Joint ventures (JVs) take work, commitment, and care in order to be successful. When creating a joint venture, it’s important that the partners agree upon what the intentions are for the business, how it will be run, and the profits each partner is entitled to. Taking the time to discuss and create a joint venture agreement is beneficial to both parties in the long run by acting as a reference point for any unforeseen problems that may arise, a preliminary pathway to achieving goals, and a way for the partners to verify they are remaining accountable for their duties.
Some areas to consider including in your JV agreement include:
Key Term Definitions
Define the key phrases and terms being used in the joint venture agreement. It’s possible that the parties define or interpret these terms differently. Clear definitions will help all members understand what is being negotiated and remain on the same page.
Purpose of Joint Venture
What is the main reason for initiating the joint venture? Be as detailed as possible about the purpose of this joint venture. This will influence all other aspects of the venture and help keep the partners aligned on what is necessary to achieve their goals. Clarity and agreement are essential.
Include the percentage of profits each partner will receive after all expenses and holdings are accounted for. The split depends on the value added by each partner and the equity ownership percentage agreed upon between the members.
Obligations and Duties
Define in detail what each partner is responsible for. It is key to include who will be accountable for each aspect of the company. It is normal for each partner to appeal to their strengths by managing the departments and offering services that they are most versed in. In a joint venture, there are typically financial, operational, marketing, and sales obligations. The key to having a successful joint venture is to be distinct on the value each partner is bringing to the table.
Joint ventures are typically structured as short-term agreements with a defined purpose, however, there are exceptions when considering the goals of the business. How and when the venture will be terminated helpful to create a smooth exit transition.
To set a joint venture up for success from the beginning, detail and care must be at the forefront of the agreement in order to ensure all aspects of the business have been discussed and agreed upon. Clarifying and specifying the goals, responsibilities, roles, ownership, and profits of the venture help the parties stay aligned and create a successful enterprise.