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A joint venture is a type of business agreement between two or more parties to combine their resources towards a particular goal. We explain what you need to know about making a joint venture agreement, and how it’s different from a partnership.

What’s the difference between a partnership and a joint venture?

A partnership is registered with HMRC as a single legal entity 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.

The different parties of a joint venture remain legally separate from each other, and join together for a particular project rather than to operate as a single entity.

Understanding joint venture agreements

Sometimes known as a JV, a joint venture is 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.

How can setting up a joint venture be useful?

A joint venture allows businesses to set-up long term relationships or to work together for the duration of a project. By pooling their knowledge and resources, the businesses might have more opportunities, or a higher chance of success than they would on their own.

For instance one member of the JV might have knowledge of local networks and markets, whilst another might have equipment, or new research.

What are 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 properly. This might be because different parties don’t keep each other up-to-date on developments, or even time they put into the project.

It can cause a real breakdown in the relationship, and ultimately lead to the project failing.

 
accounting services for partnerships

Joint ventures and competition law

The Competition & Markets Authority ensures 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 available to customers. Not only does this restrict their options, but it also risks prices rising.

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.

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 confirmation of who owns 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.

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About The Author

Elizabeth Hughes

A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible. Learn more about Elizabeth.

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