In today’s connected world, it’s likely that at some point your business is going to want to enter a joint venture (JV) with some other company. JVs typically involve entering a temporary or long-term business relationship with another company–usually not a direct competitor, but one that targets a similar market and demographic–for mutual benefit. JVs offer a strategic way for businesses to pool resources, share risks, and leverage complementary strengths. They provide an opportunity for growth, diversification, or entry into new markets without the need for a full merger or acquisition. However, as with any business arrangement, joint venture agreements can do more harm than good if not properly designed to safeguard your company’s interests. Let’s look at five best practices to consider when establishing a JV with another company.
1. Clearly Define the Scope and Purpose of the Joint Venture
What is the goal of this collaboration? Is it to develop a new product, break into a new market, share referrals, or combine resources for a particular project? Make sure all goals are clearly spelled out in the agreement. Having a clear, shared understanding of the JV’s objectives will help prevent misunderstandings and conflicts down the line.
2. Clearly Define Roles and Responsibilities
Each party’s roles and responsibilities should be clearly outlined in the JV agreement. This includes operational duties, financial contributions, decision-making processes, and any other obligations. When each participant knows what is expected of them and what they will contribute, it effectively “greases the wheels” of the business relationship and reduces the risk of friction.
3. Establish Intellectual Property Rights
Intellectual property (IP) can be a significant source of contention in JVs. To avoid disputes, the agreement must specify who owns what IP both during and after the JV’s term. This includes patents, trademarks, copyrights, and trade secrets. If new IP is created, the agreement should outline how ownership and usage rights will be distributed between/among the companies.
4. Plan for the Unexpected
Like any business endeavor, JVs carry risk. To protect your business, consider potential scenarios that could disrupt the joint venture and outline how they will be handled in the agreement. Include language in the agreement that discusses how to part ways if one party wishes to exit the venture, how disputes will be resolved, how you will navigate changes in market conditions, etc. Incorporating contingency plans into your JV agreement will ensure your business is prepared for any eventuality.
5. Get Legal Advice
Lastly…remember that like other agreements, JVs can be legally binding. Even if you believe you crossed all the “t”s and dotted all the “i”s, there’s a possibility that you’ve encountered a blind spot in the agreement that could come back to bite you later. Never sign a JV agreement without having your general counsel review it first. An experienced business attorney can help you understand the potential risks and rewards of your agreement and suggest modifications to better protect your interests. (Better yet, if possible, have the attorney draft the agreement for you.)
At Travis Law, our mission is to ensure all the legal aspects of your business are covered so you can focus on your own mission knowing your company’s interests are protected. Contact us to discuss your legal needs.