When two or more business entities arrange to work together on a commercial project for a specific period of time, they will often be advised to enter into a Joint Venture Agreement. This contractual document will govern the relationship between the businesses during the project.
Entering into a Joint Venture can be advantageous to businesses as it offers the opportunity to share and spread risk between two or more businesses, whilst often granting access to new markets and specialist knowledge or resources.
Benefits of a Joint Venture Agreement
- It sets out the objectives of the Joint Venture;
- It specifies the contributions of each party;
- It determines the obligations of each party; and
- It can specify the triggers for termination of the Joint Venture.
Where intellectual property rights will be created during the course of the Joint Venture, the agreement between the parties can specify how these rights will be managed. If the Joint Venture will make use of existing intellectual property rights from one or more of the businesses, provisions can be included to govern the ownership and use of such rights.
The Joint Venture Agreement may also include deadlock provisions which will set out the dispute resolution procedure to be followed in the event that agreement cannot be reached between the parties. This is a particularly useful consideration to avoid a disagreement causing the Joint Venture to terminate early, without the opportunity for reconciliation.
Disadvantages of a Joint Venture Agreement
Inevitably, entering into a Joint Venture Agreement with another business entity will require a degree of sacrifice in relation to the control and flexibility that each business enjoys when acting in its sole capacity.
All parties will need to carefully consider the objectives of their Joint Venture to ensure that they are clear and realistic to avoid problems arising. Commercial negotiation will also need to take place to ensure that all parties are agreeable to the contributions and obligations required by them under the Joint Venture Agreement. A successful Joint Venture requires clarity of understanding between the parties which the agreement aims to provide.
Our corporate team is able to advise on all aspects of creating a Joint Venture Agreement and guide you through the process. Please call for a free, no obligation consultation to discuss how we can help.
The content of this blog does not constitute legal advice and should not be considered to be the same. Should you wish to obtain formal advice in this matter, please contact a member of the Corporate/Commercial team on 0330 024 9643.