By: Barry E. Haimo, Esq.
November 22, 2016
What are the Governing Documents for a Joint Venture
There are wonderful opportunities that can arise out of a joint venture (JV): sharing ideas, sharing customer bases, and growing your business with the help of another company. You can read more about the benefits of creating a joint venture here.
But the various groups involved in a joint venture may look at management, communication, and their end goals differently. Because of this, it is important to have each group agree on the JV’s structure, operations, and destination.
And this needs to be official. Even though joint ventures are not typically long-term partnerships, an agreement should still be drawn up to ensure that each party is held accountable in the event of a dispute, and that all negotiations are completed in the manner that was originally agreed on when each party decided to enter the partnership. Remember, a joint venture is really a general partnership and Florida statute will make decisions for you about your business if you fail to execute a joint venture agreement.
The following documents should be considered when you are forming a joint venture to keep everything running smoothly throughout the project.
Contract for Smaller Joint Ventures. Not all joint ventures have multiple moving parts and require the creation of separate companies. You may just need to draw up a quick contract if, for example, your business is working with a distribution company for a specific occasion. It should still include the basic terms of your agreement, but will not require the detail and time that a more robust joint venture agreement requires.
Letter of Intent. If you are in the beginning stages of your joint venture and are not prepared to draft a full, binding joint venture agreement, you and your partners can start by drafting and signing a letter of intent or term sheet. These documents will write out the basic terms of your joint venture, as well as terms for handling disagreements and negotiations.
The main difference between the two documents is that while term sheets do not need to be signed, letters of intent are not binding in Florida. The letter of intent should require the approval of different parties (stockholders, board members, and so on) before it is signed. Letters of intent are typically the first document that is prepared before the formal governing document.
Joint Venture Agreement. It is not necessary to have a thorough, physical document stating the terms of your joint venture, but it will sure help if there are disagreements or conflicts down the road. A joint venture agreement (JVA) will allow both parties to thoroughly look through the terms and conditions of entering the joint venture so they know exactly what they are getting into.
The following may be included in the joint venture agreement to ensure all parties are on the same page:
- Purpose of the joint venture
- Form and governance structure of the joint venture
- Contributions of each party
- Identification of third parties/contractual obligations to third parties
- How disputes will be handled
- Indemnification of the parties
- Tax considerations and treatments
- Any preparation or restructuring that must be completed to begin the joint venture
- Business plan and budget
- Confidentiality agreements
- Exit rights and exit transactions
Have a business planning attorney handy to look over your joint venture agreement before it is sent to or signed by each party. Your attorney will be able to verify that the JV will operate within Florida’s laws and allows you the amount of liability and rights that you are seeking.
Barry E. Haimo, Esq.
Strategic Planning With Purpose
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