Joint Venture Agreements

Joint ventures provide businesses with an opportunity to form short-term, single-purpose partnerships, thus deriving many of the benefits of strategic partnership without many of the liabilities. Below is a general overview of the characteristics, advantages and disadvantages of using a joint venture to accomplish your business’s goals.

To form the joint venture, the co-venturing partners contribute funds, goods or equipment at the outset. The proportion, which each partner contributes, can be 50% each, or it can be in unequal amounts, with one contributor providing a majority of the resources for the formation and initial operation of the venture.

One of the benefits of a joint venture is its lack of permanency. As opposed to a partnership, which can create a number of responsibilities, duties and obligations on the part of each partner, a joint venture generally only obligates its partners to those specific duties and obligations set forth in the Joint Venture Agreement. Further, joint ventures frequently have short, defined durations. Many joint venture agreements provide for the venture to terminate and cease its existence after only a few years. Such time-limited joint ventures represent less of a commitment on the part of the partners than would a standard partnership.

Another benefit offered by joint ventures is that it allows companies to share expertise or relationships with other companies to penetrate new markets, or to develop new products or services, thus benefiting both parties. For example, smaller companies can join with larger more established companies to share expertise and develop new technologies, affording the larger company access to new research materials, while affording the smaller company additional clout and market presence. Further, such strategic relationships can combine to decrease competition in a particular market, making it easier for the partners involved to penetrate that market.

Joint ventures are frequently used when a domestic company wishes to enter a foreign market. The joint venture structure allows the domestic company to seek a short-term, project-specific relationship with a company within that foreign country. The domestic company then can take advantage of the foreign companies local know-how and relationships; while the foreign company gains access to relationships and expertise it might not ordinarily be exposed to.

It is worth noting that an exit strategy employed by many joint venture partners is for one partner to acquire the other partner’s interest in the venture. This approach can work well where one business has used the venture to experiment outside of its core business, developing a product or service with another company whose expertise lies closer to the business conducted by the joint venture.

Sources: Joint Venture Agreement, Joint Venture Agreement (Film/TV)