What is a joint venture?
At its most basic, a joint venture (or a JV as it’s often referred to) is an arrangement where two or more businesses work together to create a separate business.
In particular, if your business is thinking about going into a new market, or launching a new product, doing so by forming a joint venture with an individual or business with complimentary skills can be incredibly useful, especially when joint expertise is required, or when facilities can be shared. Using joint ventures can also help remove international barriers, take advantage of economies of scale and confer other mutual benefits.
But how should any joint venture be structured? How should any disputes be resolved? And what is the best way of terminating a joint venture?
Our team are able to provide you with specialist legal advice on all these points, and to make sure that you protect your business interests.
For FREE initial legal advice about your business, just call our Solicitors on FREEPHONE 0800 1404544 or Salisbury (01722) 422300
Nationwide legal advice in setting up joint ventures
We help many clients, particularly property investors and developers, both locally in Wiltshire, Hampshire, Dorset and Somerset – and throughout England and Wales – from our offices in Salisbury, Andover, Fordingbridge and Amesbury.
The legal structure of a joint venture
With regard to the structure of the JV – whilst it’s common to set up a limited company or Limited Liability Partnership [LLP] for the purpose, many JV’s are just partnerships.
And remember, once you going to business with someone else, even if there’s no paperwork, you have set up a partnership – and like it or not, it’s governed by the 1890 Partnership Act.
Our advice is straightforward – if you are entering into a partnership, always get a written partnership agreement tailored to your particular circumstances.
Click here for more information about setting up business partnerships and LLPs.
When might a JV be required?
Joint ventures can be used for a simple business partnership, through to more complex arrangements for bringing a new business concept to market, and which requires extensive investment.
Some typical examples of joint ventures in the commercial world are:
•Working together on a property development project [we have particular experience in acting for property investors nationwide]. Property JVs are becoming increasingly popular.
Click here for more information about our property investor team
• Collaborations over R&D or technology
• Arrangements for the sharing of resources
• Putting in a joint tender for a project using a consortium or bidding agreement
• Product development agreements
Getting the right legal advice for your JV – making sure that it is properly documented
What’s remarkable, given how many joint ventures are regularly entered into, is how many don’t have properly drafted legal documentation. Make sure you don’t make that mistake. The legal costs involved in getting the right paperwork in place from the outset, is likely to be minimal compared to the potential risks and financial losses associated with a joint venture dispute.
For example, if you’ve entered into business with someone else and you haven’t formed a company to do so, then it’s likely you have formed a partnership – and if you haven’t created a written partnership agreement, then your business will be run by rules set out by the 1890 Partnership Act.
So make sure that you get the right legal advice from a specialist business law solicitor.
We have the specialist knowledge you need – for FREE initial phone advice just call us on locally on  422 300 or on FREEPHONE 0800 1404544.
What should your JV agreement contain?
Given the wide range of businesses that regularly form joint venture agreements, it’s difficult to produce a comprehensive list of the kind of provisions you will need to consider.
However some of the most common and most important clauses you will need to consider inserting into your agreement include the following:
• How the JV should be structured
• The objectives and strategies of the joint venture
• How management and control is divided
• Each party’s financial contribution
• How the project will be financed, both now and in the future
• How losses, liabilities and profit will be shared
• Whether there are any non-competition restrictions on those involved
• Who will own the existing or future intellectual property that is created by the joint venture itself
• Who the new venture’s employees, partners and directors will be
• How losses, liabilities, profits and dividends will be shared between shareholders, directors and partners
• Are there to be any limitations on decision-making?
• Who owns the intellectual property created
• How disputes between partners will be handled and in particular how to resolve any deadlock between those involved.
• How a partner can exit the joint venture
The increasing popularity of property joint ventures
The last decade has seen a huge increase in the number of people investing in property, which for many now provide full-time employment. There are a number of different ways of using a JV for property – and it’s important that you get the right one for you, with the right legal documentation in place. Among the options for these kind of arrangements are the following:
• tenants in common – where you own the property equally with your joint venture partner. In this scenario both of you need to be listed on the Land Registry as co-owners. This is one of the simplest forms of JV
• one party provides the time – the other provides cash. Another very popular model, it’s really important that the paperwork is right for this kind of JV, and that both parties have their interests properly protected whether by a simple loan or the party with the cash may require an equity stake in the property
• one for you, one for me – and alternating system whereby the parties take it in turn to actually own properties e.g. A buys property 1, B buys property 2, A buys property 3 etc where both parties contribute whether in time or money, to the business
Negotiating a JV – protecting confidential information
To protect your confidential information from public disclosure, it’s very important that you have a non-disclosure agreement (also referred to as an NDA) in place. These are relatively inexpensive legal documents.
Click here to find more about how an NDA could help you when negotiating your new potential joint venture.
Due diligence is essential when entering a joint venture
One regular reason why joint ventures fall apart if the lack of preparation – and in particular failing to carry out adequate due diligence checks about your new business partner.
Making assumptions is always dangerous – and sadly when it comes to business, some people simply lie.
To reduce your risk of a problems with your joint venture always do the following research before even considering entering into a JV;
- Do your homework about your new partner
- Check their legal status
- Check the value of the assets they’re putting into the joint venture
- Check their track record
Avoid a common mistake – get the right legal advice on day one
One of the most common mistakes people make when setting up a joint venture and entering business together, is trying to cut corners by saving legal costs.
Doing without a partnership agreement, or setting out a company without having a shareholders agreement drafted for your particular circumstances are two of the most common errors – and they can prove very expensive. One client came to us recently having invested £100,000 in property with absolutely no paperwork or written proof of the deal!
Disputes are simply more likely where there is a lack of clarity over how the business is to be run.
Click here to read more about joint venture disputes
And don’t forget – we always offer FREE initial advice on the phone. So there’s no excuse for not checking your legal position at the outset.