Joint Venture and Shareholder Agreements: the Difference

People tend to not understand the difference between joint venture agreements and shareholder agreements. This article will break down what each agreement is, and why the difference between them matters.

Table of Contents

What is a joint venture agreement?

A joint venture agreement is basically a contract used when two or more partners enter a joint venture together. The partners pool their resources and efforts together to accomplish their goal, whilst remaining independent. It is often an agreement between several members of different companies to achieve a universal goal.

This agreement governs the parties relationship, and their objectives. Each party is individually responsible for the debts acquired, with the profit split as per the agreement terms. Furthermore, joint ventures may be incorporated, or unincorporated. An example of a joint venture is when NASA and Google joined forces to create Google Earth.

What are the benefits?

Certainly, there are numerous benefits of joint venture agreements, including;

  • A determined end date – it’s only a temporary agreement.
  • Additional access to resources.
  • Parties share the costs and risks.
  • Increased financial and employment opportunities for members of the agreement.

What are the disadvantages?

Despite the benefits, there are evident disadvantages in joint venture agreements. These include;

  • Parties may have different cultures or management styles coming from different companies.
  • Parties may not be aware of other members skills or limitations.
  • One member may have less commitment than others, causing conflict for the parties.

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What is a shareholder agreement?

A shareholders agreement is a contract among shareholders of a corporation. This agreement typically outlines the shareholders rights and obligations relating to their business. In this agreement, each party is responsible for the actions of each other, and they share the risks, costs and profits accordingly.

It is an agreement between members of the same company. It may include management information, rules for transfer of shares, director appointments and more. In addition, the agreement must be a written document.

What are the benefits?

There are numerous benefits to shareholder agreements. For example, these include;

  • Clear rules to resolve future disputes.
  • That it is confidential to the parties.
  • Restricts the potential abuse of position.
  • Contractual arrangements are cheaper to form and create.

What are the disadvantages?

However, there are disadvantages of shareholder agreements, including;

  • Each party is jointly liable for debts other parties may acquire.
  • Each party is responsible for the actions of other parties.
  • Unlimited liability.
  • The shareholder agreement dictates how the profits must be divided.

The difference

In short, the difference is whether the agreement is between members of one company, or several companies. A shareholders agreement can’t be created with members from separate companies. Furthermore, a joint venture is generally only temporary. In contrast, a shareholder agreement exists as long as the company exists. Certain other differences exist, as may be determined from the comparisons above.

Final thoughts

In conclusion, understanding the difference between a joint venture and shareholder agreement is important to ensuring you engage in the right contract. However, it is essential to seek the right advice on how to manage these agreements. If you require further information, or have any enquiries on this issue a joint venture lawyer may be able to assist.

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