Joint Ventures and Veteran-Owned Small Businesses
Posted by Gregory M. Rada | Guest Blog
A joint venture is an opportunity for your business to expand without all the expense and risk of doing that on its own. One or more other companies are working with you to exploit possibilities that you can’t or don’t want to handle on their own. An effective contract allows the parties to reap the benefits without risking too much if the venture doesn’t go as planned as a corporate transaction lawyer can attest.
What Is A Joint Venture?
Joint ventures involve two or more parties cooperating to undertake a project or business activity. What the joint venture does and how it does it is only limited by the parties’ willingness to do it, the effort they want to make, and the resources they want to use.
Joint ventures share resources, profits, and risks. Each party contributes something which does not need to be equal. It may be expertise, assets, or capital, and the venture has its own legal identity.
Joint ventures may involve entering a new market, sharing research and development, or leveraging each other’s strengths. They usually have a finite lifespan and or focus on a particular goal.
What Should Be In A Joint Venture Contract?
If you’re seriously discussing a joint venture, get your attorney involved — as our friends at Focus Law LA would advise. Depending on the nature and scope of your plans, if the language isn’t handled correctly, you could potentially lose your business if the joint venture doesn’t go well.
A joint venture is like a marriage, and the contract is like a prenuptial agreement. Who gets what, and who’s responsible for what if things go poorly? It’s not all doom and gloom, though. You also must consider who profits and how much if the venture is a success.
Some things to think about include the following:
- A joint venture could be based on an oral handshake deal, but that is a bad idea. A thoroughly negotiated and fully agreed upon written contract is the better option
- Identify the parties involved, including their legal names and addresses. A company owner may have different legal entities at their disposal. Make sure the right one is named so if the venture goes sideways and legal action results, you’re not naming an empty shell corporation without assets as a defendant
- Define the joint venture’s objectives and the specific project or business activity you’ll focus on. It’s wise to start with a narrow agreement, and if things go well, you can amend it to broaden the purpose
- Detail each party’s contributions, including financial investments, resources, technology, and expertise. Their obligations and commitments should also be included
- Specify the legal entity owning the joint venture and who owns how much of it. How that entity is run and how a party can leave should be subject to a written agreement
- Describe how the parties will share profits and losses
- State how long the joint venture will last and how the parties can agree to shorten or lengthen it
- One or all parties may share sensitive information and intellectual property to make the joint venture successful. There must be language protecting these assets and the party sharing them
- Specify each party’s liability and indemnification provisions. This can be especially important if the joint venture sells products or services that can injure others physically or financially. One way to handle this is to specify what insurance the joint venture will buy to protect itself and the parties. If you’re doing something that’s highly regulated, you should also state what happens if the venture is fined or punished in some way by a government entity
Don’t use a fill-in-the-blank joint venture contract. Work with your lawyer to create a custom contract that meets your needs.
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