Joint Venture Agreement

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 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

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: