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.
Simple Joint Venture Agreement Sample
The sample joint venture agreement below details an agreement between two vested parties. They agree to establish a joint venture for the purpose of developing and running a chain of stores.
2. Reasons to Form 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: