Partnering in businesses is not referred to as quite simple and easy as the word seems to be. The procedure of partnering in the business market is considered lengthy and follows a series of legal tasks. One of the major documents that are involved in setting up a connection between two parties is known as a Joint Venture Agreement.
The ideology of a joint venture is based on the fact when two or more parties intend to work across a project for a defined period of time. This agreement then displays itself as legally binding, which can be easily consumed for propelling any partnering relationship among two parties.
What is a Joint Venture Agreement?
Joint Venture Agreement can be remembered by various names. This agreement caters to finalizing a partnership with two or more business entities towards a temporary relationship. This contract lasts for a certain period of time. Along with that, this contract offers such a level of formality that it covers all legal bounds and helps people figure out their tax returns individually.
There are various advantages associated with working across a joint venture. While having the obligation of sharing the financial resources of the venture, the parties are completely prevalent to all kinds of resources and risks of the venture. For this, designing a simple Joint Venture Agreement follows the track.
The development of this agreement allows all the parties that are coming into the venture to set their terms and conditions. With defined and discussed terms and obligations, companies assure that their short investments in such joint ventures do not go astray. They strive to achieve their mutual goals and objectives.
Types of Joint Ventures Agreement
The Joint Venture Agreement template does not come in a single shape and type. The business community realizes the different types of ventures that can be settled among two or more investing parties. Whenever considering designing such an agreement, the parties need to look at whether their idea is 'Contractual' or features a 'General Partnership.'
Contractual Joint ventures recall a collaboration of two or more parties within a business project. They set up different terms and conditions of working alongside each other. Although the companies might be operating with their own distinctive units, they share a specific goal without any pooling of profits and losses. They cover their complete system with separate financial and account details.
A General Partnership features a joint venture where partners or collaborators agree on sharing the profits or losses generated from a certain project. Every party that is considered a part of the collaboration is liable to all the terms and conditions set across the venture. This type of joint venture is usually not preferred across business platforms. However, it does still make a good JV type.
Key Elements for Joint Venture Agreement
A joint venture particularly features a partnership among two or more parties across a subject goal that is both restricted and has a definitive purpose. However, whenever two parties come into such a venture, they practice writing down a Joint Agreement that allows them to operate things with perfection.
This agreement comprises all the basic terms and conditions that are to be followed by each party. There are several elements that are quite common in mentioning across every Joint Agreement. They are as follows:
- Parties: Mention the parties or the co-ventures that are working together across a single project.
- Contributions: Discuss all logistical, financial, property, and time contributions done by every party within the venture.
- Management: Define the person or a group that would look over the daily operations of the project. This team could be developed from the labor of both parties.
- Purpose: Provide the reason that led towards a Joint venture.
- Profits: Discuss all financial obligations and provide a ratio under which the profit shall be divided.
- Lasting Time: Provide a discussed date (if any) for the joint venture to end under certain terms.
- Confidential: Discuss to keep all proprietary information intact and confidential
- Termination: Termination of the JV over the completion of a goal or violation of a discussed term by any party.
Difference Between a Joint Venture and a Partnership
Whenever you may discuss setting up a joint venture, it may sound like deciding on a business partnership. Yet, there are a few fundamental differences that make joint ventures different from that of a partnership. Although both systems have a legal binding to offer, there are certain factors that make them different from what they generally are.
The joint venture is always settled across for a temporary period of time, whereas a partnership features a long-lasting permanent based system. With a contractual relationship, two or more parties jot down a Joint venture contract. A partnership, on the other hand, leads to the creation of a new separate entity operated by the parties coming into a partnership.
Joint ventures feature a very limited scope and purpose of collaborations, and partnership provides the opposite in the market. With a broader scope to work with, partnerships are more systematically operated and are much formal than that of a simple joint venture. A joint venture does not share an equal share of the idea, whereas the partnerships are a 50/50 system with a very solid structure.
Business agreements can be of different natures and types. Parties that have settled upon pooling their resources with a single purpose of achievement should sign up a Joint Venture Agreement. This agreement allows them to continue their operations with perfection and never sabotage their original work. With defined terms and conditions,* they can stick towards a single operation with lesser risks.
Before moving towards a joint venture, the companies should have a thick risk assessment to understand the necessity of setting up a collaboration. To get to know more about this, it is significant to look over the description provided above.