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What is a Joint Venture Agreement?
When two parties come together for a specific project, they use a Joint Venture Agreement. It is more commonly used for business projects.
Joint Venture Agreements are also known as a co-venture agreements or JV. It is a legal contract, using which all parties involved establishing their roles, duties, and obligations of their business relationship. The members are usually required to make contributions to the venture, including, finance and capital, skilled services, and others.
The purpose of the business venture, expectations, and obligations along with details of the businesses’ administration and terms for dissolution is also mentioned in the Joint Venture Agreement. It clarifies that the two entities are no longer separate but are functioning as one.
What is the purpose of a joint venture agreement?
The Agreement makes it easy for parties who want to partner up. It lays the procedural foundation for professionals from different industries to collaborate for common interests.
When is a Joint Venture Agreement used?
This agreement can be used in numerous instances:
- It could be used when a company requires or will benefit from resources supplied by another company.
- It can be used when a party wants to create a strong alliance to dominate the market.
- Another common use of a Joint Venture Agreement is when you need the help of another company to develop new products, services, or technologies.
- It can be used when someone’s planning on expanding their business by creating a larger network.
- It can be used when companies want to share their expertise as well.
Key points in a Joint Venture Agreement
Each agreement must be customized according to the requirement of the parties involved. However, a few general details that the contract needs to have are:
- Name of the venture,
- Details of the involved parties, including, the location of the business operations, personal information, and contact details.
- The objective of the signed agreement.
- Defined project scope, including timelines and objectives.
- Detailed information on contributions, including capital and other finances including, cash and assets.
- Clear set obligations and responsibilities along with required commitments.
- Guidelines for tracking and reporting the projects’ progress. -Division of profits.
What is the difference between a shareholders’ agreement and a joint venture agreement?
Shareholders’ agreement specifies the conditions for the members of the same company (shareholders of a company) and it is signed by them and acts as proof of their commitments as shareholders to a company. On the other hand, a joint venture agreement is between several members of separate companies.
Generally, a joint venture agreement is signed before a new joint entity if formed. It is used to make collaborative investments. A shareholder’s agreement is an agreement between shareholders of an existing company.
What is the difference between a joint venture agreement and a partnership agreement?
The two are quite similar in many ways as both deal with two parties working together. However, they have slight differences. A joint venture agreement mentions commitments from the parties for the specified time of collaboration for certain projects. A partnership agreement defines business structure and operations regarding state law and tax purposes.
Joint venture agreements define temporary commitment to work together whereas, partnership agreements are permanent and have a wider scope.
Dispute resolution and dissolution in a Joint Venture Agreement
It is crucial to mention the terms, as well as steps for dissolution and dispute resolution in a Joint Venture Agreement. Disputes can be resolved through mediation or arbitration. If you are certain about dissolution, there are two ways you can move ahead with this through a unanimous or a majority or vote by the members. In cases where there is joint ownership of intellectual property, it could be beneficial to have additional clauses regarding the duty of loyalty and confidentiality.
Common reasons for termination of a Joint Venture Agreement
Joint ventures do not always workout for the best. Some common reasons are:
- When one party is interested in buying out the other’s business.
- Change in the market can make the partnership futile or it could no longer be required.
- Change in individual companies’ goals can result in them taking another route and terminating the joint agreement.
- At times, the expected responsibilities are not born well, and the purpose of the contract is not fulfilled leaving one side dissatisfied and seeking termination.
- Joint Venture Agreements are limited by time and the set period expires and it automatically gets terminated.
So, Joint Venture Agreement is a legal contract that is signed by businesses that want to undertake a business enterprise together. It gives the parties clarity as to what their rights and obligations are. No mandatory time limitation is there for joint venture agreements, but they are typically temporary arrangements and are only operational for a limited period of time.
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