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Secrets Of A Successful Joint Venture

Joint ventures provide a vehicle for which your business can take on particular projects, innovate new products, and/or explore overseas markets. Projects and transactions are becoming increasingly complex, making potentially profitable ventures beyond the scope of an individual SME. By partnering with another company in a joint venture, both organisations can benefit from the resources and expertise of the other.

The below tips are designed to provide you with some of the information required to launch a successful joint venture.

Create the right legal structure for the joint venture

One of the first administrative tasks to negotiate and manage is deciding what legal structure your joint venture will operate under. The four basic legal forms are:

  • A limited liability company.
  • A limited liability partnership (LLP).
  • A partnership (or limited partnership).
  • A contractual co-operation agreement.

Each structure has differing levels of integration. For example, if a limited liability company is formed, all the trading activities, capital, assets, and liabilities relating to the joint venture operation will be vested in and managed via the new company which will have a separate legal identity from the organisations involved in the joint venture. In the case of a contractual co-operation agreement, assets, liabilities, and even profit distribution may remain separate.

Have the correct legal documents to underpin the joint venture

The most important document you need to have professionally drafted is a joint venture agreement. This will set out, among other matters:

  • The parties involved.
  • The scope of the joint venture.
  • The contributions of each party, including capital, skills, and assets.
  • How the joint venture is structured.
  • How the ownership of the project will be divided.
  • Responsibilities of each party.
  • Intellectual property rights.
  • How the joint venture will be managed.
  • Profit distribution.
  • How disputes will be managed.
  • How the joint venture will be dissolved.
  • The notice period required to quit the joint venture if it does not work out (typically 60 days).

If the joint venture is structured as a limited liability company, you will also need to have Articles of Association and a Shareholders’ Agreement. If you choose a partnership structure, a partnership agreement will be required.

Wrapping up

Joint ventures, especially those with cross-border elements require meticulous organisation, clear contractual commitments, and robust communication between everyone involved. Investing in professional legal advice from the outset can greatly enhance the chances of the venture’s success and profitability. If you have any questions regarding anything covered in this article, please call us on 02476 231000 or email enquiries@askewslegal.co.