Structuring A Joint Venture Agreement: 8 Important Elements

Forming a joint venture in Massachusetts allows independent businesses to combine their resources to embark upon a brand-new project of mutual interest and benefit. But as with every business arrangement, it is imperative that the parties involved reduce their working relationship to a written agreement. Creating a joint venture agreement in Massachusetts is no simple task, which is why having an experienced business and corporate law attorney is essential.

8 Key Elements in a Joint Venture Agreement

Let us start by considering eight crucial elements to include in your joint venture agreement:

1. The identity of the businesses involved

A joint venture may combine both large and small companies for the purpose of accomplishing a specific business objective. But before those companies agree to form the joint venture, they must agree on who the participants will be. Properly identifying the parties to the agreement is a key step, especially for larger companies that own subsidiaries and affiliates.

2. The purpose of the joint venture

The agreement should clearly state the parties’ intent to form a joint venture and what its purpose is. For one reason, this sort of mission statement helps manage the expectations of all parties involved. But also, joint ventures typically end once the stated goal is accomplished. Therefore, a joint venture agreement should detail the mutually beneficial objective(s) the companies forming the relationship have in mind.

3. Resources to be shared

Remember, the main point of a joint venture is for already existing companies to combine their resources to meet a specific goal. It should therefore be indicated what those resources are. A company may bring labor, capital, assets, skills, expertise in a certain market, and other tools to bear in forming the joint venture. The agreement needs to reflect that.

4. Sharing of profits and losses

How will profits and losses be shared between the companies forming the joint venture? This needs to be mentioned to avoid misunderstandings that could jeopardize the agreement. The agreement should therefore include provisions for profit and loss sharing so everyone understands how they will benefit from the arrangement.

5. Rights and duties

Protecting each party’s rights is essential because they are sharing resources. A company needs to make the terms of the resource sharing clear, along with the limits of the joint venture. The business is not thereby relinquishing their independent ownership of intellectual or other property not related to the project. There will also be expected duties among the member parties in managing the joint venture. These terms serve to limit the scope of the joint venture, a necessary element of any contract.

6. Dispute resolution

Any agreement between companies needs a way of resolving disputes, and this is no less true with a joint venture. This is particularly useful where the companies have equal ownership of the joint venture and limitations on transferring their interests.

7. Governance

Similarly, no business relationship can function without clear rules about who governs the joint venture. How will major business decisions be made? What about relatively routine, daily matters? Do not overlook the importance of good governance. Depending on the circumstances, it may be desirable to create a separate entity for the joint venture.

8. Duration and termination

Joint ventures typically end once the stated goals of the agreement are met. The agreement may provide for a time limit to the joint venture or some other triggering event that will initiate wind-down procedures. There should be a clear and orderly process for terminating the joint venture and terms about what will happen to any remaining assets and liabilities.

These are only a few elements to consider in your joint venture agreement. The exact needs of your joint venture will determine the specific terms to be included. If you are considering a joint venture relationship, contact the business and corporate team at SederLaw for additional guidance.