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Joint Ventures: 5 Tips to Make Them Work

By Brett Snider, Esq. | Last updated on

Joining your business forces in a joint venture can be a boon for your business and your future goals. But there are a few things any adventurous joint venturer needs to keep in mind.

For example, what exactly are you bringing into the new venture? What happens if it doesn't work out? And are you adequately protected, legally speaking?

By remembering these five tips, a small business owner can embark on a joint venture with much fewer legal worries:

1. Join for the Right Reasons.

Part of the reason that joint ventures exist is to combine the sometimes disparate resources of separate businesses in order to accomplish something mutually beneficial to all venturers.

But what is mutually beneficial? Joint ventures aren't always perfectly symmetrical in what goals they pursue, so you should determine ahead of time if linking up is a good long-term plan.

2. Jointly Draft a Joint Venture Agreement.

The joint venture agreement will be the governing document that defines and controls the future of your joint venture, similar to articles of incorporation. So it is important to have all hands on deck when drafting.

You don't want to have any potential conflicts bubble up through legal channels because you didn't properly consult your other venture partners on how your joint venture should operate, so make it a team effort.

3. Be Blunt About the Split.

It may seem like common sense, but the venture agreement needs to say in unequivocal terms what each business will be contributing to the joint venture.

Even if your company is contributing less than 50 percent to the venture, setting expectations for future responsibilities and profits at the outset "will ensure that you and your partner's expectations are aligned," reports Forbes.

4. Choose a Governance Structure.

Would you like your joint venture to be ruled like the Roman Senate or will you be the Caesar of the parties' combined capitals and efforts?

Discuss ahead of time with your potential venture partners governing issues like:

  • Who controls the board of directors?
  • How can power shift within the board?
  • What matters will require all partners to sign off?
  • How should deadlocks be resolved?
  • How will the joint venture interact with each party as an entity?

5. Get Proper Representation.

Before entering into a joint venture agreement, a business owner should always consult a knowledgeable attorney who can anticipate issues that may be unknown to a joint venture hopeful.

Keeping these considerations in mind can help business owners make their joint venture a dreamy reality and not a nightmare.

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