When two or more businesses want to work together on a project, a joint venture agreement sets out the details of their temporary partnership. This allows them to collaborate with the security of knowing what is expected of them and the other parties involved so that misunderstandings and disagreements can be avoided.
The benefits of a joint venture
Working with another business for a period of time can have many advantages. It allows you to expand and develop new markets or products and to access your partner’s markets and distribution networks.
It is an easy and flexible way to increase your capacity and also to gain access to expertise and resources. Because of its temporary nature, a joint venture is less onerous than a partnership agreement and allows you to retain your independence.
If correctly set up, a joint venture can also avoid any potential conflict from different tax rules for each partner which might otherwise prove expensive and time consuming to sort out afterwards.
The importance of a joint venture agreement
If you want to work together with another organisation, it is essential to put the details of your agreement in writing in a joint venture agreement. This will allow you both to protect your position and give you the security of knowing exactly what your rights, responsibilities and obligations are.
The key issues will need to be identified and clearly set out together with details of what will happen in all eventualities.
If the joint venture is complex, it may be necessary to set up a separate business, but usually a contractual joint venture is appropriate for simpler undertakings.
The details included in a joint venture agreement
It is essential to have the agreement tailored to your specific venture so that you can be sure that all of the details are properly addressed. The following clauses will usually be included:
• The objectives of the venture;
• Who will manage the venture and what level of control each partner will have;
• Who will take on which responsibilities;
• How much time each party is expected to devote to the venture;
• Whether each party will transfer assets or employees to the project;
• How the venture will be structured, ie. whether it will be a separate business in its own right or a contractual joint venture;
• What financial and other contributions will be made by each partner and when they will be made;
• Details of how profits, losses and liabilities will be apportioned;
• Ownership of any intellectual property;
• A process for resolving any disputes;
• How the venture will be ended and how the parties can sale or transfer their share should they wish to.
As an alternative to a traditional JV agreement, the Isle of Man Limited Liability Company (similar to an LLP) is specifically designed for use by International JV partners, setting out clearly the relationships and responsibilities between partners and simplifies the management of a complex JV.
Setting up a joint venture
If you are considering entering into a joint venture, you should ensure that all eventualities are thought out beforehand. This will help establish trust with the other parties involved and set the ground rules before the venture begins.
We can advise you on the process of entering into a joint venture as well as working with you to ensure that this is the correct structure for your project, for example, whether a partnership, limited liability partnership or company would be more appropriate.
At Quinn Legal we have extensive company and commercial knowledge. If you are considering entering into a joint venture where one or more parties is based on the Isle of Man, we can advise you on the process and ensure that all of the necessary documentation is in place setting out the details in full.