Joint ventures are a common way for businesses to collaborate on a specific project or market without merging entirely. They are also a common source of disputes. The document you sign before the collaboration starts determines how those disputes are resolved — and whether the JV survives them.
What Is a Joint Venture?
A joint venture is a commercial arrangement where two or more businesses combine resources — capital, expertise, relationships, technology — for a defined purpose. It can be structured as:
- A contractual JV — a contract between the parties defining how they will work together, without creating a separate legal entity
- A corporate JV — a new company (JV company) owned by the parties in agreed proportions
- A partnership — less common in commercial JVs due to unlimited liability implications
The structure matters. A corporate JV creates a separate legal entity with its own governance, its own liabilities, and its own tax position. A contractual JV is more flexible but offers less certainty and no limitation of liability through the JV vehicle.
The Key Issues to Agree Before You Start
- Governance and decision-making. Who makes decisions, and how? In a 50:50 JV, deadlock is a genuine risk. The JV agreement must provide for deadlock resolution — whether through escalation to senior management, a casting vote, a buy-out mechanism, or dissolution.
- Capital contributions. What is each party contributing — cash, assets, IP, people — and on what terms? Are contributions equal? If one party contributes more, does that affect the equity split or the profit share?
- Profit and loss sharing. How are profits distributed? Is it pro rata to equity, or on some other basis? What happens to losses — are they shared equally, or do they follow equity proportions?
- Exclusivity and non-compete. During the JV, are the parties free to compete independently in the same market? If the JV is in a specific territory or sector, are the parties restricted from operating independently in that space? What about after the JV ends?
- IP ownership. What IP is each party contributing to the JV? Is it licensed in or assigned? Who owns IP created by the JV — the JV vehicle, or the contributing parties? What happens to that IP when the JV ends?
- Exit provisions. How does a party exit the JV? Can they sell their interest to a third party? Do the other parties have pre-emption rights? What triggers a right to exit — deadlock, failure to contribute, insolvency of a party?
- Termination. What brings the JV to an end — completion of the project, a fixed term, agreement, or the occurrence of specific events? What happens to assets and liabilities on termination?
The Importance of Proper Documentation
Businesses enter JVs on a handshake more often than they should. The aligned interests and good faith that exist at the start of a collaboration do not always survive commercial pressure, missed targets, or changes in the parties' wider businesses.
A properly drafted JV agreement that addresses all of the above — before you start — costs a fraction of the cost of a JV dispute. Do not begin a JV without one.
Bonsai Law structures and documents joint ventures for ambitious businesses across the UK. Speak to us before you start — the agreement is the cheapest insurance you will buy.
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