Joint ventures can be used as a vehicle for collaboration and expansion between parties. If you are thinking of collaborating with another person or business, you should consider taking legal advice and having a formal agreement prepared by a specialist business law solicitor to ensure the smooth running of your future joint relationship and to set out the obligations on each side.
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Entering Into a Joint Venture
When considering collaboration with another person or business it is important to consider the legal issues and need for a formal agreement to regulate that collaborative process.
The most appropriate structure to be used for any joint venture will inevitably depend on the needs, objectives and roles of the respective parties. However, the most typical joint venture structures are:
- a special purpose vehicle or SPV, which is a company created specifically for the joint venture;
- a partnership or limited liability partnership (LLP), which is another form of business structure but, in the case of a general partnership, is not a separate legal entity; or
- a collaboration agreement, where each party is separate and distinct, but their roles are governed by the agreement.
If you are using an SPV for the joint venture or entering into a partnership, it will be necessary to consider the joint venture business’ equity structure and it will generally be advisable to enter into a shareholders’ agreement or partnership agreement to regulate the relationship between the parties for the duration of the joint venture project.
Another issue to consider will be the ownership of any intellectual property that is created as part of the joint venture. Many joint ventures are formed with the intent of creating or developing technology or software. It is therefore important to set out precise terms on ownership and use of any background intellectual property brought in and any new or foreground intellectual property created as part of the project.
Creating a joint venture partnership will be enhanced by speaking to a legal team who understands the importance of joint venture partnerships and shareholders’ agreements and who has the expertise necessary to advise on and prepare joint venture agreements, tailored to the needs of your business. Having the proper documents in place helps to ensure that all parties are clear on their position and that each party’s interests are protected from the outset.
Most joint ventures will be structured as an SPV company, a limited company set up with the intention for collaboration between the parties (who will usually be the shareholders of that SPV company).
In some cases, there is no difference as a partnership may be used as a structure for a joint venture. However, in most cases, a joint venture is usually limited in scope to a single project or is limited in duration. Unlike a general partnership, where all costs and profits are managed in common, the members of a joint venture will usually share the burden of costs but will manage their own profits. There are also distinctions when it comes to liability and careful attention should be paid if a joint venture is structured as a partnership.
You will first need to incorporate the company at Companies House and this will involve adopting articles of association under which that company will be governed. If you do not adopt bespoke articles of association, your company will be governed by the model articles of association. However, the model articles are unlikely to cover the complex circumstances of an SPV company and so you should ideally adopt bespoke articles of association. In addition, it is advised that the shareholders enter into a shareholders’ agreement to regulate the relationship and decision-making process between each of the shareholders. You should set out the details of the collaboration, either through a collaboration agreement, distribution or supply agreement, or perhaps a research and development agreement, or any other contract which contains the agreement between the parties.
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