Joint Venture AgreementA Joint Venture Agreement allows two or more parties to enter into a legally binding business contract.
A Joint Venture Agreement is a contract between two or more parties who want to do business together for a period of time, without creating a formal partnership or new legal entity. Usually, both parties have an equal stake in the venture, and will both reap the benefits.
What does the Joint Venture Agreement cover?
- Each party’s business objectives;
- Roles and responsibilities of each party to the agreement;
- Distribution of cost;
- Profit sharing;
- Dispute resolution;
Other names for Joint Venture Agreement include:
- Joint undertaking
- JV Agreement
- Co-Venture Agreement
What are the differences between a joint venture agreement and a partnership agreement?
A common mistake often made is treating the terms ‘partnership agreement’ and ‘joint venture agreement’ interchangeably. Although the two are similar on the face of it, there are in fact distinct differences.
Should I use a partnership agreement or a joint venture agreement?
A partnership agreement is a legal relationship between two or more individuals, carrying on a business in common with a view of profit. To ensure a professional relationship between partners, it is common that mutual aims and intentions are agreed upon, and often that the partners share the same skill or profession. A partnership ma be legally incorporated.
A joint venture is a less formal legal relationship that allows individuals, or businesses, to work on a project together. The essential terms are generally set out in a written joint venture agreement. Such an agreement commonly identifies that the individuals have not formed a partnership.
A joint venture agreement allows the individuals to have access to new markets, technology and staff. If flexibility is a key feature you’re looking for in a partnership business then the joint venture agreement may be more fitting for you. With the ability to share financial risks individuals are able to approach each other (even if they’re competitors!).
Advantages of a Joint Venture Agreement
- Greater flexibility in terms of tax
- Liability for debts of joint ventures is stipulated to be separate
- Partners are not bound to other partners
Disadvantages of Joint Venture Agreement:
- Joint venture parties are able to avoid fiduciary duties
- No joint enterprise
- Potential conflicts and disputes without the help of a written partnership agreement
Advantages of a Partnership Agreement:
- Partnerships are subject to regulation acts of their respective states and territories, enforcing accountability
- Selling and/or receiving income jointly
- Internal rights to control/manage the partnership
Disadvantages of a Partnership Agreement:
- Partners are jointly and severally liable for debts incurred in the course of their partnership
- Partners cannot enter into their own financing agreements
- Complex issues arise around the way in which assets are held