Smart business owners looking for opportunities to expand their streams of income will be on the lookout for opportunities that lead to growth and profitability. With some of the various growth strategies available,joint venture agreementsare worth considering if a company wants to obtain a tactical and strategic edge in the market.
Even though joint ventures are usually dealt with by large corporations with large economies of scale, they can be effectively used by small business owners if done under the right circumstances.
A joint venture can occur in many forms. By the widest definition, it can mean a strategic agreement made by two or more organizations to work together by combining a pool of resources to complete a specific project.
Engaging in joint ventures is not always a bed of roses. They can pose significant business risks to both parties in terms of liabilities and possible conflicts. As each party depends on the other in protecting their goodwill, it is vital for the joint venture to establish their obligated roles and responsibilities, and how they can collaborate to reach their goals. These elements are what mainly entails a joint venture agreement
A joint venture Agreement, also known as a co-venture agreement, is a temporary business arrangement involving two or more parties that decide to pool resources and achieve a specific goal.
Contrary to business entities such as partnerships or limited liability companies, a joint venture is just a temporary enterprise that brings together two or more established businesses willing to work together to complete a certain task. This could be a new project or typically any other business activity.
Usually, joint venture agreements are created for a limited period of time. They are created by simply committing to a contract laid out by another business or party, without the application of a formal state or federal filing.
Being that they are temporary associates, joint venture participants share risks and rewards. The venture is made to be its own entity but is separate from the business interests of other parties. Under a joint venture, the parties to the agreement contribute their resources, which are including but not limited to cash, capital, assets, personnel, facilities, physical equipment, property assets, or intellectual property such as patents, trademarks, or any other form of intellectual property.
Businesses form joint ventures for a variety of reasons. It could be to expand market share, launch new product developments, amongst other reasons. Although a joint venture shares similar characteristics with a partnership, which requires apartnership agreement, the major difference separating these two concepts is the time period dedicated to each. A joint venture pertains to a single business transaction conducted over a limited period of time. On the other hand, partnerships are established for long-term business relationships. Another similar and popular type of contract to take note of is ateaming agreement, which is a legally binding contract between two or more parties that is used to regulate the rights and obligations when pursuing a contract with a third party.
These strategic partnerships provide unique benefits to partners. Even as each participant is responsible for profits, losses, and operating costs, they prove to be quite beneficial to each party involved. Businesses can increase their resources, improve their capabilities and technical expertise, and penetrate new markets and distribution channels. However, sparking the right relationship can be difficult and might require meaningful time and effort.
Joint ventures can be formed according to the circumstances of each case, bringing businesses that have the intention of achieving a common goal together. With every type of joint venture undertaken, it presents a platform where businesses can analyze and assess their level of collaboration and open opportunities for future collaboration. There are 4 main types of joint ventures. They include:
Project joint ventures are the most common type of joint ventures undertaken. Bound by time and purpose, these joint ventures involve companies entering into agreements to achieve a certain task. Mainly, companies enter into project-based joint ventures to execute a specific project or offer a particular service together.
Functional joint ventures are dedicated to companies that come together to share their expertise and create a symbiotic environment that will help these companies benefit from each other's business functions.
Vertical joint ventures occur between businesses in the same supply chain. They are carried out when bilateral trading does not make financial sense. The terms of this joint venture result in suppliers reaching maximum gains while buyers reach limited gains. Ultimately, this arrangement helps solidify the relationship between the buyer and seller which sees quality products and services being produced to clients at reasonable prices.
Horizontal joint ventures occur when companies in the same general line of business transact with each other to sell to their customers or create a product that can be consumed by the same group of customers. Businesses that join forces and produce the same goods or services can open new markets in different geographical regions. A local company that has better expertise and has an established distribution network can go into a horizontal joint venture with a foreign company that has economies of scale.
Joint venture agreement templates are designed to provide all necessary information that explains the basic terms of the agreement. Business-in-a-Box provides manyjoint venture agreement templatesthat will help anyone interested to know what the entire agreement terms comprise of.
