What is a Joint Venture – Venturing into Joint Ventures

Have you ever met another entrepreneur and you just clicked? You knew from the minute you met the person that your business could benefit if you joined hands with them, you would gain access to a wider market and increase sales. So if you think you’ve met your match or “the one”, how do you propose to do business with them while not coming on too strong when you’ve only just met them? Proposing a partnership right off the bat may be a huge step and not one you yourself may be ready for.

Committing to a business partnership prematurely can be disastrous, especially if you realize once you’ve formed a partnership that you’re not professionally and temperamentally compatible. So I don’t suggest jumping into a long term commitment even if you think you’ve found your business soulmate. An alternative to partnership is a joint venture. Partnership and joint ventures can be similar if you join hands with another business to create a new entity. But they’re quite different if the joint venture is contractual in nature. Contractual joint ventures exist solely through a written contract. For the purposes of discussing joint ventures today, I’ll be referring to contractual joint ventures.

Here are some key differences between a joint venture and partnership:

1. A joint venture is a collaboration on a specific goal or project. A partnership, on the other hand, is a business structure created in accordance with state law that will dictate how it needs to operate and how it will be identified for tax purposes.

2. The joint venture will be a temporary partnership created by a contract, while an established partnership will be permanent.

3. The scope of the joint venture will be limited to a specific project or venture, while a partnership will be a broad scope.

4. Joint ventures and partnerships can also be different in regards to taxes as well as handling of debts. In a joint venture, each party will file an independent tax return, while a partnership will be taxed as a pass-through tax entity.

5. Liability in a joint venture will lie with each individual, while liability in a partnership will be shared.

Now that you have some clarity on what a joint venture is and how it differs from a partnership, you need to know what goes into a joint venture contract. Here are some important clauses that go into a joint venture agreement:

  1. Purpose of the agreement – clearly define why the JV is being formed

  2. Names and addresses of members

  3. Duties and obligations of the parties – roles, responsibilities, time commitment, results

  4. Contributions of the parties – monetary investment

  5. Profit/loss distribution

  6. Ownerships rights in materials are created in the JV – think brand names or creative works

  7. Assignment and transfer of rights in the IP

  8. Termination of the JV – specify the period of the JV and how to terminate sooner if the parties want to get out

  9. Non-compete and confidential agreements

Don’t forget the golden rule - you must have a written contract.

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