PCI

 Joint Venture vs. Partnership Agreement

While a Joint Venture Agreement involves several business entities working together to reach a specific business goal, it is not a Partnership Agreement. A Partnership is a type of business entity with joint liabilities, whereas a Joint Venture is an agreement between different business entities.

Joint Venture Agreements are usually created for a specific goal and are temporary. If you have not yet formed a business entity and are not sure what type is best for you, see Choosing a Business Structure to help you figure out which business entity may suit your needs best.

Joint Venture (JV) Agreements basics

The agreements included in the Joint Undertaking document are designed to help outline the basic agreements and the purpose of the venture. Items for discussion:

• Duties of each member
• How profits will be shared
• How expenses will be managed
• How much each member will invest
• Whether you'll have a combined name
• What the purpose of the collaboration is
• Where your principal place of business will be
• The interest in the company each party will hold

Protection of proprietary information

Partners are privy to each other's proprietary business information including intellectual property, technology, and technology improvements.

Therefore, the JV document includes a confidentiality agreement to protect business information, it outlines how long confidences have to be kept, and which associates have to sign an approved Non-disclosure Agreement so as to extend the protection to include third-party entities.

Protection from debts and liabilities

This part of the agreement states that each joint venture partner is responsible for their own debt and obligations. If one member takes on debt or hires a service to fulfill their part of the agreement, and not pay their obligations, the other members cannot be held responsible for that debt.

Sale option to satisfy deadlock

If members reach a decision deadlock, there is a stock sales option in the contract. It states that other members can choose to buy the other's portion of the venture. The contract also states that no member can sell their portion to a third-party without consent from the other members.

 

Benefits of a Joint Venture

The best JVs benefit every business entity involved. The benefit may be revenue, brand exposure, access to resources, strategic expertise, manufacturing experience, and more.

Here are several more examples of why some companies may choose to form a Joint Venture:

• Similarly sized companies join for a specific event or single-product offering.
• A large company chooses to work with a smaller company to have access to their technology.
• A company with an established product or service may choose to work with a foreign company to help them break into a new market.
• A small company wants to work with a large company that has the resources to produce their product.
• Small companies want to combine resources to win a bid too large for them to fulfill on their own.
• Companies may decide to work together to share risk.
• Joint Venture agreements are often formed to combine markets to increase exposure.
• A company has more business than they can handle and may choose to enter a short-term agreement with another business to help serve their customers.

If you are considering a JV with another company, it is always a good idea to talk to a lawyer as part of your process.

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