In a nutshell, a joint venture agreement should contain:
A concession is reached between two or more businesses and is bound together to pursue business and achieve a particular goal.
A joint venture agreement, also known as a co-venture agreement, involves business participants who share control over business assets and operation.
Businesses leverage a pool of resources and technical experience including capital, time, assets, experienced personnel, and technical know-how, which all contribute to large-scale production.
A joint venture contract must stipulate a provision based on the agreed ratio sharing of profit and loss. At the end of a venture, the parties share the computed financial and intangible profits and losses. In instances where the joint ventures continue to last for a significantly longer duration, the profit and losses are calculated annually.
When businesses enter joint ventures, they are exposed to new tactics of production, marketing techniques and new business experience, which reduces the overall cost while also improving quality.
When the joint venture achieves success, it comes a time to terminate the agreement by settling the accounts of the parties in a process called dissolution. The businesses have the liberty to conduct their own business unless otherwise stated in the joint venture agreement during the life of the joint venture.
The first section shows when the agreement was made and acts as proof of all members agreeing to join hands and form the legal entity. It also explains the definitions and interpretations of words and expressions throughout the joint venture agreement document.
This section is mandatory as it provides the name which the parties are involved in the agreement. The names should accompany a short description describing what the company is about, its operations and what it would provide in the joint venture.
The objectives of a joint venture should portray what your joint venture agreement is all about. A joint venture that does not have solid and clear objectives has already failed even before the initiative kicked off.
The contributions that each party makes are taken down for future reference. Contributions are a description of the form of capital, assets, or manpower that would be involved in achieving the goals of a joint venture.
The costs and expenses incurred by each party are usually reimbursed according to what the members agreed in the joint venture agreement. In this section, the sharing of profit and losses is completed at the end of the contract period and the closure of all the activities.
All joint venture agreement templates need to explain the management procedures and also provide solutions to any issues or problems which may arise throughout the joint venture.
This section of the Joint Venture Agreement template ensures the success of both parties will be arrived at after all parties agree on how to run the venture. The responsibilities and limitations provided to each partner define who will be in charge of a specific activity.
This section of the joint ventures agreement template guides the partners to engage in activities that are in accordance with the terms and conditions of the agreement.
This section of the joint ventures agreement template gives each member responsibilities to fulfil certain obligations as agreed in the contract with other members in accordance with the terms of the contract.
Here, upon completion of the project or early termination of the contract, each member is entitled to receive an amount equal to the one initially provided towards any funds that have not yet been expended.
In this section of the joint venture agreement template, the parties have to agree to keep secret all the information which are labelled as confidential information or is considered preferable to remain secret according to the joint venture agreement. This section guides the parties to not use sensitive information for any purpose except in a way that is acceptable in accordance with the agreement.
In this section of the joint ventures agreement template, members are awarded rights and obligations which control how they undertake business operations.
In this section of the joint venture agreement template, this Agreement shall be administered in accordance with the laws and jurisdiction of the area the business will be taking place.
This section of the joint venture agreement template provides power to allow the remaining provisions of this agreement to be in full effect if it has been held invalid, illegal, or unenforceable.
Here in this section, it enforces all notices, demands, requests, and other communications under the Joint Agreement to be done in writing and to be regarded duly given, unless purposely pointed out to the contrary in this agreement.
A joint venture agreement is needed when you decide to form a joint venture, including:
You may have innovative ideas for your business, and your company may have strong potential for growth, but a joint venture could seriously solidify the benefits even further. A joint venture agreement could give you:
It’s not difficult to end a joint venture if you addressed any key issues beforehand. A joint venture agreement can include termination conditions, and if so, these conditions would be followed when entering the termination period. Another alternative is to buy your partner out.
When you’re preparing your joint venture agreement, make sure to explain what will happen should the joint venture be terminated. Such information can include:
No matter how well prepared your agreement is, issues will still arise. Properly planning and negotiating these details in the agreement beforehand will allow for an amicable termination, where the parties can continue to trust each other, even after the agreement ends.
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