Joint Venture Agreement: What it is and Why You Need One

Last updated on October 21st, 2021 at 06:05 pm

For a small business, a joint venture can help you acquire customers much larger than you'd normally be able to work with.

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A ‘joint venture’ is a term that is commonly used in Australia and if you own some sort of business, you might have run across this term. However, what do you really know about joint venture agreements, when should one be made, and why do you need it?

You can find the answers to all these questions and more down below.

What is Joint Venture?

A joint venture is a business arrangement made between two or more organizations, groups, or companies that seek to accomplish a specific goal. This goal can be anything from a new project, a task, or any sort of business activity.

The participants of a joint venture are to maintain their individuality and legal independence. However, they are to act under the same rules and are responsible for all the costs, profits and, losses associated with the joint venture.

Joint ventures are temporary agreements and they can involve both big and small companies, companies with different areas of expertise, and companies looking to start in the new geographical market.

The signing of the joint venture agreement can result in the creation of a new or separate business entity or it can function solely on the agreement without the formation of a new entity. This brings us to the types of joint venture agreements.

Types of Joint Venture Agreements

There are many types of joint venture agreements. For example, we mentioned that companies can participate in a joint venture without creating a new company. In that case, the type of joint venture agreement you need is a contractual or non-equity joint venture agreement.

On the other hand, if the whole point of the joint venture is to create a new company, the agreement you need is a corporate or equity joined ventures agreement.

There are also joint venture projects and their purpose is to develop a project with a time limitation.

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Why do Companies Create Joint Ventures?

The reasons for joint ventures are many but some of the main ones include combining resources, expertise, saving, or maximizing money.

Creating a joint venture to combine resources is the most typical reason companies opt for joint ventures. When companies combine their forces it’s because together they will have more influence in industry and more resources than if they were separate.

The other reason for joint venture agreements is combining expertise. Companies complement each other with this joint venture. One company may be an expert in, let’s say, marketing, while the other excels in design – when combined they make a perfect whole.

The third reason for joint ventures is saving money. This is especially convenient when there are two or more small companies and when their goal is to save money on advertising or marketing.

Maximizing profit is also a good reason to create a joint venture agreement. For example, two or more construction companies create joint ventures to maximize their earnings.

If you own a construction company in Australia and you want to create joint ventures with other companies, make sure you contact construction lawyers from Sydney. The construction lawyers specialize in the area of legal practice dealing with matters such as infrastructure, construction, and engineering so they will know more about construction agreements and will be able to give you better advice.

How to Create a Successful Joint Venture?

The first step to take is to hire a lawyer – a business, construction, or any other lawyer that can help you create a contract with clauses that will protect both the project and the partners.

Consult with your potential partners and choose the right type of joint venture agreement. A good joint venture needs to contain the purpose of the agreement, duties, and obligations, assignment of percentage ownership, profit or loss allocation, dissolution terms, and so on.

All in all, having legal support and advice is always the best solution. A lawyer can help you understand your responsibilities, rights, and limitations. Now that you know what a joint venture agreement is and how can you benefit from one, you can join forces with another company or business and create a special project!

Patrick Adams is a freelance writer and rock-blues fan. When he is not writing about home improvement, he loves to play chess, watch basketball, and play his guitar. More than anything, he loves to spend his time in his garage, repairing appliances and creating stuff from wood.

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