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Four essential components in a joint venture agreement

Unlike a partnership agreement, a joint venture agreement brings two separate businesses together for work on a specific project. During this process, companies share resources such as staff and technology. Joint venture agreements have costs and benefits, just like anything.

In a successful agreement, because both parties have skin in the game, there is an element of trust. In a failed agreement, despite both sides having a vested interest in the result, the two companies lack synergy, which becomes a breeding ground for failure.

Companies who feel they can successfully partner should enter into a legally binding agreement.

Four components of a solid joint venture agreement:

  1. Contributions. In a joint venture agreement, the collective gains in insights and expertise from each party need to be detailed.
  2. Timeline. What makes a joint venture different from a partnership agreement is the presence of an end date. Moving backwards from an end date, develop a list of goals and target completion dates.
  3. Ownership of resulting product. It’s important to detail how you will divide the resulting product before you begin working together. This is typically tied to work contribution levels, unless something like market access makes more sense.
  4. Exit strategy. Preparation for the unexpected will save you time and money down the road. Your joint venture agreement should cover options if one party fails to hold up their end of the agreement or if conflict derails your plans.

Just like anything in life, parties entering into a joint venture agreement must prepare for the unexpected. Even if the synergy is there from the start of discussions, without an airtight joint venture agreement, things can go wildly wrong. Protecting your business is a full-time job. Don’t let your guard down, even when partnering with someone you trust.

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