You have to make a joint venture agreement template when your business begins a project and there would be a requirement for a strategic alliance with a person or a team in order to complete it. This agreement makes everything clear to both parties involved.
Moreover, a joint venture would only valid when the project is ongoing not like a partnership that would last longer or even permanently. The joint venture would come to an end as soon as soon as the project is completed.
Table of Contents
- 1 What is a joint venture agreement?
- 2 What are the different types of joint ventures?
- 3 Essential elements of a joint venture agreement template:
- 4 How do you make your own joint venture agreement?
- 5 How to plan your joint venture agreement?
- 5.1 Identifying why you require a joint venture
- 5.2 Building the aims of your joint venture
- 5.3 For your joint venture, find out potential partners
- 5.4 Establishing relationships with other companies
- 5.5 Identify whether a selected company fits good with your own company and with the objective of the joint venture
- 5.6 Draft a nondisclosure agreement
- 5.7 Come up with a letter of intent
- 6 Reasons for starting a joint venture:
- 7 The advantages of having a joint venture agreement:
- 8 Conclusion:
What is a joint venture agreement?
A joint venture agreement is a temporary agreement between two or more parties who grouped together to attain a beneficial goal for a period of time. This agreement allows them to combine resources, information, and personnel to get the financial advantages of the agreement. Individuals, companies, and large corporations are involved in the agreement.
Furthermore, sometimes it is difficult for the parties to reach their aim separately. That’s why, they combine mutually in order to cover their weaknesses and attain their goals. A joint venture also includes the following useful details;
- Parties or co-ventures (it includes all the parties that are involved in building the new venture)
- Location of the business (mention the location for co-venture)
- Contributions (specify each party responsibilities to contribute in terms of money, property, and resources)
- Management (the instructions that should be followed for daily operations of the venture)
- Purpose (indicate the purpose for joining resources and collaborate)
- Profits (provide clear guidelines on sharing profits and the method or formula use to identify the profit-sharing ratio)
- Assignment (don’t provide access to any party to assign or transfer their responsibilities)
- Term (indicate the time period of venture)
- Confidentiality (it is the responsibility of both parties to keep each other’s information confidential)
- Exclusivity (the parties are allowed to do business with other entities aside from their partners)
- Termination (under which scenarios the venture will end)
What are the different types of joint ventures?
There is a variety of joint venture agreements that businesses can create. You can use them on the basis of the goal that you want to achieve. Also, it is important that both parties have to be agreed upon by the joint venture so that they achieve the same objective for their own benefit. There are mainly two different types of joint ventures;
Contractual joint venture
Separate parties mutually combine in a contractual joint venture to attain a specific goal. Their main purpose behind becoming combined entity is to carry out their project. This type of joint venture agreement mainly covers the following details;
- The responsibilities of all parties
- Financial contributions
- Personnel involvement
- Other necessary details
In this type of joint venture, the involved parties are agreed to share profits and losses. It proves very beneficial due to its less expensive nature as setting up a corporation or LLC is very costly.
Essential elements of a joint venture agreement template:
Here are the most essential elements of a joint venture agreement;
- At first, you have to name the parties that are involved in the agreement. The names should have the short description regarding the following;
1- What the company is about
2- How it operates
3- What it would be taking to the table
- The agreement should contain the objective of the joint venture. Your joint agreement won’t have much bearing without clear objectives and purposes. This is the most essential part of the agreement.
- The contributions that each party involved in the agreement will make to the joint venture. These contributions can come in the form of funding and assets. Furthermore, even it can come in the form employees who would be working to get the goals of the joint venture.
- Any intellectual property that will be developed by one of the party involved in the agreement.
- Daily agreement procedures and solutions to issues or problems that may occur throughout the joint venture.
- If the either or both parties decide to end the joint venture, then what to do.
- A confidentiality clause or a non-disclosure agreement that provide protection to both parties from any legal issues.
How do you make your own joint venture agreement?
To make your own agreement, you should consider the below steps;
- For your joint venture agreement template, decide what kind of format you’d like to use. Identify the scope and purpose of your joint venture and your partner as well as the expected time frame.
- You may have to select a new organization or corporation for larger projects.
- You can form a joint venture partnership wherein you won’t have to merge with another party in case you’d like to remain in your separate companies.
- For smaller or more temporary projects that you see as just a one-time deal, you can also draft a joint venture agreement sample.
- At first, you should define the main purpose of the joint venture and the parties which are involved. Name the parties and provide a precise narrative explaining their operations.
