When you decide to create a joint venture, you should set out the terms and conditions in a written agreement. This agreement may help prevent any misunderstandings once the venture is up and running.
Joint venture agreement: key clauses
A written joint venture agreement should outline the issues surrounding the formation of the joint venture, and the legal rights and obligations between the parties.
The joint venture agreement should cover:
- the structure of the venture, eg if it will be a separate business in its own right
- the name and objectives of the joint venture
- the term of the venture and any possible extensions to the duration
- the capital contributions you will each make, such as cash or property
- circumstances where withdrawal of capital may be permitted, with or without consent
- the assets or employees you may transfer to the joint venture
- ownership of intellectual property created by the joint venture
- management and control duties, eg responsibilities and processes both parties will have to follow
- the distribution of profits through dividends or cash payments
- the distribution of losses and liabilities
- how any disputes between the partners will be resolved
- an exit strategy for dissolution and liquidation of the joint venture - see more on ending a joint venture
You may also need to agree on other issues, such as:
- confidentiality - to protect any commercial secrets you disclose (see non-disclosure agreements)
- insurance - against loss where reasonable and especially if it is standard practice in the industry
- indemnification for both parties in the venture
Multi-party joint venture agreements
Multi-party joint ventures are generally very complex, particularly around corporate governance, supermajority requirements, dilution and exit rights.
Whether you are entering into a two-way joint venture or a multi-party agreement, it is essential to get independent legal expert advice before you take any final decisions on your joint venture. See how to choose and work with a solicitor.