A joint venture agreement is any type of agreement made between two or more parties for collaboration in a business activity. Advantages include the ability to carry out more services or higher productivity, access to greater knowledge, technology and resources, use of trademarks, sharing of risk and access to larger or different markets.
A further advantage is that parent companies can be shielded from the risk of a new venture. If the joint venture fails, investors will lose their investment but not their original companies. Also, in some countries the law requires companies to have at least some nationals as owners. By creating a joint venture foreign investors can access that market.
In a joint venture two or more parties set up a new entity to work on a project. With a strategic alliance two parties work alongside each other but do not come together to form one new company. They are still able to use another party’s knowledge, technology and assets to carry out a project but remain two separate entities.
A joint venture partner differs from a traditional partner in that the parties have only come together for one project and a short period of time. The joint venture partner retains their individual identity or that of their company, whereas a partner belongs to a group and cannot act on their own wishes.
The agreement should be as detailed as possible to prevent later misunderstandings. It will detail the structure of the joint venture, for example as a limited liability company or partnership, heads of terms, financial contributions, each party’s rights and responsibilities, who is in charge of which part of the venture, profit sharing and dispute resolution.
A joint venture will end once its objective has been accomplished. It may also be terminated if the terms of the agreement are breached, or in the case of insolvency or change of ownership. The innocent party can end the agreement and seek payment of damages or transfer of shares in the new venture to it for a fair sum.
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