Joint Ventures

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Explore:  Joint Venture

A joint venture is a contractual agreement joining together two or more parties for the purpose of executing a particular business undertaking. All parties agree to share in the profits and losses of the enterprise.

Although the definition of Joint Venture may seem very similar to that of a partnership, a partnership generally involves an ongoing, long term business relationship, whereas a Joint Venture is based on a single business transaction. The contracting parties would remain separate and distinct legal entities and, save and except for the activity conducted by the Joint Venture, would continue to carry on as separate business operations.

Joint Ventures are an effective way to share the strengths of the different partners while minimizing risks in the market place.

All Joint Ventures are initiated by parties entering into a contract or agreement outlining their mutual responsibilities and goals. The contract is crucial for avoiding trouble later. The parties must be specific about the intent of their Joint Ventures and must also be aware of its limitations. All Joint Ventures involve certain rights and liabilities. The parties have a mutual right to a controlled enterprise, a right to share in the profits and a duty to share in any losses incurred.

The following is a list of some matters to consider including in a Joint Venture Agreement. The list is not exhaustive, and anyone considering entering into a Joint Venture should discuss the matter with their lawyer before doing so.

  1. Joint venture formation and performance including obligations of the Joint Venturers.
  2. Percentage of participation in profits and losses.
  3. Control of the Joint Venture including how decisions will be made.
  4. How decisions of the Joint Venture will be implemented and who will have supervision over the work to be performed.
  5. Will the Joint Venture have its own employees or will Joint Venturers contribute project staff?
  6. Timing for payments, expenses, invoices and signing authorities for the Joint Venture.
  7. How is working capital to be provided and what happens if a Joint Venturer fails to contribute its share of working capital?
  8. How will insurance be obtained.
  9. Will any guarantees be required by the Joint Venturers and, if so, on what terms will such guarantees be given?
  10. What happens to the confidential information upon termination of the Joint Venture?
  11. Who will prepare the financial statements and maintain the books and records?
  12. What happens if a Joint Venturer is in default of its obligations?
  13. Are disputes arbitrated or are they litigated?
  14. What events will trigger the termination of the Joint Venture?