What is a joint venture agreement?
A joint venture agreement is a contract between two parties who agree to collaborate and cooperate to achieve a common business goal. This goal might be to sell a particular product or service.
The two parties could be separate companies working together or two independent entrepreneurs. By pooling their resources or sharing financial risks, they might give themselves a greater chance to meet an objective.
Types of joint venture agreements
The structure used for a joint venture will normally take one of the forms below.
Corporation
A corporation is a business owned by shareholders. The corporation, not the shareholders, is liable for business actions and finances. The day-to-day running of the business is overseen by a board of directors, who the shareholders have elected.
Under the Companies Act 2006, a corporation is usually a private limited liability company (these companies have ‘Ltd’ after their name).
Unlimited liability partnership
With an unlimited liability partnership, the business entity and the individuals who own the company are the same. This means if the company runs into financial difficulties, creditors can seize business owners’ personal assets.
This type of partnership is governed by the Partnership Act 1980.
Limited liability partnership (LLP)
Limited liability partnership (LLP) was introduced by the Limited Liability Partnerships Act 2000.
An LLP is a separate legal entity which means the personal assets of LLP members are safe from creditors if the company gets into financial difficulties.
With an LLP, there are no directors or shareholders. Instead, agreements are made between partners, who are called ‘members’. The designated members will be responsible for filing required documents, such as accounts, at Companies House.
Limited partnership (LP)
With a limited partnership (LP) there are two types of partners in the business: general partners and limited partners.
General partners have management control of the business, and they carry most of the responsibility.
Limited partners have limited responsibility and liability. That means they have less influence on the business's running and are not liable for any debts.
An LP is incorporated under the Limited Partnership Act 1907 (as amended).
Unincorporated, contractual arrangement
When two parties want to collaborate on a particular business project, they might enter into a contractual arrangement. The contract (often called a co-operation agreement) sets out the terms and conditions under which they agree to work together.
With contractual joint ventures, parties do not create a company or partnership to work together. They abide by the agreement and share profits and losses accordingly.
Why are joint venture agreements necessary?
Having a written joint venture agreement in place is the best way to protect your business interests.
If you just agree to the terms of a joint venture verbally with another party, it might later become apparent that you have interpreted the conversations differently. This could lead to disputes and costly litigation.
Any disputes can delay a service or product being delivered to a client, and a project could be cancelled altogether. The damage to business reputation that could result from this is unquantifiable.
Joint venture agreements include important details such as:
- The objectives both parties wish to achieve.
- The financial contributions each party will make towards the venture.
- Who will own any intellectual property created (IP).
- How profits and liabilities will be shared between parties.
- Who will manage which aspects of the venture.
- How disputes will be managed.
- The exit strategy.
An agreement can include much more than this. Whatever details it contains must be clear and tailored to protect your business interests.
How we can help
Here are some ways Parkinson Wright joint venture solicitors can assist you:
- Corporate, partnership and contractual joint venture structures. We can help you to decide which structure is right for your business and help you to set up your joint venture.
- Articles of association. These are written rules about running a company. We can draft or review articles of association to make sure your interests are protected.
- Shareholders’ agreements. Although you have a joint venture agreement in place, you may also need a shareholders’ agreement. A shareholders’ agreement can protect you from disputes that could arise from a joint venture.
- Contractual or co-operation agreement. This agreement sets out the contributions of both parties, how decisions will be made, an exit strategy and more. We can draft or review a contractual agreement.
- Due diligence. We assess the risks of your proposed joint venture. The process is the same as when buying a business.
- Funding. Your joint venture agreement will need to set out how the venture will be funded both now and in future.
- Minority protections. We will make sure the rights of minority parties are protected in a joint venture agreement. This could cover financial reporting, the right to be consented, liquidity rights, governance rights and more.
- Service level agreements. A service level agreement is a performance measuring tool that can measure the quality of the service or product. This type of agreement can be used in conjunction with the joint venture agreement.
- Advice on exits. It is vital that an exit strategy is well crafted in a joint venture agreement to make sure your business holds onto as much value as possible. The exit terms will include the length of the joint venture agreement, who owns intellectual property rights created, and whether ownership of shares can be transferred if the agreement is terminated early.
Who we help
At Parkinson Wright, our commercial solicitors assist businesses of all sizes, including solo entrepreneurs, start-up companies, growing businesses and large organisations.
Our commercial skills, knowledge and experience means we can create a joint venture agreement that safeguards your interests and enables your business to thrive.
We always make sure agreements are flexible so that your business can adapt to fluctuating economic conditions.
Why choose Parkinson Wright solicitors?
Parkinson Wright joint venture solicitors have the business law expertise to strongly protect your interests. We can work in partnership with you and other professionals to make sure a joint venture agreement meets your business objectives.
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Get in touch
We offer a Free Initial Assessment, so you can call us without charge or obligation to discuss how we can assist you with negotiating or drafting a joint venture agreement.
To arrange your Free Initial Assessment at a time convenient to you, please call 01905 401 893.