How to Draft a Joint Venture Agreement
In today's fast-paced competitive market, it is vital for business to have the ability to join resources to meet demands and challenges in a timely manner. Joint ventures are an excellent way to achieve that goal. A well-crafted agreement can be the foundation to a prosperous and successful partnership. That being said, an agreement that leaves too much to interpretation causes confusion, miscommunication, and may ultimately lead the parties into litigation.
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Things You'll Need
- Names of all member companies
- Addresses of all member companies
- Contribution amounts of all member companies
- Profit/loss distribution amounts of all member companies
- Specific duties and responsibilities of all member companies
- Purpose for the joint venture
- Name of the joint venture
- Accounting procedures for the joint venture
Instructions
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1
Identify the member companies. (These members hereafter will be known as the venturers throughout the rest of the agreement.) Clearly note the date of the agreement in the opening sentence.
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2
Annotate the name of the joint venture entity. State the contribution amounts and the profit/loss distribution amounts of each venture clearly and decisively.
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3
Appoint an agent to act on behalf of the joint venture entity. This can be a member of any of the venturers, or a recommended outside party. This individual will then be responsible for overseeing general business activities, and will have the obligation to report all activities to the members. Note the specific professional responsibilities and liabilities that the agent will hold.
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4
Define accounting and legal practices. Address issues such as what constitutes a fiscal year, who will act as the outside accounting firm, and who will act as outside legal representation.
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5
Outline legal processes for disputes, termination, and disseverment of the joint venture. Be very clear as to the choice of venue. Include arbitration and indemnification clauses.
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6
Sign and notarize agreement. Make sure that each party has an original copy for their records. File a copy with the state, if necessary.
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Tips & Warnings
Remember that general managerial duties are considered a different function than specific professional responsibilities. For example, if the person appointed as agent happens to be a CPA, then her general duties may be stated as the oversight of daily operations, but her professional responsibilities may include ensuring compliance with all local, state, and federal tax codes. In the event that a blantant tax error caused significant loss on the venture, then it could be successfully argued that she had failed in her professional duties, and she would then be liable for the loss incurred.
Limiting the scope of duties, responsibilities, and activities that will be performed within the joint venture can have a negative long-term financial impact. While it is important to be specific within the terms of the agreement, it is equally important not to be too narrow as to restrict the success of the venture. For example, with regard to the scope of the venture, it is better to state the purpose as virtual training products rather than computerized accounting tutorials. The venture may be formed to create a computerized accounting tutorial, but the venture may find a niche market in the field, and wish to later develop an entire line of virtual tutorials, which would include HR functions, operations procedures, and logistical operations.
