Thinking about a Joint Venture?

Some people might think that the term 'Joint Venture' is pretty self explanatory, but for those who don't agree, here's a quick run down on the key features:

  • you can joint venture with as many parties as you want
  • a joint venture has a specific limited purpose
  • usually has a limited time frame, either the end of the project or a specific date
  • doesn't make you automatically liable for the whole deal (which is different from a partnership)
  • defines each parties contributions and liabilities
  • can be amended and repeated

So, why do you need to think about before getting into a joint venture? The first and most important thing to decide is the purpose of the joint venture. If one person has a product and the other person has a marketing system and distribution list, the joint venture might be for the purpose of distributing as many items of product to the list as possible over a given period.

You can also joint venture for creation and production, which is what commonly happens in property development. One party might provide the property, another the plans and council approval, the builder might contribute the labour and materials and a division of profits is agreed based upon contributions made.

So, after deciding what the purpose is, then decide who is involved and what they agree to contribute to the venture. It is especially important to determine who is responsible for driving the project forward and chasing up deadlines for contributions. Its great collaborating, but someone needs to be accountable or things just won't get done.

Work out what the financial set up is going to be. The joint venture should have its own financial records, bank accounts etc and definately not be co-mingled with the business or personal details of any of the parties. What is required will depend on where you decide to base the joint venture.

Find out whether or not the joint venture needs a registered business number or any tax registration before you get started. Also be clear as to how the tax implications are to be dealt with in regard to each of the parties. Generally joint ventures are established so that each party to the venture is responsible for their own tax obligations based upon their expenses and earnings from the venture. Having this clear before you start is a lot easier than trying to work it out afterwards!

If you're going to produce something that has ownership rights, like a property development, a book, a website or even a software program, then before you start know who is going to own it at the end and what rights the other parties have to it. For example, the copyright in a book might be owned by one party, but one of the other parties might have permission to publish copies of the book as well.

Also think about confidentiality. What if you all come up with a great business process. Can you all continue to use that at the end of the venture? What about selling the process commercially if it is so great? What about any client lists that might be produced? Who gets to keep them and what are they allowed to do with them, or do they have to be destroyed?

Work out what happens when the venture comes to an end. Who takes what? Who is responsible for tidying up and closing off any legal or accounting reporting requirements? Who keeps any books or records produced?

So, you're quick checklist when thinking about putting together a joint venture could be as follows:

  1. WHY – purpose for getting together in the first place
  2. WHAT – everything you can think of that needs to be done for the venture to be successful and the party responsible for getting it done
  3. WHO – parties, who is driving the venture forward? who can sign agreements?
  4. WHEN – start, finish
  5. WHERE – is there a choice of office, country, base, bank
  6. HOW – responsibilities, liabilities, set up and tidy up

There aren't may contracts that are legally required to be in writing, but if you want to save time, money and angst in the long run, you are best to get your joint venture agreement in writing before you start. If you want more of an idea of how a JV agreement is put together, do some online searching and have a look at what other people have done. Be aware though, that copying someone else's agreement won't necessarily be the best way of achieving what you want to achieve. If you want to say money then by all means put something together yourself, but get it checked through by a lawyer to make sure it achieves what you want it to. Its not worth saving a couple of grand up front to lose a hundred grand at the end!  

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