Joint Venture Agreement Meaning
Joint venture agreement is a contract between two parties to pool resources in an undertaking or venture that usually outlines a specific goal or timeframe.
Instead of creating a formal partnership or new legal entity, a contractual joint venture (“JV”) allows the parties to continue filing their tax returns separately yet still reap the financial advantages of a partnership such as sharing resources and risks. Companies often partner to start projects that are in their mutual interest.
The document describes the nature of the joint venture, such as the business purpose of the new joint venture, responsibilities of each party and so on. A Joint Venture Agreement sets out the terms and obligations of the members and the joint venture.
People also refer to a Joint Venture agreement as JV agreement, Co venture agreement, Joint undertaking, Collaboration agreement, Investment agreement
Applicable law
Joint Venture agreements in India are subject to the Contract Act, 1872 and general contract principles as well as laws protecting intellectual property rights such as Copyrights Act and Trademarks Act.
Types of Joint Ventures
- Contractual: A contractual joint venture is when two or more parties agree to collaborate on a business project, and sign an agreement that outlines the terms under which they will work together. The members continue to operate a separate business with a shared goal but with no pooling of profits or losses. Each party keeps their accounting records separate and there are no registration requirements.
- General Partnership: A joint venture in the form of a general partnership is when the partners agree to share in the profits and losses from the project and each party is jointly and severally liable for the obligations of the partnership.
Why do businesses form joint ventures?
Two or more businesses form a joint venture when they wish to join forces for a common purpose where they will each share in the risk and reward. It also allows each business to grow without having to look for outside funding.
Other reasons businesses may enter into a joint venture relationship could be to gain access to wider markets, share resources, fund the growth of another business, develop products, or diversify.
Advantages of a joint venture
- Larger companies can access new research materials from smaller companies
- Additionally, Smaller companies can benefit from a larger company’s market presence. It will give Access to new markets and distribution channels
- Furthermore, domestic companies can learn about social reality of local area from foreign company
- Domestic companies expose Foreign companies to new relationships and expertise.
- Businesses can experiment outside of its core business to develop new product or service
- Companies can merge their financial and technical expertise in a specific business area
Key Elements of a Joint Venture
The key elements of a JV Agreement is as following:
- Business location
- The type of joint venture
- Venture details, such as its name, address, purpose, etc.
- Start and end date of the joint venture
- Venture members and their capital contributions
- Member duties and obligations
- Meeting and voting details
- Management, dissolution, and assignment of interest details
- Non-compete, confidentiality, and dispute resolution clause
FAQs
A joint venture itself is not a distinct legal entity. Joint ventures are undertaken by private or corporate legal entities.
A joint venture agreement is legally binding in most jurisdictions. It can be used in court to seek damages if either party reneges on the terms of the contract.
A partnership usually refers to a single legal entity which is owned by two or more individuals, whereas a joint venture agreement covers a short-term project between multiple parties. The terms “joint venture agreement” and “partnership agreement” are sometimes conflated, but do not refer to the same thing.
Hey @HarshitShah
Yes. Any time the terms of the agreement change, this should be documented in a new contract. The new contract should also make clear this contract replaces the old contract.