When two or more businesses want to become partners for a business deal or other purpose, they may make a joint venture agreement.
Reasons that businesses make a joint venture agreement include sharing the risks of a deal, having the money to pursue ventures that one company could not pursue alone, getting market access not otherwise available and entering a new geographical area, according to the University of Iowa Center for International Finance and Development.
Components of Agreement
A joint venture agreement is a contract for a specific limited business purpose and specified period of time. The agreement outlines what each participant contributes (for example, property, cash or other assets) and what each participant receives in return.
The structure of the joint venture could be a partnership, corporation or limited liability company, depending on the geographical locations of the businesses, the tax liability and the liability for injury that each joint venture partner is willing to accept.
Depending on the agreement, a joint venture could be managed by one of the partners or the management could be shared among the partners.
A joint venture agreement is a legal contract that you must be sure you understand. Consulting a lawyer is usually a good idea. The U.S. Small Business Administration provides a sample agreement for simple joint ventures at www.sba.gov.
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