VENTURING INTO JOINT VENTURES
So you are busy operating your business but have a great new idea: it may be a groundbreaking product or an underserved market that should be explored. But how do you implement this idea? You and your management team are already stretched. Where does the additional capital and expertise come from? A joint venture (JV) may be the answer. This is a way for two or more parties to work together to implement a business plan, which could be anything from launching a product to entering new markets or combining existing technologies to come up with a marketable solution.
Why a Joint Venture?
Joint ventures allow multiple companies to collaborate
and leverage each other’s strengths for a limited
purpose, without investing the time and energy needed
for a merger or acquisition. Additionally, a joint venture
lets parties maintain autonomy during the venture and
part ways afterwards, without the need to establish a
more permanent relationship. By teaming up with others,
a business in a joint venture can have greater access
to resources, money, and skill sets, while sharing
the risk and expenses related to the new venture.
Finding the Right Partner
The first step is to find the right partners for what
you are trying to accomplish. This will require some
sleuthing, researching the market and gathering intelligence.
Industry conferences, networking events, and
trade journals are a good place to start. The key is to
identify strategic partners, who could very well be
competitors, suppliers, or customers. Consider
• Resources: Does the potential partner have
resources that complement yours? It could be
access to a foreign market or a technical
expertise or a better marketing machine.
• Integrity: Once identified, a thorough background
check including a review of credit history and
financial statements of each partner should be
conducted. You do not want to collaborate with
the wrong people.
• Reputation: You don’t want your partners to
become a liability to you or the purpose of the JV.
Taking some time to determine their reputation
within the industry is critical.
Moving Forward with the Venture
The JV should be structured so that it works for everyone’s
benefit, especially economically. It is important
to allocate risks and rewards fairly so that all parties
are engaged in the venture and benefit from its success.
It is also important to be clear about what each party
must contribute to stay in the deal. Some major terms
should be discussed and determined up front:
• The goals and structure of the planned joint
venture, including the roles, responsibilities, and
decision-making process going forward.
• The financial obligations of each JV partner, and
the division of profits, losses, expenses, and
liabilities.
• The methods for dispute resolution, including
cooling off periods, binding mediation, and the
venue for litigation.
• The ownership of the property and assets,
especially intellectual property such as patents
and trademarks, if any, during and after.
• The duration and term of the joint venture,
including how it may or may not be terminated.
Pro Tips
All agreements should be in writing and
amended often as the relationship grows and changes.
Consider exclusivity, noncompete, and nonsolicitation agreements between the parties.
Establish trust and communication by investing more time in the early phases of the relationship with your joint venture partners.
Give the relationship time and respect, and hopefully success and profits will follow.
Business Insights is hosted by the Law Firm of KPPB LAW (www.kppblaw.com).
Sonjui L. Kumar is a founding partner of KPPB LAW, practicing in the area of corporate law and governance.
Jesse C. Moore is a
law clerk at KPPB Law and a third-year law student
at Georgia State University College of Law.
Disclaimer: This article is for general information purposes only, and does not constitute legal, tax, or other professional advice.
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