company’s current operations;
- Tax considerations;
- Confidentiality and non-disclosure of proprietary information;
- Non-compete agreements;
- Management of the joint venture;
- Financials;
- Penalties for breaching the agreement; and
- Methods for handling disagreements.
There’s another important factor to include in joint venture agreements.
Planning the End
Some companies form a joint venture for a limited time period. Whether the venture will be long-term or short-term, it’s essential to include sections relating to exit and termination procedures.
Joint venture agreements may include:
- Events that trigger the exit and termination process;
- Protections for the weaker partners;
- Rights of first offer and first refusal;
- Payment of the joint venture’s debts;
- Buy-sell agreements for the end of the venture; and
- Termination or dissolution procedures.
A well-drafted agreement could smooth the way for the joint venture and prevent major disagreements or litigation in the future.
The Most Important Fact About Joint Venture Agreements
If you create a joint venture, you need a comprehensive joint venture agreement.
Attorney Bruce Adams assists clients like you with their business concerns. Call us at 256-237-3339 to schedule an appointment. We are located in Anniston, Alabama, but help clients in surrounding Calhoun, Cleburne, Etowah, and St. Clair Counties.