Risks, rewards, structure, pitfalls, control and exit strategy are important with any business joint venture.
Whilst Joint Venture agreements for small business need careful consideration, legal advice needs to reflect budgets, practicalities and risks and at Darlingtons we understand this and the commercial realities.
When most people think of a Joint Venture Agreement they tend to think about big multinationals on huge projects but joint ventures of all kinds are becoming an increasingly important way of doing business for small business also.
Important clauses in a Joint Venture Agreement
The issues arising with Joint Venture Agreements are broadly similar to those in shareholders agreements.
Having found a great business opportunity and identified a possible business partner who either adds something to the possible JV in terms of expertise, contacts, resources or synergy, it is important to then focus on practical realities and legalities.
To minimise the possibility of misunderstandings or disputes, a Joint Venture Agreement should incorporate the following essential clauses :-
- structure of the joint venture -the structure of the business whether limited company, partnership or other legal form and whether assets and employees will be directly employed in the joint venture structure or remain with the parties.
- profits and losses – agreement on division of profit & loss and tax.
- events of default, termination, exit and dispute resolution procedures.
- practicalities and day to day control – issues such as bank mandates, operational restrictions.
- ownership of assets in the joint venture including intellectual property.
- financial commitments at outset and in future -how will the joint venture company be funded initially? Will the investors be obliged to provide future funding?
- borrowing – will the new business need to borrow from external sources? If so, who will agree to provide any necessary guarantee for the borrowing?
- budgets and business plans – who will prepare and when?
- dividends – what is the agreed policy, will they be payable and if so, on what basis?
- senior management – who will have the right to appoint senior management? If the joint venture is based on a 50/50 investment and ownership, what happens if there is deadlock?
- exit and grounds for termination – exit strategy is key and may include policy on sale of the business, material breach, insolvency, change of control, sale of shares to third parties, drag along or tag along rights.
If you need practical, experienced and cost effective solicitors for advice on joint ventures or to draft, negotiate or advise on a joint venture contract, please get in touch.