A joint venture is an alliance which is undertaken by two or more parties, and is different from a partnership agreement.
What’s the difference between a partnership and a joint venture?
A partnership is registered with HMRC as a single legal entity which operates as an ongoing business concern. It might be made up of individual people, businesses, or a combination, who all operate under one umbrella as a business in its own right.
The different parties of a joint venture remain legally separate from each other, and are joined together for one particular project, rather than to operate as a single entity. It’s a bit like two countries with a trade agreement or a joint research project; they each remain their own country, but agree to work together in one area. In a legal partnership, the countries would merge together to become one country.
Why is a joint venture useful?
A joint venture allows businesses to set-up long term relationships or to work together for the duration of a project. It’s an effective way of accessing new markets and networks with less risk, and less cost. It might entail sharing equipment, research, or funding resources.
The risks of a joint venture
There is an element of risk in any business agreement. If one partner benefits from a different outcome to another, it can be difficult to motivate the forward growth of the project. Problems might also arise through differences in working practices, or an inability to communicate. It can cause a real breakdown in the relationship, and ultimately to the project failing.
Joint ventures and competition law
The Competition & Markets Authority work to ensure that the economic market doesn’t become stagnant as a result of companies not competing with each other. Having a competitor means a business continues to innovate in order to keep up in the market. Where a partnership or venture means that competitors become collaborators, it reduces the amount of choice that customers have.
There are strict fines for businesses that are found to be on the wrong side of competition law; as much as 10% of the company’s global turnover. CMA guidance can be found online, and should be consulted before any agreements are developed.
Setting up a joint venture
Setting up a joint venture is broadly similar to most types of business agreement. Do your due diligence on the partners involved, making sure that they are financially secure and stable. Research previous and existing partners, and the nature of their relationship. Taking their reputation into account will help you assess the possibility of having your brand damaged by association.
During set up it also helps to consider what your exit strategy will be. This will be useful if things go wrong, if the partner doesn’t uphold their part of the deal, or at the natural end of the project.
Writing a joint venture agreement
A written agreement will help to protect you, but can also help the venture to succeed. Agree the responsibilities and contribution of each partner, and have it as a written contract. It helps if the agreement includes ownership of anything produced by the relationship, as well as how profits or losses will be shared. Agree regular review points, or even re-negotiation points.
Even for relatively small ventures it’s a good idea to take legal advice at each stage of the process, and to have any agreements reviewed.