Many entrepreneurs have enjoyed long-term success with a Joint venture (JV) strategy. These partnerships can enable businesses to grow faster without having to borrow funds or rely on external investors. The classic definition of a JV is the arrangement of two or more companies to pool and combine resources on a product or service. The parties involved then typically agree on a fair split of the profits and value generated by the partnership. Some of the world’s most successful JV’s include Samsung and Spotify, SABMiller and Molson Coors Brewing Company, and Starbucks and Barnes & Nobles.
For a small business wanting to increase market share, a well-structured partnership with a larger more established company offers access to wider marketing and distribution resources, thereby saving time and money in selling the product or service.
With increasing globalisation, the rise of advanced technology, and generally declining economies, there is a growing opportunity for entities to join forces for mutual interest.
However, as appealing as a JV might be, for a business partnership to be a success, it’s critical to note that both parties need to agree to clear time-specific objectives, sharing of profits/loss, and day-to-day management of the venture. This begins with structuring an iron-clad contract. A joint venture that endures years of success is only possible if all your ducks are in a row.
Tamasen Bluett, Attorney and co-founder of LegitLaw, highlights the crucial clauses and aspects to cover and eight priority questions to ask for a joint venture contract:
• How will finances be handled?
Will both parties split the initial start-up costs 50/50? What happens if one of the parties invests only time instead of money? How will that factor into things?
• What will each party bring to the joint venture?
It is vital to know how the work and capital investment will be split between the relevant parties. Who is bringing what to the table, and what can each person expect from the other? The more detail added here, the clearer the roles and expectations of either party will be.
• Who is responsible for the day-to-day operations of the venture?
The everyday stuff like managing the mailing list, handling customer service, making payments, and keeping track of the overall finances is essential for a business to prosper.
• What is the term of the arrangement?
Is there an end date? What happens if one or both parties want out of the joint venture? Can the one buy the other out for example, and at what price? Deadlines are always important, but especially in joint ventures. When does the development need to be completed?
• Who owns what?
Does each party own equal shares of the resulting intellectual property, or will the percentages vary? How does “sweat equity” or investment through time and effort (instead of money) factor into the ownership of the intellectual property?
• Can either of the parties use the brands, or products and/or services created in terms of the joint venture to be used outside of the joint venture?
E.g., either party takes the product you both developed and sells it by themselves?
• What happens if one person can’t perform their duties?
Can someone else from that person’s team or a colleague perhaps step into the party’s shoes? What role and ownership will the loved ones of the party have in respect of the joint venture in such a scenario, e.g., will the joint venture go on, and in what manner?
• What’s the plan if the parties disagree and the conflict can’t be resolved?
Will you consult a neutral third party, such as a mediator, to help you resolve the issue? Or have the option to go straight to court?