Joint Venture Agreement

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A Joint Venture Agreement is a contract between two businesses or individuals who agree to work together to achieve a certain goal. A completed Joint Venture template should include details such as venture members, member responsibilities, venture goals, as well as the start and end date.

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1. What is a Joint Venture Agreement?

A joint venture agreement is a contract between two or more parties who want to do business together for a period of time. Instead of creating a formal partnership or new legal entity, a contractual joint venture (“JV”) allows the parties to continue filing their tax returns separately yet still reap the financial advantages of a partnership such as sharing resources and risks.

A joint venture agreement will outline how much money, property and time each partner will invest into the project.

A joint venture agreement will identify the following fundamental elements:

  • Parties or Co-Venturers: the two entities that have agreed to work together.
  • Contributions: how much money, property, or time each of the co-venturers will invest.
  • Management: the person responsible for the day-to-day operations of the venture.
  • Purpose: scope of JV activities and reason to join resources and collaborate.
  • Profits: how profits will be distributed, either based on contributions or another formula.
  • Term: whether the venture is for a limited time or indefinite period.

Here are some other useful details a joint venture agreement might include:

  • Assignment: neither party may assign the venture
  • Confidentiality: both parties agree to keep all proprietary information confidential
  • Exclusivity: neither party is required to do business only with the other co-venturer
  • Termination: the venture will end when a goal is accomplished or by a certain time

As a reference, people often refer to this document by other names:

  • Consortium Agreement
  • Cooperative Agreement
  • Co-Venture Agreement
  • Joint Undertaking
  • JV Agreement
  • Strategic Alliance

Joint Venture Agreement Sample PDF

The sample joint venture agreement below details an agreement between ‘Annette J Luna’ and ‘Nicholas D Entrekin.’ Annette J Luna and Nicholas D Entrekin agree to establish a joint venture for the purpose of developing and running a chain of ice cream stores.

2. Reasons to Form a Joint Venture

A JV that is well executed may significantly boost the profits of each company

If your business could benefit from sharing resources with another company, a joint venture for a limited period of time and limited purpose may increase your chances of succeeding. Companies often enter into JV Agreements in the following circumstances:

  • Create strategic alliances to gain access to wider markets
  • Develop new technologies, products, or services
  • Expand business development through new networks
  • Leverage one company’s brand and reputation to increase sales
  • Lower research and development costs through collaboration
  • Share expertise or relationships to penetrate new markets

Unlike a formally organized partnership, co-ventures are not permanent and are often dissolved in these kinds of situations:

  • One company buys the other business
  • Market conditions change
  • New goals developed
  • Purpose has been fulfilled or not
  • Shared goals no longer apply
  • Time period for the business relationship has lapsed

3. The Risks and Advantages of Forming a Joint Venture

Here are just a few of the benefits that can be leveraged when a co-venture is used:

  • Larger companies can access new research materials from smaller companies
  • Smaller companies can benefit from a larger company’s market presence
  • Domestic companies can learn about social reality of local area from foreign company
  • Foreign companies can be exposed to new relationships and expertise from domestic company
  • Businesses can experiment outside of its core business to develop new product or service
  • Companies can merge their wealth of expertise in a specific business area

Unfortunately, there are several risks involved in forming a JV:

  • Unclear business objectives
  • Miscommunication or misunderstandings due to differences in management styles or culture
  • Asymmetric business relationship in which one side brings a disproportionate amount value than the other
  • Delayed return or loss of investments

4. Joint Venture Agreement vs Partnership

Without a joint venture agreement, the law may assume your collaboration is actually a legally recognized partnership and apply the default state laws for tax and liability purposes.

Here are just a few of the differences between a venture and a partnership:

Joint Venture

Partnership

  • Temporary basis
  • Permanent basis or indefinite period
  • Contractual relationship
  • New legal entity created
  • Limited scope and purpose
  • Broad scope and purpose
  • Individual tax returns
  • “Pass through” tax entity
  • Individual liability of each co-venturer
  • Limited fiduciary duty to the JV
  • Broad fiduciary duty to the partnership
  • Both co-venturers must sign contracts
  • Partners can sign contracts as agents
  • Custom ownership percentages
  • Default 50/50 ownership

Specificaties: Joint Venture Agreement

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