A Joint Venture Agreement is a contract between two businesses or individuals who agree to work together to achieve a certain goal. A completed Joint Venture template should include details such as venture members, member responsibilities, venture goals, as well as the start and end date.
Unlike a partnership agreement, a joint venture only lasts until the end date outlined in the Joint Venture Agreement.
1. What is a Joint Venture Agreement?
A joint venture agreement is a contract between two or more parties who want to do business together for a period of time. Instead of creating a formal partnership or new legal entity, a contractual joint venture (“JV”) allows the parties to continue filing their tax returns separately yet still reap the financial advantages of a partnership such as sharing resources and risks.
A joint venture agreement will identify the following fundamental elements:
- Parties or Co-Venturers: the two entities that have agreed to work together.
- Contributions: how much money, property, or time each of the co-venturers will invest.
- Management: the person responsible for the day-to-day operations of the venture.
- Purpose: scope of JV activities and reason to join resources and collaborate.
- Profits: how profits will be distributed, either based on contributions or another formula.
- Term: whether the venture is for a limited time or indefinite period.
Here are some other useful details a joint venture agreement might include:
- Assignment: neither party may assign the venture
- Confidentiality: both parties agree to keep all proprietary information confidential
- Exclusivity: neither party is required to do business only with the other co-venturer
- Termination: the venture will end when a goal is accomplished or by a certain time
As a reference, people often refer to this document by other names:
- Consortium Agreement
- Cooperative Agreement
- Co-Venture Agreement
- Joint Undertaking
- JV Agreement
- Strategic Alliance
Joint ventures have a limited life and purpose, requiring less commitment than a more permanent type of partnership that imposes more responsibilities and obligations on each partner.
2. Why Start a Joint Venture?
If your business could benefit from sharing resources with another company, a joint venture for a limited period of time and limited purpose may increase your chances of succeeding. Companies often enter into JV Agreements in the following circumstances:
- Create strategic alliances to gain access to wider markets
- Develop new technologies, products, or services
- Expand business development through new networks
- Leverage one company’s brand and reputation to increase sales
- Lower research and development costs through collaboration
- Share expertise or relationships to penetrate new markets
Because most co-ventures in the United States are formed as LLCs, it’s likely you’ll need to understand how to form an LLC.
Unlike a formally organized partnership, co-ventures are not permanent and are often dissolved in these kinds of situations:
- One company buys the other business
- Market conditions change
- New goals developed
- Purpose has been fulfilled or not
- Shared goals no longer apply
- Time period for the business relationship has lapsed
The US Small Business Administration provides more information on co-venture agreements.
3. The Risks and Advantages of Forming a Joint Venture
Here are just a few of the benefits that can be leveraged when a co-venture is used:
- Larger companies can access new research materials from smaller companies
- Smaller companies can benefit from a larger company’s market presence
- Domestic companies can learn about the social reality of a local area from a foreign company
- Foreign companies can be exposed to new relationships and expertise from a domestic company
- Businesses can experiment outside of their core business to develop new product or service
- Companies can merge their wealth of expertise in a specific business area
Unfortunately, there are several risks involved in forming a JV:
- Unclear business objectives
- Miscommunication or misunderstandings due to differences in management styles or culture
- Asymmetric business relationship in which one side brings a disproportionate amount value than the other
- Delayed return or loss of investments
4. Joint Venture Agreement vs Partnership
Without a joint venture agreement, the law may assume your collaboration is actually a legally recognized partnership and apply the default state laws for tax and liability purposes.
Here are just a few of the differences between a venture and a partnership:
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5. Joint Venture Agreement Sample
The sample joint venture agreement below shows what a typical agreement looks like:
