A joint venture agreement legally creates the joint venture and identifies the major rights, duties, and obligations of the participants of the joint venture. A well-drafted joint venture agreement is an essential document to governing differences that may occur between the joint ventures during the span of the joint venture.
- The joint venture agreement will cover keys areas of importance such as:
- the contribution, role and involvement of each co-venturer
- the project or object of the joint venture
- the span of the joint venture
- the provisions for management and performance of joint venture obligations
- allocation of revenues and expenses from the project
Purpose and Scope of the Joint Venture.
The purpose and scope of the joint venture needs to memorialized. The parties to a joint venture frequently have businesses of their own. Many times the co-ventures are competitors outside the joint venture. Therefore, it is important that the scope of the agreement be sufficiently detailed to avoid future disputes.
Contributions of each Co-Venturer
The contributions of each of the parties needs to be clear. Initial capital contributions must be covered and future funding needs be covered. A mechanism for making calls for additional capital is an important term.A term that covers failing to meet capital contributions is essential. The what ifs must be thoroughly thought through and addressed.
In a commercial joint venture, the parties often make non-cash contributions. One participant may provide technology, one is logistics, another its brand name and so on. In each case, the financial terms must be spelled out. Is the co-venturer’s contribution provided without compensation or with.? Are their terms of exclusivity?
Time Span of the Joint Venture
For how long will the venture last? Some joint ventures are organized for a specific project, maybe the construction of a stadium, and are intended to end upon the completion of the project. Other joint ventures may be entered into to bid on the concession rights at an airport. This type of joint venture may have a specific term of years concurrent with the original concession contract.
Management of the Joint Venture
The parties will also need to come to terms on the management of the joint venture. Will one party lead and the others take a less active approach or will the management be even handed? Will there be a single manager or a managing committee?
Allocation of Revenues and Expenses from the Project
The parties also need to carefully detail the allocation of revenues/expenses and profits/losses. Will co-venturers share in their expenses or will they bear their own? Will revenues and expenses and profits and losses be allocated in accordance with capital contributions, percentage interests or in another manner? Need answers to these questions? Give us a call.