Traditionally, new entrants to markets have used joint ventures for several reasons. Often, one party has more experience in supplying certain skills and the other may have a wider number of contacts in the sector, or two individuals who have worked together to develop a product or piece of new technology then want to go on to monetise the opportunity. When they combine forces, it becomes possible to provide better offerings.
In some cases, joint ventures exist simply because the market within which they operate is highly competitive and consolidating two businesses gives greater weight to the venture. Yet, with every joint venture, there’s a risk sharing element that may be beneficial or may cause issues in the future.
With this in mind, if you’re considering a joint venture, whatever your industry or sector, it’s vital to keep some considerations in mind. Here, we take a look at some of those elements to weigh up.
The Corporate Vehicle
One of the first elements to consider is the type of corporate vehicle to use for the joint venture. Typically, in England, limited companies are a popular choice however they aren’t the right option for everyone. Taking professional advice is imperative to ensure the documentation governing and outlining the relationships between both parties have been properly tailored to your unique venture.
Funding Arrangements
Another top consideration is how your joint venture will be funded. Sometimes, one party funds the venture entirely, in others third parties are brought in for this aspect of launching the venture. It’s also imperative to give careful consideration as to how you’ll meet the ongoing requirements for working capital. It’s quite common for joint venture agreements to include these provisions in order to ensure complete clarity.
Bespoke Joint Venture Agreements
With all joint ventures, the founders must hold in-depth discussions and come up with a formal agreement that defines the responsibilities and roles of both parties clearly. If the rules of play and objectives have not been properly set out in advance, you run the risks of disagreement and uncertainty.
Drawing up a bespoke agreement is therefore vital when collaborating on any project and obtaining clear and practical advice right from the beginning is essential. The document must be workable if the parties are to be able to navigate any issues that could potentially arise in the future, including those surrounding governance and management, funding, intellectual property, dividend policies, exit scenarios, disputes, and share sales and restrictions.
Finding An Agreement That Works For You
Unfortunately, there’s no such thing as a one-size-fits-all joint venture agreement, so it couldn’t be more important to take professional advice and to work collaboratively together to ensure that you’ve drawn up the agreement that best suits the needs of your venture. There is no such thing as a typical agreement, since every joint venture is entirely different, so making an agreement that reflects both parties’ goals and intentions is key to its success.
