A joint venture is a type of business agreement made between two or more parties who agree to combine their resources in order to reach a particular goal. In this article we’ll explain what you need to know about making a joint venture agreement, and how they’re different to a business partnership.
What’s the difference between a partnership and a joint venture?
Although partnerships and joint ventures both consist of different parties coming together to work towards a common aim, they’re not the same thing. A business partnership is a type of legal business structure which must be registered with HMRC. It might be made up of individual people, businesses, or a combination, who all operate under the partnership’s umbrella.
The different parties that unite for a joint venture will normally create an agreement or contract that sets out how they all work together, but they won’t need to register the agreement with HMRC and will stay legally separate from each other.
What is a joint venture agreement?
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 they agree to work together in one area. If they were to do this as 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.
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Joint ventures and competition law
The Competition and Markets Authority aims to ensure 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, so it’s well worth reviewing CMA guidance before developing any agreements.
How do I set 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, and make sure that they are financially secure and stable
Research previous and existing partners, and the nature of their relationship
Consider their reputation to help you assess the possibility of having your brand damaged by association
A written agreement between all involved will help to protect you, but can also help the venture to succeed. It’s an opportunity to agree the responsibilities of all involved, and what they will need to contribute. It also 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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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.