A joint venture is a formal relationship where two or more companies join together in order to take part in an activity.There are two ways to start a joint venture.A third and separate legal entity can be set up by you and the partner company.If you and the partner company form a separate corporation, you can conduct the joint venture's business through that new entity.Learn how to form a corporation if you are interested in this option.A joint venture agreement can be entered by you and the partner company.The terms of the joint venture would be set in a contract between you and the other company.When the joint venture is large and complex, you want an agreement to set forth the requirements of both parties.
Step 1: Understand your needs with a partner.
When your partner has the ability to do something you don't, a joint venture can be beneficial.You must be able to bring something to the table that your partner doesn't have.Assessing what you need in a partner is the first thing you should do when considering a joint venture.You don't have the resources to bring a new technology to the market.If this is the case, you should look for a partner with a strong presence in your market so they can help you sell, promote, and distribute your product.You might have started a new brewery, but you don't have the distribution connections to get your beer into stores.If you want to launch new alcoholic beverages into a nationwide market, you need a partner with experience.Your partner may be able to help you find distributors with connections to large retail stores.
Step 2: It's important to find a good fit.
You need to identify companies that are a good fit after you understand what you need from a partner.Both partners will need to gain something of value if your business and a partner company are to work well together.Learning about the core values of a potential partner is important when reaching out to them.If the partner is financially secure enough to enter into a partnership, if the corporate cultures of each company meshes, and if you can trust the potential partner, then ask.It is unlikely that you will be able to make decisions and work together if you don't have a good fit with your partner.
Step 3: The scope and purpose of the joint venture should be identified.
You will need to begin planning a joint venture relationship once you find a partner that shares your values and can help you meet your needs.Define the scope and purpose of your joint venture is the first thing you should do.The scope and purpose of the joint venture should be given by you and the other business.These initial identifications may touch on other issues that need to be discussed later.Think about them now and you will be able to figure out what type of work will need to be done in the future.Whether a joint venture might create conflicts with existing business partners, and how to avoid them, should be considered by you and your potential partner.
Step 4: Determine how a joint venture will affect your business.
Before entering into a joint venture, you need to consider how a relationship might affect your business.It might not be a good idea to enter into a joint venture if it will affect your operations negatively.What areas of your business will no longer have access to capital or assets due to the joint venture, are just a few considerations you will have to take account of.Will employees be taken away from their usual duties so they can help with the joint venture?In order to implement the joint venture, will you have to get third party approval?Will your business have to be restructured to make room for the joint venture?
Step 5: Prepare inside.
Before you enter into a joint venture, your partner will want to know all about your business to make sure they are making a good decision.You will want to make sure the relationship works out for you.You and your partner will have to prepare to exchange important information in order to learn about each other.Pick out every facet of your business that will be involved in the joint venture.To make sure necessary information can be transmitted between you and your partner's business, put a process in place.It is important that your partner has access to the information they need to make an informed decision.You should ask your partner to do the same internal planning.If your partner is unwilling to work with you before the joint venture agreement is signed, the relationship will not work after that.
Step 6: A confidentiality agreement can be drafted.
You and your partner need to sign a confidentiality agreement before any confidential information is exchanged.A confidentiality agreement is a legal contract between you and your partner.What information is considered confidential will be set forth.The agreement will define how confidential information can be returned to its owner.This type of agreement will prevent sensitive business information from being disseminated outside of the joint venture.A lot of sensitive information is being passed between businesses and you want to do everything you can to make sure it doesn't get leaked.
Step 7: A letter of intent can be executed.
One party should offer up a letter of intent if you and your partner are happy with the discussions.The LOI acts as an agreement to agree on the preliminary terms of the joint venture.Before negotiations get under way, the LOI has to be signed.Depending on the wishes of the other party, the LOI can either be binding or non-binding.A non-binding LOI lays out the joint venture with a promise to negotiate.Rules of negotiation can be created if an LOI is binding.
Step 8: An introduction section is what you should start with.
Readers should be provided with a factual background of the agreement in the introductory section.The section is usually formatted with a series of whereas sentences that give context to the joint venture.Unless the agreement explicitly states otherwise, the introductions are not binding.The agreement should be introduced in this section.An introductory section might state that Party A and Party B want to enter into a joint venture in order to define their roles and responsibilities.
