A joint venture agreement is used between two businesses temporarily working on a project together. This type of agreement outlines the partners’ expectations and protects the partners’ individual businesses, as well as the working relationship between the parties.
Joint ventures do not create a separate business entity and are generally joined into when parties are engaged in a joint project. They are limited in time and scope, and the parties involved in the joint venture do not always do business together. These ventures oftentimes have an expiration date that allows the parties discretion in renewing or refusing to renew the agreement.
Joint venture agreements are helpful in that the different parties to a joint venture project put forth and have different skills, assets, and can supply these in different quantities. Further, with joint ventures, the parties work together to the extent agreed upon in the agreement so it is important to have a clear and concise written agreement describing the agreed upon term of expiration and other terms and conditions.
A joint venture agreement usually covers the length of the agreement; the conditions for renewal; what the businesses will and will not do; the money, assets and/or skills the different parties are bringing to the project; how profits, losses, salaries, and expenses will be distributed among the venturing parties; the calculation of profits; the roles and duties of each party; the management structure; indemnity between the parties; and dispute resolution mechanisms.
Elements of a Joint Venture Agreement Include:
- Time limits and definition of the scope of work
- How the project will be terminated, and how assets and profits will be distributed and divided
- How co-created assets and intellectual property will be assigned
- Liability assignments;
- Record-keeping and accounting between the parties
- How expenses and revenues will be divided