Orr Litchfield
Solicitors and Business Lawyers
Solicitors and Business Lawyers
A joint venture is a collective term used to describe a range of different types of corporate, commercial or other arrangements between two or more persons (whether individuals and/or other legal persons, such as companies). They are commonly referred to as a ‘JV’.
There is no legal definition of a ‘joint venture’ in the UK. Joint ventures may take the form of common business structures (such as limited companies, limited liability partnerships, limited partnerships or partnerships) or may be purely contractual arrangements (such as collaboration agreements, consortium agreements or strategic alliances).
When starting a new business or entering into any important arrangement or contract there are always many issues to consider. Key considerations for parties to increase the prospects of making their joint venture a success include:
At the outset, it is important to be clear as to your reasons for wishing to enter into a joint venture and your aims for the joint venture.
It may be possible to achieve the same or similar aims by using a different business format or mechanism. Where possible, all realistic business formats or mechanisms should be considered before deciding whether to proceed with a joint venture or other business format.
As part of this process, you should also consider the likely aims of any joint venture partner and what you can offer them.
You need to carry out a significant amount of due diligence in order to try to identify the right joint venture partner for you.
Often, the ideal joint venture partner is one that has assets, customers, skills, suppliers, technology or other resources that enhance or complement yours horizontally or vertically. As part of your due diligence process, you may wish to consider and assess the suitability of your existing customers and suppliers (particularly those with whom you already have a long-term relationship) or your competitors.
When looking at new potential joint venture partners, you should start by carrying out some basic due diligence checks (for example, by examining their legal status, making sure that they have the right to enter the joint venture which you are planning, assessing their performance, reputation and business objectives) before carrying out more thorough due diligence. You should prepare a due diligence checklist.
Ultimately, in order to maximise the chances of making a joint venture a success, there should be a good fit between the joint venture parties not simply from a business and financial perspective but also from a cultural perspective.
Once you have found your prospective joint venture partner, before moving ahead with a prospective joint venture, it is important that all joint venture parties understand why they are entering into the joint venture, what they want from the joint venture, when and how they plan to achieve specific goals and their overarching aims for the joint venture and the exit plans for the joint venture.
The joint venture parties should formulate and agree a clear business plan and strategy for the joint venture in order to make sure that they obtain a return on their investment in the joint venture. It should be borne in mind that, commonly, joint ventures are temporary arrangements, which come to an end when the objectives of the joint venture have been achieved.
Whatever the business aims of each joint venture party, the business and strategy plan for the joint venture arrangement needs to reflect the roles of the respective parties in a fair and reasonable manner and be aligned with their individual business strategies. It should identify matters such as what each party is contributing, the aims of the joint venture, set realistic goals with an achievable timetable and have a system for measuring and reviewing the performance of the joint venture.
There is no legal requirement for joint venture parties to enter into a formal written joint venture agreement in the UK. However, when entering into a joint venture, it is sensible and good business practice to set out the terms and conditions of the joint venture in a written agreement and usually in the interests of the parties to do so.
The main purpose of a joint venture agreement is to regulate the relationship between the joint venture parties and the way in which they deal with the joint venture. A written joint venture agreement usually sets out the respective rights and obligations of the joint venture parties in order to provide clarity and a framework for the successful management and development of the joint venture. It should help prevent any misunderstandings between the joint venture parties once the joint venture has commenced and reduce the risk of disputes, litigation and failure of the joint venture.
Typically, a joint venture agreement will include provisions relating to matters such as the purpose of the joint venture, the roles of the parties; the assets, ownership, management and funding of the joint venture; the extraction of joint venture profits; the transferring of ownership; intellectual property; confidentiality; restrictive covenants; the resolution of disputes between parties and how the joint venture can be brought to an end.
Joint venture agreements can take many different forms depending on factors such as the structure used for the joint venture (in particular, whether it is an entity joint venture or contractual joint venture), the nature and purpose of the joint venture, the reason for the joint venture, the comparative size and bargaining power of the joint venture parties, the roles of the parties in the joint venture and the complexity of the joint venture.
It is vital that the joint venture parties communicate clearly with each other before they enter into a joint venture, throughout the term of the joint venture and after the joint venture has finished. Communication is a key part of building and maintaining a relationship.
It is important to ensure that each of the joint venture parties fully understands not simply the joint venture agreement but the details of the business and strategy plan for the joint venture. That includes the overall aims and goals of the joint venture as well as matters such as the respective contributions of the joint venture parties in terms of assets, money, technology, staff and other resources and as to the expected length of the joint venture arrangement.
It is normally good practice to arrange regular meetings for all of the key people involved in the joint venture and to hold more regular management meetings in connection with the joint venture. Sharing information relating to the joint venture openly and on a regular basis helps build trust and credibility between the joint venture parties. It can also reduce the risk of disharmony, arguments and disputes which can reduce the prospects of a successful joint venture.
A well planned and managed joint venture will have a clear and well understood business and strategy plan and joint venture agreement so that the joint venture parties know the overall aims of the joint venture and the milestones and goals that they are trying to achieve.
It is sensible for the joint venture parties to set achievable and measurable milestones and goals in order to enhance the prospects of meeting the overall aims of the joint venture. The establishment and regular measurement of clear performance targets helps the joint venture parties to assess the success of the joint venture and can provide them with an early warning of potential problems or a need to make changes to the business and strategy plan and/or joint venture agreement.
Where two or more parties enter into a joint venture, the decision-making and management process and other matters can become complex even in the case of relatively simple joint venture projects.
It is important for the joint venture parties to retain an element of agility and flexibility in the joint venture arrangement. As with any business, they should continually review the performance of the joint venture and seek to identify how it may be improved and whether any elements of it should be changed.
Whilst a through business and strategy plan and joint venture agreement together with good communication throughout the term of the joint venture usually helps the parties to reduce the risk of any problems, disagreements or disputes arising, they are unlikely to eradicate the risk completely.
Most businesses will come across unexpected problems from time to time and even the closest business partners (including family, friends and long-term business colleagues) disagree on business related matters from time to time. It is critical that the joint venture parties approach any problems or disagreements in a positive, solution driven manner with the aim of avoiding entering into a more destructive dispute. For this reason, it is important that any joint venture agreement contains a well thought through dispute resolution procedure in order to improve the chances of the joint venture parties resolving any differences efficiently and effectively so that they can progress the joint venture successfully.
You can read more about joint ventures and joint venture agreements on our dedicated page on Joint ventures and joint venture agreements.
Whatever stage of the process you have reached, we can help you to to plan, prepare, negotiate and complete your joint venture and joint venture agreement in a way that is right for you and your company.
If you would like more information about joint ventures and joint venture agreements or would like to discuss your joint venture and joint venture agreement, please email us at enquiries@orrlitchfield.com, complete an Enquiry Form or call us.
