Frequently Ask Questions On Joint Venture Agreement
A Joint Venture (JV) Agreement is entered into between by two or more parties wherein it is an arrangement to carry on a business project together. Such an agreement formalises the arrangement agreed upon by the business partners. A JV can be entered into between individuals, partnerships, limited companies and limited liability partnerships. Such agreements can also be entered into between a company and an individual or two individuals or two entities. It is pertinent to note that there is risk of commercial litigation if such a JV agreement has ambiguity or if the parties have a fall out over dispute which remains unresolved.
It is not mandatory to have a JV agreement in writing. However, it is always advisable to have a written agreement executed between the parties to avoid any disputes. In the event that the parties do not want to enter into a concrete written agreement, in addition to verbal understanding between the parties, it is recommended that a common understanding/ undertaking with regards to contribution of assets, finance, technical/skill contribution for a specific business purpose and common interest and control over the JV is expressed.
A JV generally means a business collaboration and it can be entered and designed as any of the following:
A contractual JV wherein no separate legal entity is formed.
A JV entity wherein a separate entity such as a Company, Partnership or a Limited Liability Partnership is formed.
JV is a critical agreement and some of the main clauses and provisions that must be incorporated in the agreement are- Name of the parties, contribution of the parties; financial or technical, method of profit and cost division, duties and obligations of parties, rights and liabilities of each shareholders/partner, duration and structure of the agreement.
Following are the alternatives: (a) Forming a partnership agreement specifying the rights and obligations of the partners and profit sharing method. (b) Merger with another business partner to gather resources, skills, technology. Such structure is resorted to when the parties intend to collaborate for a longer period of time and not only for a particular business project. (c) A strategic alliance agreement where the parties agree to share access to resources to reduce overheads rather than to enter into agreement for a specific project.
An agreement can be amended or altered by the following ways:
Execution of a supplementary agreement; or execution of an addendum or a deed of amendment/ variation. Any of such document must contain details about the specific terms and definition that are mended or altered for it to be legally acceptable and binding. Such document must be signed by all the parties of the original JV agreement and it should not be in contravention of the previously executed agreement.