Joint ventures (JVs) are the business formations arising by the collaboration formed by two or more individuals, companies, or corporations, to form a separate business / legal entity. Normally, a JV is created with the intention of achieving a specific / common purpose related to a particular business interest. JV may be set up with shared resources like properties, human resources, investments, etc. contributed accordingly by the participants. This will not only help to reduce the monetary burden of the participants but also helps in sharing the sophisticated systems / machines / technologies, which might reduce the investment requirements otherwise a costly affair. However, this type of business entity protects the other business interests of the collaborator's other business interests.
The JV arrangement can further be strengthened by the creation of JV agreements / contracts between the parties involved and they can form a Limited Liability Partnership (LLP), Corporation or Limited Liability Company (LLC) based on the requirements and understanding.
Vital requirements for a JV Agreement:
- 1.Details related to the purpose of creating the JV
- Parties involved in the contract: Includes the names (person name, entity name, etc.), addresses (place of business, place of residence, etc.) and other details of the parties
- Performance of the obligation of the involved parties and the contribution mechanisms
- Details of the members, governing / management members; and structure for the management team and the details related to the said team
- Ownership related information: Principal contribution by each party, percentage of ownership
- Governing rules and principles as agreed by the parties
- Profit loss statements and the details related to the
- share of profit / loss among the parties
- Information related to the protection / utilization of intellectual property created through the JV
- Terms and termination details
- Governing laws and Dispute resolution systems as agreed by the parties, including the alternate dispute resolution (ADR) mechanisms like arbitration, mediation, etc.
Some Advantages of JVs & JV Agreements:
- Exploitation of resources through legally valid contract: Not every business or participant will be made available with such a vast level of resources including finance, technology, instrumentation, technology, etc. as a JV offers especially by the co-operation of participants who are exemplary in any given field.
- Sharing of liabilities and costs through a mutually agreed contract: When two or more participants are involved in a business, the costs and liabilities associated with each of the participants are distributed in a convenient way, which would reduce the burden on any of the participant otherwise would become a herculean agenda.
- Shared knowledge and expertise: parties to a JV have their own strengths and expertise in their own way, which would become a synergistically combined strength for running the business or scrupulously achieving the specified goal.
- Marketing advantage: when a business that needs to establish a market in an unknown turf, a JV with a market leader would reap the benefits with ease and the reachability of the business is proved to be far more successful.
- Increase in the production / service capacity as a result of an easy understanding of requirements through the mutually agreed contractual obligations.
- Opportunities to learn a new business and offers the advantages of diversification of business in mutually beneficial terms accorded by the JV agreements.
- The participants may decide the length of the JV based on the outcome / purpose for which the JV was created and they can agree on the sharing of the profit / loss arise out of the collaboration.
- Creation and sharing of additional intellectual properties (IP) as agreed by the IP sharing clauses.
- JV offers the parties involved in sharing the costs associated with the marketing of a product / service, which would help in increased spending capacity and engaging enhanced marketing strategies.
IPLF and JV Agreements:
JVs have contributed significantly to the technical advancements and global socio-economic progress through beneficial co-operation among the businesses, corporations and organizations. Eventually, the welfare of the parties involved in the JV should be guarded by the complete understanding of the legal obligations to be honored by each of the parties. Further, there are various clauses to be included in the JV agreements based on business obligations, which also requires legal prowess to draft a comprehensive agreement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.