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Joint Venture Agreements and What They Can Do For Your Business

May 9, 2008
A joint venture agreement is a legal agreement detailing a joint venture. A joint venture is a partnership that is generally created to carry out a specific business project or transaction. Usually a joint venture is undertaken for a limited period of time. Typically, a joint venture will last for five to seven years.

For a joint venture, two or more companies will agree to share the risks, rewards, capital, human resources, and technology while forming a new company under mutual control. A joint venture agreement is generally formed for a particular project and will usually be dissolved once that project is finished. The members of the joint venture share all legal liabilities and are treated in the same way as a partnership when it comes to income taxes.

A joint venture agreement may be made for many different purposes. They are frequently used for real estate transactions when two or more individual want to develop a particularly piece of real estate. They are commonly used by companies in order to enter into a foreign market. A foreign company will often have a joint venture agreement with a domestic company that is already in that particular market. Generally the foreign company can contribute new technology and practices and the domestic company can contribute established relationships, required government documents, and their experience to the joint venture.

There are a number of benefits that come from forming a joint venture. One benefit is that it provides companies with an opportunity to gain expertise and capacity. It also enables companies to enter into a related business or new market, as well as gaining technology and expertise. While they are a legal "partnership," they do not have to involve any sort of commitment long term.

On the other hand, the financial needs and risks are shared between the original parties for the duration of the joint venture which lowers the overall risk and financial obligation of the individual parties. Joint ventures often lead to the development of new products and technologies.

Of course, a joint venture agreement is not without risks. There are a number of potential pitfalls. The individuals or companies may find that they have different philosophies, expectations, or objectives for the venture. An imbalance may evolve in the degree of investment and proficiency that is brought by the individuals or companies. There may not be adequate support, identification, or compensation for management teams or superior leadership. The corporate styles and cultures of the partners in the joint venture may ultimately conflict. Any of these problems can lead to a loss of profit, investment, time and energy. It is even possible for legal battles to ensue.

The forms involved in creating a joint venture include the joint venture agreement, a memorandum of understanding, and any supplemental agreements. It is also necessary to obtain regulatory approval. This may be a time when it is worthwhile to consult with an attorney and have them draw up the required documents, although as is so often true in today's internet age, it is possible to purchase uncompleted forms online.
About the Author
Mark Warner is a Legal Research Analyst for RealDealDocs.com. RealDealDocs gives you insider access to millions of legal documents drafted by the top law firms in the US. To find Release Agreements, click here. Free Search!
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