A joint venture is a specific type of business model where two or more like-minded parties pool their resources, expertise and finances to collaborate and work together on a specific venture towards a certain goal. Joint ventures are advantageous, but they are not without their complexities. Because two or more parties are involved that may not officially operate under the same business regulations as a business entity, there is a high potential for issues to arise. In addition, joint ventures in Canada are subject to the laws of the jurisdiction in which they operate, being regulated according to their activities and the form they take. This is where Joint Venture Agreements are extremely important. In this article, we discuss joint ventures, what a joint venture agreement is, why you should have one and general guidelines on what it should contain.
What are Joint Ventures?
In order to understand the importance of a joint venture agreement, it is important to understand them. Joint ventures, if carefully researched and planned, are great opportunities for the parties involved. They may be comprised of either an individual or entity (corporations, partnerships, trusts) or a combination of entities.
Some purposes behind joint ventures:
- Working towards developing new products
- Improving production methods
- Expanding the parties’ respective business offerings
- Increasing the business’ operations in other markets
Joint ventures are usually one-time projects that are completed within a limited time frame. Members of a joint venture will only share in the costs and resources of the project, and the profits are individually, not collectively, shared.
A couple of major examples you may have heard of in the news include the joint venture between Google and NASA that was instrumental in developing Google Earth and BMW and Toyota co-operating on further advancing electric vehicles. In both cases, both companies share their resources and expertise, but develop products that will be marketed and used by each party in different ways.
There are also different types of joint venture business models depending on what you plan to accomplish. Regardless of which type you decide to build with other parties, every joint venture should begin with a joint venture agreement.
What is a Joint Venture Agreement?
A Joint Venture Agreement is a contract of terms for all parties involved. Joint Venture Agreements are unique and specific to the members involved and do not need to be registered or filed. Like any agreement, it outlines the structure of the business, the project and the terms that will govern how the venture is run.
It is important to have your business relationship set out in a written legal agreement first in order to protect and define what happens before, during and after the joint venture accomplishes its goals. Because of this, it is advisable to seek legal counsel on what should be addressed in regards to requirements, regulations, industry standards and compliance.
What should be included in a Joint Venture Agreement?
There different types of joint ventures for different types of goals, each with their own varying degrees of advantages and disadvantages. Here are some general items that a typical Joint Venture Agreement should include or consider:
- Organization and Structure
- Management and operational control
- Financial and Resource Contributions of each member
- Restrictions on activities
- Confidentiality and Non-Disclosure
- Dispute Resolution
- Revenue and Expense Distribution
- Debts and Guarantees
- Terms on Future Income generated by the Joint Venture
- Ownership of Intellectual Property
- Exit Strategy and Termination
Drafting a detailed and thorough Joint Venture Agreement can play a major role in mitigating losses and risks to all parties.
Are you considering a joint venture with other companies? Make sure you have a Joint Venture Agreement that provides a plan of action for each major outcome or possible issue.
Consulting an OMQ lawyer on the best strategy and issues you should be addressing in your agreement is the very first step. For a free consultation, call us today. Our offices are located in Toronto, Oakville and London.