JV Agreements: What you should know
A joint venture agreement applies when two or more parties come together to do business as one entity. The parties each contribute equity, resources and other skills to the venture and they share the control, expenses and profit of the venture.
Application for business people
Many businesses may lack the capital or other resources to expand into a larger market. An effective way around this may be to join with another business in a joint venture.
Joint ventures may also enable businesses to join with a complimentary business in order to expand service offerings and therefore gain a larger customer base and greater profits for the participants. Sometimes, working together can achieve greater results than the two parties would be able to hope for separately.
As well as capital, each party brings a unique skill set to the joint venture which can assist with the overall success of the venture. The joint venture agreement sets out the rights and responsibilities of each party. It will also clarify how the profits of the venture will be divided between the participants. This is typically in proportion to the amount of capital that each contributed to the venture. A clear joint venture agreement is vital to reduce the likelihood of confusion and costly disputes between the parties.
6 key things to consider
Some of the key factors that you will need to consider before entering into a joint venture agreement include:
- Who will be responsible for the daily operations of the venture? Will it be one of the parties, or should an independent manager by appointed?
- Who are the parties to the agreement?
- What is the proportion of each party’s interest in the joint venture, and will their profit be proportional to their interest?
- Is there a fiduciary relationship between the parties?
- How are the assets of the joint venture owned? This is typically as tenants in common by the parties.
- What will happen if there is a dispute between the parties?
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Joe Kafrouni, Accredited Specialist in Business Law, Kafrouni Law
Disclaimer: This article is general information only and is not legal advice. Before acting on it, get advice on your own circumstances. To the extent the law allows, Kafrouni Law accepts no liability for any loss arising from reliance on it. This article is the copyright of Kafrouni Law.
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