5 Aspects Of An Effective Joint Venture Contract

Laying out the terms of an agreement is an important first step in any joint venture contract. Imagine your venture is in real estate. If you were fixing up a property in the hopes of selling for a profit, you would need to state how things will be handled if the property fails to sell. You would also need to determine whether both parties will take part in the decision-making of reducing the sale price. Throughout the course of your operations, your joint venture agreement will be one of the most important legal business contracts your fill out. A joint venture contract contains many different elements but there are a few key aspects that all effective drafts consist of. If you are interested, here are five aspects of an effective joint venture contract.

Nature Of The Relationship

An effective joint venture contract must begin with a clearly defined relationship between the two parties. For example, do partners have fiduciary obligations to one another? Or, is this more of a contractual agreement where both parties respect each other’s space? You do not want a situation where one party is looking into a prospective opportunity and unsure whether to let the other know. The main objective is to minimize potential future disputes. The nature of the relationship between partners can determine a joint venture contract’s success.

Partner Contributions

Knowing each partners specific contributions is huge when drafting your effective joint venture contract. This is where you spell out exactly what each partner is responsible for. Identify who is in charge of the day to day operations? Who will be responsible for marketing duties? Who are financial resources coming from and where are they being allocated? If this is laid out efficiently each party should understand what they will commit to the joint venture and make sure they are each bound to that commitment. A joint venture contract is at its most effective when both partners are aware of each other’s contributions. When you writing a contract for business, ensure to document partner contributions very clearly.

Sharing Of Profits, Risks, Liability

The effective joint venture contract should always tackle the sharing of profits, risks and liability. There are several ways to structure how these will be divided. An incorporated joint venture involves the creation of a new company where both parties become shareholders. An unincorporated joint venture requires both partners to enter a contractual relationship that explains the division of sharing. A standard partnership involves both parties being jointly liable to third parties for any acts of the partnership. A limited partnership grants limited liability to one party and unlimited liability to all others. Establishing how you will share profits, risks and liability is a necessary aspect of an effective joint venture contract.

Insurance

Protecting your joint venture with insurance is another key to an effective joint venture contract. Several insurance options are available to joint ventures. First, each member can insure their own risk under existing coverage. This is viable when a project is working on a short term basis. Second, one member can insure the joint venture in totality. Finally, the joint venture can simply procure its own insurance, providing all members with coverage. If you want your joint venture contract to be successful, consider procuring the insurance that best fits your needs.

Intellectual Property

Forming a joint venture contract protects your valuable intellectual property. Without a joint venture agreement in place, there is no written document of who owns specific ideas, assets, and property. Forming an agreement guarantees that all contributions are clearly documented. This provides a layer of protection should you ever want to terminate business endeavors. In this case, you are able to leave joint ventures without fear of your intellectual property being stolen or misused. Because of there significant value to business protection, intellectual property clauses are an essential clause in an effective joint venture agreements.

Drafting a joint venture contract can be complex. When properly formed, it is one of the most essential types of business agreements you will document in your partnership. Make sure to lay out the terms beforehand in detailed, clear conditions. To ensure a successful joint venture contract, establish the nature of the relationship. Make sure each partner knows what their contributions to the venture will be. Determine what structure the sharing of profits, risks and liability will take. Furthermore, specify a compatible insurance option to protect your joint venture.Take all of these aspects into account when creating an effective joint venture contract.