Here are 7 key areas to focus on when entering a joint venture:
1. Purpose & Scope:
Your JVA must clearly define the objectives and purpose of the joint venture. Outline the specific business activities and projects the joint venture will undertake. Specify the duration of the joint venture.
2. Contributions & Responsibilities:
The JVA must outline the scope of work and contributions each party is making to the joint venture, whether they are financial, intellectual property, resources, or other assets.
It must define the roles and responsibilities of each party, including decision-making authority, management structure, and operational duties.
3. Profit & Loss Sharing:
Clearly specify how profits and losses will be distributed among the parties. This may be based on the capital or skills contributions, ownership percentages, or other agreed-upon criteria.
It must address how disputes regarding financial matters or operational matters will be resolved.
4. Governance & Decision-Making:
A JVA must establish a governance structure, including how major decisions will be made, voting rights, and the appointment of key executives or managers.
Define the decision-making process for day-to-day operations, as well as for significant events such as the sale of assets or changes in the business strategy.
5. Confidentiality & Non-Compete:
Include provisions to protect confidential information shared between the parties during the course of the joint venture.
Address any non-compete clauses to prevent parties from engaging in similar activities or competing with the joint venture during its existence and possibly for a specified period after termination.
6. Exit Strategy:
The termination clause protects the interests of all parties by specifying the process for winding down the joint venture. This includes the distribution of assets, settlement of liabilities, and other matters that need to be addressed upon termination.
The termination clause is crucial. It must outline the circumstances under which the joint venture can be brought to an end, such as the completion of the venture’s objectives, a mutual agreement to terminate, or the occurrence of specified events. The purpose of a well-structured termination clause will allow for a swift and clean exit without much disruption to your business, if the need arises.
7. Disputes:
The termination clause can include provisions for resolving disputes that may arise during the termination process. This helps in minimizing potential conflicts and ensuring a smoother dissolution of the joint venture. Mediation is a great way to initiate a resolution of disputes without having to litigate. One can suggest mediation first and litigation only after attempts to mediate have failed.