A joint venture is normally two or more parties wishing to carry out a joint commercial enterprise. The structure may vary from setting up a joint venture company or limited liability partnership through to a less formal structure where the joint venture is simply created via a contract.
As a preventative measure (to avoid future disputes), it is best to discuss how things will work going forward prior to the beginning of any joint venture. With this in mind, we suggest considering the following 5 things.
Joint ventures can be conducted using the vehicles set out above. The best option will depend on the type of business activity to be carried out.
Will ownership be equal between the stakeholders or will there some other proportions?
If the joint venture is to be conducted through a company, the parties should agree how many shares will be owned and what rights should be attached to each share. To provide protection to each shareholder, they will often agree that if any of them wish to transfer their shares, they have to be offered to the other shareholders first.
The roles and responsibilities of each party might be agreed at the outset of the joint venture. However, it is also good practice to put in place an employment or director’s service contract for each stakeholder. For company joint ventures, it is common for each party to have a right to appoint a director.
Parties will often agree a list of strategic decisions that can only be taken with the unanimous consent of the stakeholders.
If there is a disagreement, the joint venture can find itself in a deadlock, particularly where there is equal ownership of the business. Such disputes can prevent the business from operating. Solutions to such an impasse should be agreed at the outset which could involve one party buying the other out or even winding up the joint venture.
It would be prudent to enter into a joint venture agreement (or a shareholders’ agreement) prior to commencement. Such a document will provide some measure of certainty for each party and reduce the risk of misunderstandings. The process of negotiating the agreement will also prompt discussions on matters that might otherwise not be apparent.
Benjamin Franklin once said “an ounce of prevention is worth a pound of cure”. This rings very true in the business world.
Contact Richard Jenkins on 024 7698 0613 or Richard@clariclegal.co.uk for further advice or assistance.