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Last updated on 2024年8月15日

What are the best practices and tips for drafting a Joint Venture Contract?

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A joint venture contract is a legal agreement that defines the rights and obligations of two or more parties who collaborate on a specific project or business activity. Joint ventures can be a powerful way to leverage resources, share risks, and access new markets, but they also require careful planning and drafting to avoid disputes and misunderstandings. In this article, you will learn some of the best practices and tips for drafting a joint venture contract that protects your interests and aligns with your goals.

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1 Identify the parties

The first step in drafting a joint venture contract is to clearly identify the parties involved and their respective roles and responsibilities. You should include the full names, addresses, and contact details of each party, as well as their legal status and ownership structure. You should also specify the name and nature of the joint venture entity, if any, and how it will be registered and governed. This will help to establish the identity and authority of each party and avoid confusion or ambiguity.

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Bharat Sood

Associate at Athena Legal l Transactions, General Corporate advisory, Private Equity, Venture Capital, Employment & Labour laws, ESG
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In a joint venture contract, ensure that the address of the parties is the registered office address only. Also make sure to insert the registration number of the company along with the name of the authorized representative of the party in case one of the parties is a company. The parties should also make sure to clearly state the nature of their business and the type of entity i.e. if it is sole proprietorship or partnership firm or limited liability partnership or private/public company.

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2 Define the scope and objectives

The next step is to define the scope and objectives of the joint venture, including the purpose, duration, and expected outcomes of the collaboration. You should also describe the scope of work, deliverables, milestones, and performance indicators for each party, as well as the budget, resources, and contributions required. This will help to set clear expectations and goals for the joint venture and measure its progress and success.

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John Chapas

Entrepreneur and Owner at The Law Office of John W. Chapas II, Esq.; Former Long-Time Big Law Partner
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Be as detailed as possible. No one likes surprises in a joint venture (especially if one party has a smaller ownership interest in the venture).

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3 Allocate the risks and rewards

Another important step is to allocate the risks and rewards of the joint venture, including the profits, losses, liabilities, and ownership rights. You should also determine how the parties will share the costs, revenues, and assets of the joint venture, as well as the tax implications and accounting methods. You should also outline the risk management strategies and contingency plans for dealing with potential issues or challenges that may arise during the joint venture. This will help to ensure a fair and balanced distribution of the benefits and burdens of the joint venture and mitigate the impact of any unforeseen events or circumstances.

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4 Establish the governance and decision-making

The fourth step is to establish the governance and decision-making structure of the joint venture, including the roles, powers, and duties of the management team, board of directors, and other key stakeholders. You should also specify the communication, reporting, and consultation procedures and protocols for each party, as well as the voting, resolution, and approval processes for major decisions. This will help to ensure a smooth and effective operation and coordination of the joint venture and prevent conflicts or disputes.

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5 Include the exit and termination clauses

The fifth step is to include the exit and termination clauses in the joint venture contract, which outline the conditions and procedures for ending or dissolving the joint venture. You should also address the consequences and obligations of each party upon termination, such as the distribution of assets, liabilities, and intellectual property, the settlement of disputes, and the confidentiality and non-compete agreements. This will help to protect your rights and interests and avoid legal complications or disputes in case of a breakdown or dissolution of the joint venture.

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Bharat Sood

Associate at Athena Legal l Transactions, General Corporate advisory, Private Equity, Venture Capital, Employment & Labour laws, ESG
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In order to ensure that when the parties under a joint venture contract are looking to exit the JV, both parties can ensure that in case of third party sale of the shares then in such a scenario the interest of other party will remain protected if selling shareholder is forced to offer its shareholding to the existing investor before offering it to a third party not party to the JV contract.

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6 Review and revise the contract

The final step is to review and revise the joint venture contract before signing it, to ensure that it reflects the true intentions and agreements of the parties and complies with the relevant laws and regulations. You should also consult with a lawyer or an expert in joint ventures to check for any errors, omissions, or inconsistencies in the contract and to advise you on any legal or contractual issues or risks. This will help to ensure that your joint venture contract is valid, enforceable, and beneficial for all parties involved.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Thomas Dunlap

Managing Partner @ DBL Lawyers - Adjunct Professor @ Lafayette College - Entrepreneur Round Ten
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If the joint venture is for the purposes of contracting with the US government under the SBA guidelines, here are some basic tips: 1. It must be a written agreement for a specific purpose and limited duration of 2 years from the award of the first contract. 2. The SBA no longer permits populated JVs thus a JV generally cannot have its own employees. 3. A JV must have its own name UEI, DUNS, and CAGE in SAM. Know and include limits on: - Workshare, the protégé must perform 40%/ mentor 60% (BUT it can be more if mentor acquires up to 40% of protégé equity) - Subcontracting is limited to 50% except for construction and special trades - Only cleared companies can do clearance-required work (i.e., both ventures must be cleared).

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Bharat Sood

Associate at Athena Legal l Transactions, General Corporate advisory, Private Equity, Venture Capital, Employment & Labour laws, ESG
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It is important to observe and analyze the trends considering various factors such as legislative trends, ease of doing business, availability of funds and easy entry into foreign markets while choosing the right partner for setting up of joint venture business.

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What are the best practices and tips for drafting a Joint Venture Contract?

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1 Identify the parties

2 Define the scope and objectives

3 Allocate the risks and rewards

4 Establish the governance and decision-making

5 Include the exit and termination clauses

6 Review and revise the contract

7 Here’s what else to consider

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