Joint Venture Agreement: Collaborating For a Better Business
In a business, there are various types of agreements that form an important part of business management. Out of all, Joint Venture (JV) agreement plays a very important role in business management. This type of agreement comes to play when there are two or more parties that agree to work in collaboration with each other thereby sharing their resources as per the agreement for the business activity or any new project. The work being considered to be done or for which the JV has been entered will be determined by the agreement provisions. This will determine each nuance like profit, losses, and cost associated with it. Mostly the JV is being entered for a venture and the independent business functioning is not affected by it.
Understanding Joint Ventures
JV is always entered by two or more businesses when they wish to have a joint force for working for a project or a 
task to have shared the profit or loss as the case may be. There cannot be one reason for entering a JV by the business. The business also enters the JV if they want to gain the market and want to have wider access in terms of consumers. They also enter to share the resource and develop a new product. Getting an estimated loss and profit is not possible and in that case, JV helps since it divides the profit and loss for the company.
The JV can be of many types like there are contractual JV or a general partnership JV. In the contractual JV, the parties agree to share for a particular project or task. In this, the agreement is made very clear to the terms under which the parties will work. The members continue to work with a shared goal and sharing of profit or losses, as per the agreement. Similarly, the General Partnership is the one when the parties agree to the profit and loss and either party will be jointly and severally liable for the obligation of the partnership. There can also be a limited partnership JV where the liability of at least one of the partners is limited, while the liability of others is unlimited.
The most important task for the JV agreement, as stated earlier, is to explain the nature of the parties and the liabilities and expectations from them while being on the project. The obligatory nature of the parties must be clearly defined to adjudge that the role of the parties in the JV. Why this is important to cover is because if there arise some disputes, then this agreement can exactly prove the liabilities of the parties. Like what will happen if there is any such breach of the contract and what will be the process to indemnify the other parties. These all things are expected to be mentioned in the JV agreement because then it will help to minimize the potential conflict between the parties.
The JV agreement must also be very clear with regards to the sharing of profit and loss and also under what circumstances. It is very important because the sharing of profit can be done as per the owner of the parties or even the capital being invested by the parties. It can also be done as per the basis of any such calculations as it may deem fit. Mostly the sharing of profit and loss depends upon the parties’ contribution to the project. The contribution that the party will make also depends upon the terms of the contract. This means that the parties’ contribution to the JV must be made very clear and the parties are made bound by that commitment.
Another very important part that comes up is the regulation of Intellectual Property which has the potential value. The IP can range from various things such as patented product or software or any technology. It is highly imperative to understand and incorporate the same in the agreement. There are chances when any one party can take advantage of the other’s IP and profiting from it. This must be regulated with effective JV drafting. The issues of decision-making also form a matter of dispute in any case. It is highly pertinent to understand and incorporate the provisions which will explain who will be managing the venture and who will be the decision-maker. Decisions like entering into a contract, funding, investment, shareholder information, staff salary, etc. forms a very important part of the JV.
Author: Saransh Chaturvedi (an advocate) currently pursuing LLM from Rajiv Gandhi School of Intellectual Property Law (IIT Kharagpur). In case of any queries please contact/write back to us at support@ipandlegalfilings.com.
