Understanding Joint Ventures & Joint Venture Agreements
Joint ventures are business arrangements involving two or more parties (often corporations) that come together to implement a specific project. Usually it is for synergistic technology to be spun out to a new venture by two or more entities. The nature of the relationship and the terms and conditions of the project (including responsibilities, ownership, the term of the project, revenue splits and all other components of the project) are governed by a contract. Setting up joint ventures properly is extremely important. Please read more or call the Calgary joint venture lawyers at Kahane Law Office. We enjoy helping: 403-225-8810.
What Is A Joint Venture Agreement?
The contract described above is called a Joint Venture Agreement. These agreements are extremely important as they are the full and total basis for how joint ventures are run. They deal with each aspect of joint ventures including:
- Which party will be responsible for what
- How profits are distributed
- What happens if there are problems
- Who contributes (and how much) if more capital is required
- What happens if a joint venture partner does not do their part
- And much, much more.
Are Joint Ventures The Same As Partnerships?
No, joint ventures are very different. Great care should be taken to ensure that the joint venture agreement negates partnership implications. The consequences of an unintended partnership can be severe to the parties. This is because the partners, in a partnership, are jointly liable for each other’s debts and have the power to act as agents for each other. Partnerships are governed by partnership agreements. Joint Venture parties rarely want this liability or agency dynamic. The business and joint venture lawyers at Kahane Law Office can work with you to ensure that your Joint Venture Agreement is properly drafted.
How Do You Protect Against Deemed Partnerships?
There are many ways that joint ventures can be structured to avoid partnership implications. For example your agreement should:
- Contain an indemnity clause to protect against third party claims premised on the existence of a partnership;
- Indicate in the Joint Venture Agreement the intention to create a joint venture (so as to distinguish it from a deemed partnership);
- Refer to co-ownership of the joint venture property, and don’t speak in terms of transfers of property “to the joint venture”, as joint venture parties are the direct owners of the assets used in the joint venture; and
- Express the limited scope of the relationship and preclude the parties within the context of the joint venture from entering into any other project or undertaking that is outside the expressed scope of the joint venture;
Can The Parties In Joint Ventures Bind The Other Parties?
The joint ventures should not allow the parties from acting as agents for each other. Joint ventures should refer to the allocation of gross revenues and expenses, rather than profits and losses, and the right of the parties to assign their interests in joint ventures should not be unduly restricted.
Who Controls Joint Ventures?
The Joint Ventures should provide for mutual control and management of the joint venture (and it is often wise for all major decisions to require joint venture unanimous consent). Having good organizational structure is important. Finally the joint venture agreement should contain cross indemnities between the parties in respect of liability for third party claims (which may be premised on the existence of a partnership) in excess of a joint venture party’s proportionate share.
Avoid Risk! Call For Help With Your Joint Venture
The entrepreneurial & start-up business lawyers at Calgary based Kahane Law Office will help you properly set up your joint venture. We help protect you, your business and the venture. Call today! 403-225-8810 locally in Calgary, Alberta or email us directly here.