Jun 07, 2019

Joint Ventures 101

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A joint ventures (JV) is a business arrangement where two or more parties pool resources for a focused task, project or investment. Each participant is normally independently responsible for contributing toward the costs and labor based on the strategic value each participant brings to the venture, and they also have an agreed upon sharing percentage in any resulting profits of the venture. JVs can be documented in a contract, but generally the venture is its own entity and separate from the other business operations conducted by the participants.

The Joint Ventures Agreement  

The legal entity for the joint venture can be a corporation, partnership or LLC, and the choice of entity decision is normally tax driven based on the specific venture activities. Whatever legal form the JV takes, the JV agreement provides the written agreement of the parties regarding division of costs, sharing of profits, and it also sets out the specific services, roles and responsibilities of the participants. The JV agreement should also cover capital contributions, tax matters, competition (where applicable), accounting and financial reporting rights.

We often advise that the participants negotiate the key elements of the JV through the negotiation of an initial term sheet or letter of intent to assure the participants are aligned. See more on letters of intent in our LOI blog  hereWhile our LOI blog discusses LOIs in an M&A context, many of its principles would also apply to an LOI or term sheet for a joint venture.

Winding Up a Joint Venture

The JV agreement will generally cover winding up considerations for when the venture goal is achieved, or the venture ceases, fails or otherwise liquidates or dissolves. For example, one of the participants might buy out the interest of the other venture participant(s) or the venture entity could be sold to a third-party buyer. In either instance, the participants would normally have agreed upon liquidation or similar rights, such as whether there are payout preferences or other differences between the interests of the participants in the venture.

Other Joint Venture Considerations

  • Non-disclosure and confidentiality
  • Intellectual property of the participants
  • Budget and budget determination processes
  • Staffing and resources
  • Operational considerations and processes

Linden Law Partner’s Experience with Joint Ventures

A joint venture is an important business and legal undertaking, each being unique based on the parties, endeavors and industries involved. Linden Law Partners has specialized experience with joint ventures across a wide spectrum of structures, industries and participants. Feel free to contact us here.

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