Joint VentureLegal Advice

Ownership in Joint Venture Agreements

Read this article to learn what is a joint venture, the types of joint ventures, what is the working of a joint venture agreement, and what are its key elements.

What is a Joint Venture Agreement?

Joint venture agreements are two-party contractual consortiums. They will join the resources if both parties accomplish the such objective(s), enumerated and specified.  The benefit that each party gets is profits that are split proportionately and distributed ventures. We can also look at a joint venture agreement as a financial collaboration signed between existing companies so that a specific project can be fulfilled. A joint venture agreement comes into play to the commission for a specific period for a single activity.

Such an agreement is entered into by those organisations that lack the appropriate knowledge, assets, and tools to complete the specific project. So, they enter into collaboration with other companies to accomplish the task. This agreement no longer modifies the legal status of the organisations that have entered into the partnership. With a joint venture agreement, companies are legally bound; it lays down the scope for each company’s efforts, specifies the disparities, and defines the provisions for sharing operations of the enterprise as also the gains. 

Types of Joint Ventures

One can enter a joint venture by being ready to collaborate with a business in a defined and limited way. For example, there is a business with a new product to be sold, which will require a major distribution network. Here, the producer or the product could work with another organisation to accomplish the required result. 

One can even enter into a separate joint venture. It could be an entirely different company for taking care of the contract. This option is extremely flexible. Each partner can share the business and agree on the management aspects.

One can also decide to create a business partnership or merge two of the existing businesses.

When deciding which option to go with, one must first consider how much involvement one wants to keep in the management of the venture, if at all. 

Furthermore, one must also think about the outcome in case the venture fails and how much risk one is ready to take.

How Joint Venture Agreements Work

Rather than being restrictive, joint venture agreements tend to be accommodating and easily lend themselves to merging companies, no matter what their size, for specific projects. This enables the delivery of targeted outputs in an extremely effective and efficient way. With a contract in place, it is easy for all signing parties to have a clear idea of their limitations, responsibilities, and rights.

To know how joint venture agreements work, check out the steps given below. 

  • Stage 1: Seek out potential partners and discuss the opportunities with them
  • Stage 2: Seek legal advice from business lawyers
  • Stage 3: Select the Joint venture that is appropriate for accomplishing the task at hand
  • Stage 4: Create the first draft of the joint venture agreement
  • Stage 5: Deposit the taxes of the venture promptly and correctly
  • Stage 6: Ensure legal compliance at each step by seeking legal advice often
  • Stage 7: Modify or amend the joint venture agreement when needed.

Learn more about How Do You Set Up A Joint Venture?

Key Elements of a Joint Venture Agreement

The most important element of a joint venture agreement is to evaluate if the partner you are entering into a joint venture with is the right one for implementing the task.  This relationship must provide appropriate support and strength to your current market position. A joint venture agreement should be drafted, ensuring that specific elements and provisions are included. The elements that must necessarily be included are mentioned in the following list.

  • Type of joint venture
  • Applicable law
  • Appropriate allocation of profit & loss
  • Breaking deadlock
  • Business address
  • Change of control
  • Quorum composition for important decisions during a board meeting
  • Board of Directors’ composition
  • Confidentiality
  • Policy for dividend
  • Duties and obligations of all the parties
  • Fund employment in cash or kind
  • Board meeting venue and frequency
  • Frequency and venue of the general meeting
  • Indemnity
  • Jurisdiction for dispute resolution
  • Management Committee
  • Names & addresses of all the members
  • Non-compete and confidential agreements
  • Non-compete parameters
  • Percentage ownership assignment
  • The purpose for entering into the agreement
  • Requirement for formal meeting and voting
  • Prohibition/restriction on assignment
  • Pattern for shareholding
  • Notice and criteria for termination
  • Terms of joint venture agreement dissolution
  • Transfer of shares.

Besides the elements mentioned above, it is prudent to include them that you deem relevant.

Joint Venture Agreement Samples

Studying joint venture samples enables you to understand various joint venture perspectives and the elements you must build into your agreement based on the type of joint venture contract you are entering into.  Be warned that generally, any two business situations will not be similar, so the terms of one agreement might not completely match your requirement. 

Here is a partial sampling of a joint venture agreement. 

THIS JOINT VENTURE AGREEMENT is made and entered and effective as of April 2,  2022, between PEACHES and CREAM and BLUSH., a Mumbai corporation. PEACHES and CREAM and BLUSH are sometimes hereinafter severally referred to as a “Joint Venture” and collectively as “Joint Ventures.”

  1. Organization  For and in consideration of the mutual covenants contained in this Agreement, the Joint Ventures form, create and agree to associate themselves in a joint venture, referred to in this Agreement as the “Venture.”  Following the execution of this Agreement, the Joint Ventures shall execute or cause to be executed and file any documents and instruments with any appropriate authorities that may be necessary or appropriate to comply with all requirements for the formation and operation of a joint venture in the State of Maharashtra.
  2. Name:  The activities and business of the Venture shall be conducted under the name of “Arabian Sea Aarpan” in Mumbai and under any variations of this name that are necessary to comply with the laws of other states within which the venture may do business or make investments.
  3. Place of Business: The principal place of business of the venture shall be 12 B, Burra Road, Bandra West, Mumbai, Maharashtra. Other places of business may be located elsewhere.
  4. Address: The mailing address of the venture shall be 12 B, Burra Road, Bandra West, Mumbai, Maharashtra.

Other elements incorporated in the Agreement will generally be:

  • General Purposes of the Agreement
  • Term of the Venture
  • Capital Contributions of the Joint Venturers
  • Sharing Percentages of the Joint Venturers.

Conclusion

In conclusion, let us reiterate that it is important to understand that a joint venture agreement has to be made exactly appropriate for a specific joint venture.  So, it is best to do so with legal advice so that no loopholes or omissions will cause a problem in the future for any of the parties of the joint venture.  Of key importance is doing your due diligence before finalising a party for your joint venture. Ensure that the party you partner with will increase your market value rather than pull you down.

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