Overview
An agreement or transaction between buyers and suppliers constitutes a vertical joint venture. When bilateral trade is not advantageous or economically viable, it is typically preferred. In these joint ventures, suppliers typically reap the whole benefits while purchasers only see modest improvements.
Different stages of an industry chain are combined inside these projects in order to create more economies of scale. Vertical joint ventures often have a higher success rate and frequently improve the interaction between buyers and sellers, which eventually enables companies to provide clients better products and services at prices that are competitive.
Benefits of a Vertical Joint Venture
New insights and expertise:
Creating a joint venture provides an opportunity to learn new skills and insights. Consider how much easier it is for you to grasp the market now that you have a short-term relationship.
Better Resources:
You would have access to greater services through the creation of a joint venture, including knowledgeable staff and cutting-edge technology. You can now use all of the resources, including money, that you required for your project.
Both Parties Share the Risks and Costs:
When it comes to absorbing the costs of a joint project's failure, you are not on your own. You will both support the losses as well because you both agreed to split the expenses.
There are Ways to Exit:
A joint venture offers a creative way for companies to escape non-core businesses within the timeline of divestiture and consolidation.
You are More Likely to Succeed:
Your chances of success will increase, as you are already riding with a well-known brand. Your credibility will also greatly improve as a result of that.
You will Build Relationships and Networks:
Even if your partnership is for a specific reason only, this step will help you to establish long-lasting business relationships.
Your Potential will Virtually be Limitless:
Though you have little or no funds at your hands, more venture deals can be generated in the process. You'll be building momentum and bringing friends with you. Utilize it to the advantage!
Checklist Features of a Vertical Joint Venture
Vague objectives:
A vertical joint venture 's objectives are not 100 percent clear and are rarely clearly communicated to all involved persons.
Flexibility can be restricted:
There are times when a vertical joint venture limits flexibility. Participants need to focus on the joint venture when that happens, and their businesses will suffer in the process.
Great imbalance:
Because different parties work together, there is a huge imbalance of expertise, assets, and investment. This may harm the joint venture 's effectiveness.
Clash of cultures:
A cultural clash and management styles can lead to poor cooperation and integration. If left unchecked, people with different creeds, tastes, and preferences can get big time in the way.
Limited outside opportunities:
Vertical joint venture agreements are frequently used to restrict partner companies' outside business activities when working together on a venture project. Make sure you know what you are getting into if you don't want to ruin your entire business.
A lot of research and planning is necessary:
A vertical joint venture 's progress strongly depends on thorough investigation and analysis of the targets.
Lack of clear communication:
As a vertical joint venture involves different companies with different goals from different horizons, there is often a severe lack of inter partner communication.
Unreliable partners:
Owing to the different existence of a vertical joint venture, the partners can not devote 100 percent of their attention to the project and become ineffective.
Unclear and unrealistic objectives:
This can set ambitious and undefined targets. To avoid this, you and your partners need to do a great deal of research before starting your joint venture.
Particulars of preparing a Vertical Joint Venture Agreement:
Nature of the relationship:
The explanation of the nature of the relationship between the joint venture members—whether the parties have financial obligations to one another or whether their relationship is merely a contractual one in which the parties maintain an arm's length relationship—is one of the vertical joint venture agreement's most crucial functions.
Parties' contributions:
The parties' contributions to the arrangement will be described in the vertical joint venture agreement. This is done to make sure that each party is aware of their obligations under the undertaking and that they are all bound by it.
Sharing of profits, risks, and liability:
How expenditures, earnings, and responsibility should be allocated should be taken into account, particularly in light of the venture's structure. Choosing limitless liability for both parties or dividing the gains and duties in accordance with each party's ownership stakes.
Control Issue and Decision Making:
Vertical joint venture arrangements should include an overview of who will run the company and take care of its daily operations. It would also usually define different approval rates for various types of decisions.
Intellectual Property:
Vertical joint ventures will produce intellectual property of potential value to each of the joint venture parties and, to avoid the risk of one party attempting to take advantage of the intellectual property of the venture for its benefit, the joint venture agreement should explain who owns any new intellectual property created by the venture and to what extent the parties can use it.
Other Clauses.
The agreement will contain a range of other provisions and clauses, such as:
- The mechanism of selling the interests in the venture;
- Restriction on sale of shares;
- Buy-sell arrangement;
- Installation of Plant & Machinery;
- Maintenance Facilities;
- Tax Consideration;
- Dispute Resolution Mechanism;
- Exit Strategy;
- Confidentiality and non-competition clauses; and
- Clauses explaining to what extent the venturers are entitled to receive information, such as financial information, about the venture.
Steps to prepare Vertical Joint Venture Agreement with Vakilsearch:
- Step 1: Our platform connects you to highly rated lawyers.
- Step 2: The first draft will be shared with you in four days.
- Step 3: Two rounds of iterations at no extra cost.
Documents required:
Documents related to:
- Buyer details like
- a. Name,
- b. Company name,
- c. All the products which were going to be supplied.
- Seller or supplier details like
- a. Name
- b. Registered company a. name
- c. Trade Lica. ense
- d. Products involved in this transaction
- Memorandum of Association, etc.
Why Vakilsearch?
Vakilsearch is one of the best platforms with experts and lawyers from multiple fields who will help you through the process of forming a vertical joint venture. It is therefore conducive for you to seek the help of these experts and get the best results.
FAQs on Vertical Joint Venture
Confused about your next step?
Get guidance from our senior lawyers who can understand your situation and help you make an informed decision.
