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A successful joint venture starts with the agreement

Clarity is a highly important element in the formation of a joint venture. The agreement you draw up must explain the intent of the JV and who it involves.

The language of the joint venture agreement is very important, as it will specify the activities the JV will engage in and those it will not pursue.

Forward thinking

When putting the joint venture together, the participants should think about the scope of the effort as well as the possible implications. Issues that may affect the JV include:

  • Liability
  • Tax structure
  • Regulatory concerns
  • Banking
  • Employment issues
  • Ownership of intellectual property
  • Exit strategy

Due diligence should, of course, be completed before launching the joint venture, and those findings can be beneficial in structuring the agreement.

A commercial collaboration

Although there are different formats, the traditional joint venture represents a commercial collaboration, whereby the participants pool resources with the anticipation of mutual gain. By doing so, the parties involved can leverage the capabilities of the entities as a whole, while continuing to remain independent of each another. Historically, the JV has served business purposes by combining resources and skills. The desired end result is an operation that runs smoothly and efficiently while putting an emphasis on expanding into new markets.

The well-drafted agreement

A joint venture agreement must be negotiated and drafted properly or serious business issues can arise. The JV agreement should contain the non-compete and confidentiality responsibilities for each party; for example, it must define the intellectual property belonging to each participant. 

Parties who have non-JV businesses must understand that conflicts could develop if they are part of other joint ventures with other partners. The JV must spell out terms of the agreement clearly in order to avoid any confusion. If one of the JV participants fails to meet any of the terms, he or she could be liable for damages. However, with properly laid groundwork, everyone involved in the JV can expect to benefit.

 

 

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