There are different types of joint ventures. How you set up a joint venture depends on what your business is trying to achieve. The most common types of joint venture are:
1. Limited co-operation
This is when you agree to collaborate with another business in a limited and specific way. For example, a small business with an exciting new product might want to sell it through a larger company's distribution network. The two partners agree a contract setting out the terms and conditions of how this would work.
2. Separate joint venture business
This is when you set up a separate joint venture business, possibly a new company, to handle a particular contract. A joint venture company like this can be a very flexible option. The partners each own shares in the company and agree how they should manage it.
3. Business partnerships
In some cases, a limited company may not be the right choice. Instead, you could form a business partnership or a limited liability partnership. You could even merge the two businesses. See legal structures: the basics.
Choosing the right type of joint venture
When deciding what form of joint venture is best for you, you should consider if you want to be involved in managing it. Think through what might happen if the venture goes wrong and how much risk you want to accept. You should carry out due diligence when choosing the right joint venture partner.
You will need a clear legal agreement setting out how the joint venture will work and how you will share any income. Find out how to create a joint venture agreement.
Protecting your business in a joint venture
It's worth taking legal advice to help identify your best option. The way you set up your joint venture affects how you run it and how any profits are shared and taxed. It also affects your liability if the venture goes wrong.
Typically, each party will have to sign a confidentiality or a non-disclosure agreement. You may also want to consider signing a memorandum of understanding early on in the negotiations. This represents a commitment to the deal and agreement in principle on the main points.
Changing your business model into a joint venture, or changing into a different type of venture, can be a challenging process. It is important to fully consider all of the joint venture advantages and disadvantages.