There are many options to choose from when it comes to a business’s structure. These options generally contemplate single business entities, but there may come a time when two entities see a benefit to joining together to address a very specific matter.
In these instances, since the businesses wish to maintain their separate identities and only join together for this one purpose, a merger or acquisition is unnecessary. Instead, the two businesses can enter into a joint venture agreement.
There are many things to consider before agreeing to a joint venture. While these agreements generally require the parties to pool resources and share in the risk and rewards of the venture, the exact parameters of the agreement need to be negotiated and agreed to in writing. Other issues that need to be addressed in a joint venture agreement are how the joint venture will be managed, how it will be controlled, the legal structure of the joint venture and the scope of the joint venture.
Typically, the parties to a joint venture can mutually benefit each other. For example, a 2011 joint venture undertaken by Microsoft and General Electric sought to integrate new computer technologies into data and intelligence systems in the healthcare industry. This is another reason why it is important to carefully consider a joint venture and its terms before agreeing to the endeavor. Failing to do so could leave a business with a disproportionate share of the costs with minimal returns on profits.
Although joint ventures raise some unique legal issues, in many respects they should be treated similarly to a new business. They must be given a legal business structure and contracts can dictate the terms of how the venture will be staffed, managed, and executed. To avoid getting overwhelmed with the details of these agreements, businesses interested in joint ventures should reach out to a business law attorney who is experienced in this area.