What is a Joint Venture Agreement?
Learn about the details of a joint venture, what you should be considering and the steps not to take.
What is a Joint Venture Agreement?
A joint venture is when two or more businesses enter into a temporary partnership. This partnership is generally accompanied by a specific contract or product that is mutually beneficial for both entities.
A joint venture agreement is typically used when:
- Introducing your product to penetrate the market swiftly;
- Supplementing financials and support for your idea that is currently out of reach;
- Developing the product further before looking at licensing. A joint venture can eventuate into a potential licensing agreement;
- Forming an alliance with a group or individual that has expertise in engineering or industrial design, who is basically able to finalise the product design and prototypes; or
- Expanding your knowledge on the market and potential distribution channel contacts, which can all be utilised for subsequent inventions.
If you require assistance in drafting a joint venture agreement, LawPath recommends using our quick quotes service that will connect you with our network of highly qualified lawyers.
Considerations of a Joint Venture Agreement
One of the main advantages of a joint-venture strategy is that it allows you to supplement your financial resources by collaborating with your potential partner. These added resources to your lucrative venture can be sought by showcasing a design to the potential partner and then inquiring into the possibility of financial support to finalise a prototype. If the partner is happy with the end design and its viability in the market, then the two parties would generally proceed with the marketing and processes required. This process is much easier to sell to a company than a licensing agreement, as licensing often results in a loss of control.
Protect your idea
Whilst patenting your idea is not essential, it definitely generates a strong negotiable position and legally protects the intellectual property in your product. There is the option to apply for a provisional patent, however it can prove to be risky. The risky nature of this certain patent is due to the time restrictions placed on the user, as it only gives them one year to apply for a utility patent. That year could quite easily end before finalising the agreement with a partner and the product design itself. The more conservative and safe option would be to opt for a very broad patent, which allows you to keep going back and forth with the patent office for several years. This avenue can keep your patent rights open for three to five years.
Something to showcase
It may be difficult for some to manufacture a finalized prototype due to a lack of financial resources, for those that have the opportunity or resources available, I encourage you to develop a prototype prior to pitching the product to potential partners. Being able to offer this to a potential partner is key in that it generates an opportunity for them to visualise the product’s sales potential and its viability in the market.
Do’s and Don’ts when engaging in a Joint Venture
- Don’t be too ambitious and ask for an enormous percentage of profits. Be realistic and keep it below 50%, in an attempt to incentivise the partnership;
- Ensure that the idea itself is not the only thing you bring to the table. You’re not required to take on every function required for the development of the concept, however it is appealing to your partner if you offer a know-how to engineering the product or a strong network of contacts within the distribution channel to expedite sales’
- Make sure that you’ve done your market research. Well prepared individuals will have a more favourable position if they have survey results from 20-30 users and even stronger with respondents from your potential distribution channel.
- You MUST keep the momentum of the project going, whether that be constantly working on the marketing of the product or even brainstorming improvements for the design itself.
Being hit with curveballs is inevitable:
- You may encounter some loss of control over the project;
- You will be somewhat dependent on the other party to complete their jobs to a reasonable standard;
- You won’t be able to withdraw the product and start the company on your own once the joint venture is formally established; and
- Your stance and inputs may be overridden by the partner.
Insufficient resources to launch your new product? Don’t stress, seek a partner! LawPath recommends using our quick quotes service that will connect you with our network of highly qualified lawyers to advise on the documents you will need establishing a joint venture.
Still unsure what avenues to take when searching for a joint venture partner, contact a Lawpath consultant on 1800LAWPATH.
James is a Paralegal working in our content team which aims to provide free legal guides to facilitate public access to legal resources. With a passion for commercial law, his research focuses on small businesses, and how they can navigate convoluted legal procedures.