Tuesday, April 3, 2018

WHAT IS A JOINT VENTURE and WHAT SHOULD BE THE TERMS IN A JOINT VENTURE AGREEMENT?


Joint Venture Agreements Require
Astute Foresight and Plain language
Legal Definition of a Joint Venture

The American Bar Association’s “Model Checklist for Joint Ventures” describes a joint venture as “a commercial collaboration in which two or more unrelated parties pool, exchange, or integrate some of their resources with a view to mutual gain, while at the same time remaining independent.”

What Are the Different Kinds of Joint Ventures?



This Post concerns joint ventures between two smaller business enterprises, often closely held corporations, unincorporated sole proprietors and/or independent contractors (incorporated or unincorporated).  The three most common scenarios for such joint ventures are as follows:

1)  Both of the participants are created for the sole purpose of participating in the joint venture, and do not conduct operations independent of the joint venture.

Example:    Joe is employed as painter/carpenter and Sally is employed as an interior designer. They decide to start a home remodeling business, “Home Designs, Inc.” They then quit their jobs, act as joint incorporators and officers of Home Design Inc., create a website and enter into a lease for office space.  They then dedicate all of their time and resources to making HDI a success.

     2)  One of the participants is created solely to participate in the joint venture and has no operations independent thereof while the other is an existing business with operations independent of the joint venture.

Example:    Joe is employed as chef and Sally operates a restaurant, Sally’s Place. Joe wants to “be his own man” but lacks knowledge as to how to operate a restaurant, and Sally wants to start a new restaurant but lacks sufficient funds.  Joe quits his job and creates a corporation, “Joe’s Eats Company.” They then pool their resources and start “New Bistro Americano.”  They act as joint incorporators and officers of “SallyJoe, Inc.,” create a website, enter into a lease, create a bank account with point of sale technology and open up NBA.  Although Joe dedicates all of his time to NBA, Sally continues to operate Sally’s Place, and spends about 20 hours a week at NBA.       

     3)  Both participants have been in existence for some time prior to the creation of the joint venture and may or may not maintain separate operations subsequent to its creation.

Joe operates a small company with a few employees known as “Joe’s Painting,” which provides painting/carpentry services. Sally operates an unincorporated sole proprietorship, “Sally’s Designs,” which provides interior designing services. They decide to start a home remodeling business, “Home Designs, Inc.” They act as joint incorporators and officers of Home Design Inc., create a website and enter into a lease for office space.  Although they then dedicate a lot of their time and resources to making HDI a success, they both continue to operate their primary, preexisting businesses.


Here are some of the issues that must be addressed in such an agreement:

      What is the scope and purpose of the joint venture?

     *  What corporate form (i.e. LLC, PC, etc.) will the venture establish?

     *  How much in the way of capital contributions, that is cash, equipment and/or     inventory, will each respective party be contributing to the joint venture at its outset?

     *  To the extent that purchasing additional operating capital, equipment and/or inventory are required, who will be responsible for paying what proportionate share of same?


Gotta Figure Out Capital Investments
 - and Capital Interests!
 *  Who will be responsible for managing and overseeing the day-to-day operations of the enterprise?

 *  Who if will be responsible for managing the sales and marketing aspect of the enterprise

     *   Who will be responsible for staffing the joint venture if necessary?

 *  Who will be responsible for maintaining the joint venture’s books and records?

     *  Who will be responsible for creating and maintaining the bank accounts of the joint venture?

*  How will the party that is not in control of managing the financial records and accounts of the venture be provided full access to such information upon request?

     *  Does either party have the right to buy the other party’s interest out of the joint venture?

     *  How will profits be allocated between the members of the joint venture?

     *  What will happen to the interest of a member who becomes disabled or dies?

     *  What will happen if one of the members was to give up their interest in the joint venture?
Failing to Contemplate Potential Divorce Unwise
  *  What will happen if one of the members wants to force the other member to give up their interest in the venture?

 *  What will happen if one member feels of the other one is breaching its obligations under the joint venture agreement and/or engaging in malfeasance?

     *  If the joint venture has an expected termination date, how will the assets of the venture be allocated upon liquidation?


Helping Pennsylvania Businesses Since 1991
Pennsylvania Joint Venture Contract Lawyer

The above list, which is in no particular order, was prepared off of the top of my head. If an attorney you are considering to represent you to prepare such an agreement cannot recite at least the above list of the top of his/her head, you may not have the right attorney.

Though the parties to any joint venture certainly want to enter into the relationship with a high degree of trust in one another, is foolhardy to not prepare the possibility of conflict, including a possible business divorce.


Partners....for Life?
When selecting counsel to prepare a joint venture agreement, there are always two good options: 1) each party secures its own counsel; or 2) the parties together secure one independent and wholly neutral counsel to author the joint venture agreement. That lawyer should be able to represent both sides without conflict of interest. This is often possible, but not always.

Common sense and foresight are the key characteristics of any attorney you would want to retain to prepare a joint venture agreement. Cost effective representation is important as well. Your attorney should not need to conduct a vast amount of research to prepare such an agreement and, in fact, ordinarily should not charge you for more than several hours or so of time at a maximum to complete a solid draft of same.


Experienced Philadelphia-Area Joint Venture Agreement Attorney Providing Flat Fee Business Contracts at Reasonable Cost


Why Pay More? Reasonable Flat Fees
for all Pennsylvania Business Contracts
John A. Gallagher has been practicing business and employment law in the Commonwealth of Pennsylvania since 1991. He has prepared, reviewed, and negotiated hundreds of contracts – and has litigated hundreds of contractual breaches.

Mr. Gallagher applies a flat fee billing approach to all matters involving business contracts, believing that providing cost certainty is essential.

Further, Mr. Gallagher as a believer in developing business relationships, versus securing extraordinary fees – hence in establishing his billing rates his eye is on developing a long-term relationship rather than a one-night stand!

If you have a question about a business contract, call John today and he will spend 15 minutes of time discussing things with you at no charge.  From there, we can establish our own contractual relationship if appropriate.

You may also Click Here to e-mail John directly.


Philadelphia-Area Contingent Fee Attorney

Questions?  If you are in PhiladelphiaChester County, Montgomery County, Delaware County or Bucks County and need assistance with the preparation of a business contract, call 610-647-5027 for a FREE consultation.  John is usually available 24/7.

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