A joint venture (JV) is an arrangement between two or more entities to unite their skills and resources to achieve a common goal while sharing the associated profits, losses, risks, rewards. Each member in a JV agreement maintains control over and contributes to the business venture. Intent to participate in the joint venture is stated by the parties in a written joint venture agreement.
Joint Venture Entities
There are various kinds of business structures that are recognized by the law as a legal entity. This includes an individual person or business, corporation, partnership, limited liability partnership, joint venture, or any other form of business organization. Any of these entities may start a joint venture partnership.
A JV is typically created between entities for a single purpose or goal. The life of a venture has a duration that is specified in the joint venture agreement. If it is not explicitly stated, the joint venture exists until the goal is achieved or is no longer possible due to likely legal or financial issues.
The entities own the joint venture until it is legally expired or is terminated early. During the life of the JV, all involved entities hold potential liability to third parties that become associated with the venture. It is possible for the other JV partners to be implicated in a lawsuit begun by the third party for injury or damages is caused by one of the owning members. The joint venture agreement should state actionable clauses pertaining to scenarios involving potential liability issues. Agreed-upon risk management or mitigation methods will benefit all parties involved and create a less stressful experience should implication occur.
The purpose of a joint venture agreement is to clearly state the scope of the JV, as well as what each entity has control over and what actions are permitted or prohibited. The Jv agreement will define the division ownership between the entities, how profits and expenses will be split, and each entity’s contributions. Structures in place for early termination of the joint venture will benefit the parties in the long-term. Knowing the degree of confidentiality to kept, ownership of intellectual property, and non-competition agreements must be explicitly agreed upon by the parties.
The Bottom Line
The parties involved in a joint venture agreement should weigh the advantages and disadvantages before collaborating resources with the goal of mutual gain. Any and all information and actions to be taken during the lifespan of the venture should be clearly stated in the joint venture agreement to ensure the success of the partnership.