A joint venture is sharing the ideas, talent or resources with other individuals to gain a business goal which would have been impossible entirely on its own. And if you need to understand how the agreement for the tender should be created, here are some efficient tips on the same.
At times, we end up coming up with some creative idea which probably needs extra finance, good sources and contacts. Probably, you have great talent but not the source to reach out to the people. That is when you can look for a partner who has got all these things to help you reach out to the right platform.
Together you can create a good profit and have a better business cultivated. But for this, you need to create an agreement in which all the crucial rules and regulations are well stated. And that is when you are entering a joint venture agreement.
What is a Joint Venture Agreement?
A joint venture agreement is one kind of legal binding in which you can share ideas, and talent or achieve your business plan which would have otherwise been not possible. The solicitors of the joint venture state that you can get certain unusual pairings in the joint venture like creative and tech industry businessmen or even the startups and market leaders.
It takes some imagination and also the business acumen to understand the business idea’s potentiality and then further convert it into a joint venture.
Purpose of the joint venture agreement
If you have a similar business idea as the joint venture partner then you have also a question on why it is important to create a formal joint venture document. But if there is no written agreement you are then increasing the risk and if anything goes wrong then you may fall out with your business partner. But if you have a joint venture agreement for tender written by the lawyer then at least the commercial litigation risk reduces.
There could be verbal joint venture agreements which can hold value but indeed those are risky. If you want to establish a joint venture agreement in the verbal form then you must have a:
- Common understanding like capital or asset
- A common interest
- Control of the joint venture
If none of these is in your favour then you are taking a huge risk as there will not be any kind of evidence that tells what your intention was. Rather the court will give the other party the fair verdict which of course would be against your favour. That is why you should get your joint venture agreement written down properly.
Types of Joint Venture Agreements
This is a contractual consortium amongst two parties who look forward to joining the resources for achieving a certain objective. The party gets the benefit by receiving split profits done proportionally and then further distributing the venture. A joint venture agreement is of two types
- Type 1. Contractual: This type of joint venture extends at the sole level using a written contract
- Type 2. Separate legal entity: This type of joint venture is created using a limited liability company. The individual needs to put the joint venture agreement in writing for protecting the rights in case any dispute in the future happens
Learn more about Different Types of Joint Ventures
How to Seal the Deal with a Successful Joint Venture?
There is a process that you should follow systematically so that when entering a joint venture agreement for tender, you can seal the deal in the right manner.
- Know the business opportunity: Understand if doing the business with a partner is advised or if doing it all alone can be the right thing. Understand if the joint venture is the first step to a merger or creating a formal partnership using a third party. Such long-term considerations can have a huge impact on the overall structure of the joint venture.
- Non Disclosure Agreement: This needs to be provided so that you are being transparent with the other party about all the information that is needed. Make sure you ask for the same from the other party in which all your queries are solved.
- The mechanics: This needs to have a systematic understanding and clarity on creating the joint venture work with another party especially when it comes to assets transfer, IP or even the employees to be transferred joint venture structure
- The joint venture agreement: Once the legal advice and tax are taken, the associated paperwork should be drawn up. There need to be other documents that must also be included such as shareholder agreements, partnership agreements and articles of association to name a few.
- Exclusivity agreement: This type of agreement needs to be prepared with the intention that neither you nor your venture partner would agree to get an opportunity elsewhere while the agreement is still active. It holds a great importance too.
- The joint venture structure: The structure of the joint venture would state the objectives and considerations like whether there is a regulatory issue or the cross border element or any kind of regulatory issues
Crucial Elements of a Joint Venture Agreement
The most crucial element of the joint venture agreement is to understand if the selected partner is the right fit for the company. You can ask if the relationship truly would strengthen your position in the market. Once the decision on the partnership is made, you need to move the relationship forward by actually drafting the agreement of the joint venture which consists of certain provisions.
Checklist for Elements of a Joint Venture Agreement
- Joint venture types
- Names and addresses of members
- Voting and formal meeting requirements
- Profit or loss allocation
- Business address
- Purpose of the agreement
- Non-compete and confidentiality agreements
- Duties and obligations
- Assignment of percentage ownership
- Dissolution terms
- Joint Ventures and Taxation
You need to keep in mind that joint ventures are taxed like partnership business entities, LLCs or corporations. If the Joint venture is taxed like a corporation business formation then chances are high that double taxation on corporate profits or shareholder profits can occur. On the contrary to this, the joint ventures are also not recognised by the IRS as taxable entities. As such the joint venture agreement establishes how the tax needs to be paid.
To ensure that your joint venture agreement for tender successfully happens, the above steps can help you. Also, you must speak with business lawyers like Vakilsearch who can offer the right help with regards to drafting and exciting the right documents to avoid any legal mistakes.
- Main Characteristics of a Joint Venture
- Benefits of Using Joint Venture Agreement
- How to Cancel a Joint Venture Agreement?