Joint venture agreements are contacts entered into by small business owners who wish to form joint ventures, i.e. partnerships, between their business and another company.  These joint venture agreements, also known as joint venture contracts or JV agreements, consummate and formalize a joint venture arrangement.  However, before undertaking such a venture, the small business owner should consider several important factors.

The risks and issues involved in a joint venture agreement are usually very real and must be seriously considered.  Issues such as how to preserve the confidentiality of sensitive information, whether the business objectives of the two companies are in line with each other, and how the management of a joint venture will be organized are just a few of the major issues.  Risks such as one or both companies’ possible loss of market share, failure to capitalize on business opportunities, and lack of chemistry between management are just a few of the several risks that must be considered.

Project teams within the organizations should be formed to perform due diligence on whether a proposed joint venture makes sense.  The most important factor to consider is whether the mission and purpose of the two companies are in line and are consistent.  Without this synergy, a joint venture will almost never work.  It is thus the project teams’ responsibility to look at the strategies of each company, its P&L statements, and other considerations before considering what a JV agreement would look like.

See an actual Joint Venture Contract

It is also important to establish a steering committee to ensure the success of the joint venture.  Typically the steering committee consists of one or more members from the business development group of each party, and another one from the human resources department.  An effective steering committee can address important issues surrounding implementing the joint venture plan during the transition phase.  Specifically, the steering committee can initiate discussions, enhance existing relationships and form new one, and obtain senior management support for its transition plans.

At some point, it is important for small business owners to hire lawyers, or use in-house counsel, to structure and draft the joint venture agreements.  These joint venture contracts should effectuate the verbal agreements reached by the two parties, and should focus on each party’s roles, responsibilities, rights, and obligations.

They should also address the primary concerns involving confidential information, new role of management, and any length of time that is involved.  In all, Joint Venture agreements, a.k.a. JV contracts, should reflect the “win-win” spirit of the joint venture, and must contain clearly drafted “out” clauses in cases it becomes clear that the joint venture has not been a success.

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