Step 9: It is important to give important definitions.
A list of defined terms should be in your agreement after the introduction.There are definitions within your agreement.A convoluted and confusing contract can be created by not defining ordinary or immaterial words.Do not define an airplane as a hot air balloon in a way that conflicts with its ordinary meaning.You can define Intellectual property Debt Liabilities Initial contributions in joint venture agreements.
Step 10: The objectives of the joint venture need to be stated.
The objectives of the joint venture should be included in the first substantive provisions.The scope and purpose of the agreement will be defined by these provisions.Your business objectives might state that Party A enters into this agreement in order to maximize the national distribution of their new beer Happy DuckIPA.In order to share in the profits of Happy DuckIPA, Party B entered into this agreement.
Step 11: Explain the governance structure of the joint venture.
Every joint venture needs to be managed in a way that is agreed to by both parties.The way in which the joint venture will be governed needs to be clearly laid out in the agreement.Board of directors, managing boards, and business representatives are included in common governance schemes.Regardless of how you choose to run the joint venture, you need to discuss how the management team will be chosen.
Step 12: What will be contributed by each party?
A binding agreement can be reached if each party contributes something of value to the joint venture.Depending on your business's strengths and weaknesses, you or your partner will make contributions.You need to create detailed provisions stating exactly what each party is putting into the joint venture.If your business is being utilized for intellectual property, information technology, and distribution contracts, you will need to include this in the agreement.Your contribution provision may state that "Party A is contributing all of their intellectual property, existing distribution contracts, and IT Team to the joint venture."If the other business contributes a single invention and cash, this also needs to be included."Party B is contributing Invention X and $250,000 cash to the joint venture" is the second part of your contribution provision.
Step 13: How profits, losses, and liabilities are shared will be determined.
You and your partner may not share the same profits, losses, and liabilities.Most of the time, profits and losses will be shared in proportion to each party's contribution.Suppose you enter a simple joint venture agreement where Party A contributes $750,000 and Party B contributes $250,000.Party A will usually take 75% of the profits, while Party B will take 25%.Both Party A and Party B will take responsibility for 75% of the losses.The party offering the service will usually take on the Liabilities.If Party A entered into a distribution contract before entering into the joint venture agreement, they will take responsibility for any liability stemming from that agreement.Both parties will take on liability equally in your joint venture agreement.
Step 14: There should be provisions for dispute resolution.
The process by which disputes can be resolved needs to be laid out in your contract.The simplest disagreements could lead to a failed joint venture.Common dispute resolution provisions state that mediation or negotiations should be the first step.It's important that both parties negotiate in good faith.binding or non-binding should be followed by mediation.The laws that will apply, how many arbitrators will hear your dispute, and how the costs will be split are some of the things you should reference.It should be a last resort.
Step 15: There are exit and termination procedures.
There is a beginning and an end to every joint venture.It will also need to discuss how the relationship will end.Your joint venture agreement can be terminated in a number of ways.You can say that your agreement will end on a certain date.When profits reach a certain dollar amount, or the creation of a business, you can state that your agreement will automatically end.The agreement could be terminated automatically when one party violates it.When one party is stronger than the other, exit procedures will usually be included.If certain events occur, the weaker party will want a way out of the agreement.In order to take effect, exit procedures must be exercised.
Step 16: The boilerplate language should be included.
As opposed to your specific joint venture agreement, standardized language will be used to conclude your agreement.Courts will be able to resolve disputes with these provisions.Attorneys' fees provisions are common.
Step 17: Discuss disagreements.
Send your draft of the joint venture agreement to your partner so that they can read it.Your partner may disagree with you on some provisions and may want clarifications in certain places.Make any changes you feel are fair after having an open discussion about the document.The joint venture's governance structure is one of the most controversial sections.
Step 18: Exhibits should be prepared.
Attach any necessary exhibits before the final agreement is signed once an acceptable agreement has been reached.Exhibits can help explain certain parts of the contract.Common exhibits in a joint venture agreement are financial statements, intellectual property plans, nondisclosure agreements, and other supplemental contracts.
Step 19: The agreement needs to be signed.
The joint venture agreement needs to be signed by both parties.Whoever signs the contract on behalf of both businesses has the authority to do so.The contract will become binding once it is signed by both parties.