A joint venture agreement is a collaborative business enterprise between persons or entities in which each party contributes capital, expertise, and other tangible or intangible property, which are expected to have combined business value upon completion in excess of that invested therein, and the parties share the profits and losses generated by an agreed–upon formula. A joint venture agreement differs from a traditional partnership commitment because joint venturers are usually not required to contribute compensation beyond the capital, expertise, and property investment. For this reason, joint ventures often represent an advantageous way for partners to enter into new areas of a business enterprise without the risks inherent to new ventures.
A joint venture agreement can come in different forms. Joint ventures can be for the purpose of purchasing a new product, establishing an advanced market, or integrating an established company with a new product. Joint venturers face an array of risks, including not only financial risk but also the risk of liability.
The agreement should be well-drafted before signing. The document should ensure that its provisions are drafted unambiguously so that there can be no doubt about the obligations of the parties and which provisions the people are expected to comply with. For example, a profitable joint venturer might agree to make outstanding payments if agreeing that the business was once unprofitable.
Joint venture agreement should include clauses that state how any profits are to be allocated, what is to happen with a balance sheet, who is responsible for raising additional capital if desired—which is referred to as “bring–down cash“—how to exit by one venturer can be handled, and provisions reflecting the duties, obligations, and restrictions of the various parties.