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.
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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