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Joint Venture Agreement

2 signers
1Company 1
2Company 2
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Joint venture agreements are partnership agreements between entities that have undertaken the same business venture together. Consequently, these companies can work separately legally while collaborating. The agreements are short and long-term, depending on the scope. While similar to business partnerships, joint ventures aren’t partnerships because it mainly focusses a business rather than a single person.
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Joint venture agreements are flexible and may be drafted as mergers or consolidations of companies of a certain size in specific projects. Using such a mechanism can improve efficiency and effectiveness in a business.

Following the description of joint venture contracts, they differ primarily from business partnership agreements because they are used to conduct a specific activity as identified by each separate business entity. Partnerships, meanwhile, provide for longer-term relationships.

In other cases, companies can set up a joint venture as an independent limited liability company (LLC) or corporation.

The joint venture agreement can be drafted as a shareholder or operating agreement in this scenario.

How Joint Venture Agreements Work

A joint venture agreement is a contractual consortium between parties. The parties usually seek together resources to meet an objective. The parties benefit through proportionate split profit and distributive venture revenues. In addition, contractual joint ventures exist only under written agreement.

Many companies want to start joint ventures. Often, this has to be related to one company wishing to improve its business interests. Say two companies form jointly for manufacturing a product – company A and company B. A specializes in hardware, and company B specializes in software. The two work together to design an electronic device using their expertise.

Another joint partnership involves property. A company with several members may form joint ventures to build new buildings. In addition, a joint venture may be used when a domestic company wants to enter a foreign market.

While the aim of joint ventures is usually to manufacture or embark on collaborative research projects, they can also be formed for continuing purposes. So no matter what the entire agreement is for, it should outline specific responsibilities, roles, and expectations from both parties, including detailing how profits will be distributed and any liability protection for the parties involved.

Critical Elements of a Joint Venture Agreement

The reasons to partner temporarily with other firms include expanding, launching new products, or entering new markets, particularly abroad. JV agreements are a standard method that blends industry expertise and other business skills from two otherwise unlinked firms.

The partnerships allow companies to scale up their resources for specific projects or aims while lowering the total cost and minimizing the risk associated with the process. In the end, trust is the most critical factor in evaluating when you have chosen a joint partner.

Below are the critical components of an agreement between the two parties embarking on a joint venture, whether it will be a new entity or if one party will take the lead. The main elements to include in a joint venture agreement are:

  • Purpose of the partnership
  • Roles and responsibilities of each party
  • Profit and loss distribution
  • Decision-making processes
  • Intellectual property ownership
  • Conflict resolution methods
  • Termination procedures

Make an effort to identify a business relationship that will boost your position in your marketplace. When deciding which is the best partner, develop a joint venture agreement with specific clauses tailored to your requirements.

Formation

A joint venture may operate under a specified name and have its registered address listed on the corresponding address. The term of the joint venture will begin on the date specified in the agreement.

Assignment

No party may assign or transfer any right or obligation hereunder without the approval or consent of the other party. Application of the above documents is null without prior permission. It is for the benefit and binding upon each party’s valid successor and assignees.

Responsibilities of parties

Each party has an appropriate set of responsibilities under the joint venture, which is expressly set out in the JV agreement. These responsibilities may include the procurement of specific materials or services, participation in decision-making and managing operations, confidential agreements, and capital contribution.

Termination

Both parties may terminate the joint venture agreement as soon as possible by delivering a written notice of termination within a set amount of days before the termination. No party may terminate the contract without mutually agreeing between parties.

FAQ About Joint Ventures and JV Agreements

Microsoft sold its stake in Caradigm in 2011 to General Electric (GE). The new company combined Microsoft’s healthcare intelligence product with many of the GE healthcare products already in production. Sony Ericsson was another famous example of a joint venture between two major firms.
Joint ventures are businesses where two or three partners agree to share the resources required to accomplish a specific project function—depending upon your needs, whether it is a current job or a new business activity. In this arrangement, each participant bears the cost and profit. However, the project operates independently of the other businesses of its owners.
A joint venture allows each party to have a resource for each participant without the need for excessive capital. The companies can maintain their identity and could quickly resume their business operation once the joint venture has been completed.
A joint venture is essentially split equally among parties. Generally, most corporations have a more significant influence over decisions and are paid an impressive share in partnership profits. However, it is not uncommon for joint ventures to be split differently, depending on the agreement between parties and their contributions to the venture.

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