Are you planning to enter a joint venture? Have you been looking for a sample joint venture agreement? If yes, then your search ends here.
Joint venture is a common and popular method for business growth. Companies routinely join hands to collaborate on R&D, geographical expansion, product line expansion, sharing of technical, financial, or human resources, etc.
Read on below to learn more about joint venture agreements and begin this new leg of your journey by downloading our joint venture template for free.
What Is a Joint Venture Agreement?
A joint venture agreement is signed when two or more parties come together for a specific common project, generally with a defined timeline in mind. They are a great tool for business growth and expansion and can help companies benefit from the joint synergies.
It lays down the terms of exchange and limits the risks of both the parties and can be signed between individuals, businesses, or both. Parties entering a JV are also known as co-venturers.
Some commonly heard joint venture agreement examples are the deal between Google and Nasa to develop Google Earth, or that between Toyota and BMW to collaborate on fuel-cell and electric vehicle research.
How Many Types Does Joint Venture Agreement Have?
There are two basic types of joint venture agreements. Let’s understand them below.
A joint venture agreement that is designed like a general partnership has some important features. Both parties share the returns, whether profit or loss. Also, each of the partners is liable for the partnership’s obligations. Typically, such JVs happen in the real estate sector.
For a contractual JV the parties join hands to work together for some business project and the joint venture contract defines the terms and conditions of their working together. The partners’ business remains separate entities and their profits/losses don’t get pooled.
Why Does Business Need a Joint Venture Agreement?
JVs are a popular way to achieve growth in the business. Companies enter into JV for a variety of reasons:
- Common Goal: JV allows two parties with the same goal to pool common resources such as financial investments while also sharing the risks. They can also learn from each other’s technical knowledge.
- New Market Expansion: It is very common to sign a joint venture agreement with a local company when you are entering into an unknown foreign territory. This helps you better navigate the processes of that country and capitalize on your partner’s reach.
- Easier to Capture Market: Small companies often struggle with establishing the reputation for themselves even if they have an excellent product. With this agreement, they’ll get access to the big company’s wider distribution network while the other company will get a new revenue stream.
- Benefits From Synergy: JV can create a win-win situation for both the parties as they can combine their strengths. It can lead to a lowered cost of capital, improved operational efficiency, etc.
What Are the Benefits of Using a Joint Venture Agreement?
Parties come together to expand their market reach, erect barriers for competition, benefit from each other’s intellectual properties and expertise, etc. Whatever the common objective may be, joint ventures are no doubt an important vehicle for business growth.
A written joint venture agreement has several benefits:
- It is a formal document that clearly lists out each parties’ expectations from the JV.
- It brings out more commitment from both parties than a simple handshake deal would.
- While you can start working in a JV after simple oral agreement as well, it is practically not possible to have such a detailed and nuanced verbal deal
- When both parties deliberate on and sign the joint venture agreement doc, it removes scope for future confusion and tussle regarding details like sharing of profit and loss, decision-making process, etc.
- A JV agreement can guide how to resolve disputes if they arise in the future. If the opposite party reneges on the clauses, you can even take up the matter with the court.
What Are Included in a Joint Venture Agreement?
Any joint venture agreement will cover some basic points as outlined below:
- Parties coming together in the venture
- Details of the JV like its name, its exact purpose, address, etc.
- Duration of the venture period- both start and end date
- Location of the business
- Type of JV
- How much is the capital being contributed by each party towards this venture
- Obligations of both the members
- How expenses and revenues are to be distributed
- Expected meeting details
- How voting will be done to arrive at a decision
- Dispute resolution clause
- Non-compete clause
- Confidentiality clause
- Governing jurisdiction of this agreement
- Details pertaining to the management, interest assignment and termination of the JV
How is a Joint Venture Different from a Partnership?
Many people get confused between a joint venture and a partnership. We have clarified their differences below:
- Liability: In a JV, the member parties’ liability is limited to the issues directly related to the venture project. On the other hand, partners in a partnership deal share a wider liability for all the partnership’s debts.
- Scope & Timeline: A JV has a specific scope (like a defined project) and duration. But a partnership need not have a defined timeline.
- Treatment of Profit: In a JV, each member can manage the profits of the venture as per his wishes. In a partnership, both the partners jointly manage the realized profits.
- Tax Benefits: Tax treatment of a JV member is different from that of a partnership’s partner. In some jurisdictions, being in a JV can offer you tax benefits as well.
By now, you must be clearer about joint venture agreements. A JV not only spells out the various terms of the deal but also helps one deliberate over them.
If you are looking for a JV, CocoSign provides free samples for each user. It has been prepared by experts and covers all the essential information, thus giving you complete protection from any unfortunate circumstance in the future.
You can also explore our website for other agreement templates. We cover basically everything and have agreements related to real-estate, family-related matters, business, or finance.
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