How to draw up a joint venture agreement

how to draw up a loan agreement

So your business is thriving and you want to know what the next steps are to broaching new markets, expanding and perhaps even making a go of it overseas. In that case a joint venture could be just what your business needs.В

The great thing about joint ventures is that they can last for as long, or as little, as both parties would like. In the meantime, you have the advantage of strengthening your presence in the industry, as well as establishing strong connections with your partner company.

Joint ventures also allow you to share the risks and responsibilities with another body, also hopefully helping you generate bigger profits as you grow your business at a quicker rate than it would have on its own.

Furthermore, when trying to expand, it can be a real drag seeking funding from banks or investors but in most cases a joint venture will be enough to fuel the costs of growing your business.

Your customers might also delight in the greater range of services or products you will be able to offer; not to mention the fact that you'll have more customers to make these great offers to.

Ultimately, joint ventures are useful because of the flexibility - you don't have to commit everything to them, but can pick and choose just how much of your existing business you will invest.

Here are our five steps to setting up a joint venture.

1. Do your research

The main thing to do before embarking on a joint venture is research. Conduct your homework.

Ensure that a joint venture is the best option for your business and know exactly what you want from your partner and what you can offer them.

2. Find a business partner you can trust

The first step in making the commitment to a joint venture is to source the most suitable and trustworthy partner company you can find.

Once you've done this, you're ready to generate a wealth of new opportunities including more resources, greater capacity, increased technical expertise and access to more established markets and distribution channels.

3. Decide on the right type of joint venture for you

Now it's time to decide just what kind of joint venture suits your objectives and how much managerial control you

hope to exercise.

For instance, if you want to sell a product through a larger distribution company, it might be best to agree to co-operate with your new business partner in a limited and specific way.

Alternatively, it could be better to create a separate joint venture business, whereby a new company is created to handle certain contracts.В

The partners each then own shares in the business and make decisions about how it should be run, which can prove successful because of its flexibility.

It might also be your preference to go the whole hog and combine the two companies into one, but make sure you seek strong legal advice before doing so.

In each case, legal advice is recommended so that you ensure you choose the appropriate joint venture agreement for you and your new business partners.

4. Agree with your partner on what you want the joint venture to achieve

Make sure you and your partners are on the same level about what you intend the joint venture to achieve, what the company will offer and who will take responsibility for what.В

This even boils down to one of the most basic principles of running a business - whose name will be on the bank accounts?

5. Get the agreement in writing

There can be risks involved in setting up a joint venture, so a joint venture agreement is vital.

If the joint venture agreement is unclear or burdened with mindless jargon that in effect means nothing, disputes or problems can arise, so more than ever, the agreement should be clear, concise and comprehensible.

When creating a joint venture agreement. your written document should include the following:

  • The structure of the joint venture (e.g. what kind of agreement will it be?)
  • The main aims of the agreement
  • The financial contributions you and your partner agree to make
  • Whether assets or employees will be transferred to the joint venture
  • Who takes ownership of the intellectual property
  • Who will take managerial responsibility
  • How disputes or disagreements will be resolved
  • An exit strategy, i.e. how the partnership will be dissolved

Get expert help with making an agreement with Lawpack's solicitor-approved Joint Venture Agreement template .

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