- Build all the essential and certain terms or issues and then explain them clearly.
- Having clear goals and objectives would allow both parties to pay attention on what requires to be achieved as the project is being carried out.
- Lay out the formation of the joint venture and state how the joint venture will be managed.
- Discuss any issues regarding finances relevant to the joint venture.
- The people involved in the agreement, define their roles and responsibilities.
- Consider any disagreements or issues and agree on what will have to do when these issues arise.
- For confidentiality, add a clause.
- In the end, leave a space for authorized people to leave their signatures. Both parties have to affix their signature on the agreement in order to make it official.
How to plan your joint venture agreement?
Before creating joint venture agreement, you must first plan your joint venture. Here are the steps that you can consider;
Identifying why you require a joint venture
Sometimes in your organization, you may not have staff or employees that would reinforce new technology or new equipment. Thus, at this point, you require a joint venture.
Building the aims of your joint venture
It would prove beneficial for all parties to build their aims. They all know the main aim or objective of the joint venture. Writing a description regarding it and then share it with your potential partners in order to get them interested.
For your joint venture, find out potential partners
Find out the best entities (individuals or organizations) that would have capability to assist you in attaining the objectives of your joint venture.
Establishing relationships with other companies
This would help you in finding more about them and their businesses. This way, you will learn a lot and get experience particularly if you are beginning organization. You would know when time comes to whom you should build relationships in a joint venture, however, you can also arrange informal meetings so that both of you learn about you and your company.
Identify whether a selected company fits good with your own company and with the objective of the joint venture
It is essential that all parties should agree upon the objectives and the resources they will contributes for the success of the joint venture. Also, the companies should have enough knowledge regarding the operation of joint venture.
Draft a nondisclosure agreement
This agreement should contain the signatures of all parties involved and state that both companies have access to work with each other openly. In order to make sure that none of the party take advantage of other, you should state that everyone is allowed to have communication with each other about everything regarding joint venture.
Come up with a letter of intent
To form an official joint venture agreement, you should first come up with a letter of intent. The intent and objective of joint venture should be mentioned in it so that the terms of the agreement is negotiated.
Reasons for starting a joint venture:
Joint ventures are very beneficial as it enhances your chances of succeeding. If you want to achieve your objectives in the shortest possible time, then you must enter into joint ventures. Let us discuss some more reasons for starting a joint venture;
- Individuals, companies, and corporations can get access to wider markets. Also, they would become able to stand as an alone entity.
- Separate parties can overcome each other’s weaknesses. This, in turn, increases their profits.
- Since both companies are sharing their resources and technical skills by signing this agreement so this saves a lot of money.
- They get to know new markets by sharing expertise and building relationships.
- New networks are established which expand business development.
The advantages of having a joint venture agreement:
Since the joint venture agreement is an important document so it definitely has a lot of benefits. Let us discuss these benefits below;
- It would provide you the opportunity to learn new things, and get insight, and expertise in your field of business. With another individual or organization, entering into a short-term joint venture would expose you to other perspectives. This, in return, would make you able to understand how things work a lot easier.
- Since you would be sharing everything related to your project or business activity so it would allow you access to more and possibly better resources. These resources might be in the form of special equipment, expert staff members, and any new technology that your own organization may not yet have.
- Everything between both parties would share equally. It doesn’t mean that if your project fails, you won’t have to deal with the failure on your own. In such a case, both parties would be liable and would end up supporting the losses.
- Joint ventures are flexible so you have to set and agree upon the terms of the entire project together. You just have to limit your commitment and the exposure of your own business organization.
- From one partner to other, the joint ventures can end in a sale. One party can buy the other in case they feel the continuation of the project or activity they had started together would be beneficial to their own organization.
- Smaller businesses can get benefit a lot from joint ventures. If one of the parties involved would already have a reputable name, there would be a higher chance of project success. The credibility of the small business would increase vastly in case the project does succeed.
- Creating short-term partnerships with other businesses and organizations would provide you the opportunity to establish and cultivate long lasting relationships with other business owners.
- You can also take on new projects and make new ventures and business deals in the process even if you are lacking in funding. Since you will be sharing everything equally, you would also save a lot of money.
- Starting joint ventures internationally would provide your business or organization an effective image. It would also provide the impression that you do not discriminate.
In conclusion, a joint venture agreement template is a beneficial document for your business or organization. You should have to make your own joint venture agreement template in case you are planning to enter into a joint venture.