What is a Joint Venture Agreement?
As a small business owner, it is important to know the ways in which you can explore different opportunities should you wish to. A joint venture is one of those ways and it is described below along with some of its pros and cons.
What is a Joint Venture Agreement
A joint venture is an agreement between two or more people or companies to work on a new business project together. The parties in this arrangement agree to combine their resources in taking on this new project. It is important to distinguish a joint venture from a partnership. In a partnership, the parties have come together to operate a “business in common”. Whereas in a joint venture, the parties have come together for a specific project, but they continue to retain full ownership of their own company.
The joint venture agreement is a legally binding document that should be drafted with the assistance of a lawyer. Here are some examples of what a joint venture agreement should include: the type of venture, the start/end date, details of each party, the resources each party is contributing and the responsibilities of each party moving forward. Working with a small business lawyer can be extremely beneficial when drafting this agreement as he/she will be working with your best interest in mind and can ensure that you are protected by the contract.
Pros of a joint venture
As mentioned, in a joint venture you retain ownership in your own company while working with another party on a new venture. This provides you with some flexibility, as you are able to embark on new projects without having to dilute your ownership stake.
A joint venture may also allow you to explore areas that you yourself could not. You are able to combine resources and expertise with other individuals or companies and this may even lead to entering new markets.
In addition to sharing resources, venture partners also share profits and losses. This is important as it reduces the overall risk for both sides.
A joint venture also presents the opportunity to work with individuals or companies that you may be inspired by. This can lead to new ideas and create exciting new opportunities.
Cons of a joint venture
Just like a relationship in your everyday life, it takes time to find the right partner. There is the potential that you embark on a joint venture and realize that the other party is not right for this situation.
It is important that you conduct thorough research before entering into an agreement with anyone. You should research the history of the individual or company and ensure that the objectives of the venture are specific and understood by both sides.
Working with a small business lawyer to ensure that the joint venture agreement affords you protection is also important in case there is a falling out.
