Interpreted broadly, a joint venture denotes two or more persons or businesses entering into a business venture together. As they say, you can’t walk alone and to compete effectively, every business will enter into some sort of joint venture in the course of its “life”.
Joint ventures can be categorised broadly into the following:
- Unincorporated joint ventures. This is where two or more parties enter into a contract to work together but without forming a new company to “own” the new business. Some examples of such joint ventures would be:
- Agency agreements
- Distributorship agreements
- Franchise agreements
- License agreements
- Partnership agreements
- Cooperation Agreements
- Incorporated joint ventures. This is where two or more parties form a new company to take ownership of the new venture and each of the “partners” become shareholders. This is the commercial equivalent of “getting married” because the joint venture company will be the owner of the new business (not the partners individually). Like marriage, it is only upon dissolution of the company that the business assets (including IP) will be divided. And like marriage, exiting an incorporated joint venture can be difficult especially when you have not documented the commercial relationship well in the form of a shareholders agreement (see my earlier post).
As can be seen above, there are a number of ways for business “partners” to work together to achieve their commercial goals. Each has differing legal implications and strengths and weaknesses. Which is suitable depends on what you have and what you are trying to achieve.
In future posts in this series, I hope to share a checklist of the items for your consideration each time you consider a joint venture. This checklist will help you focus on the questions to ask yourself and in turn, set out usefully the commercial terms to consider when you start negotiations with your “partner(s)”.