What Is a Joint Venture Agreement?
A joint venture agreement is similar to a partnership in that two people or companies are coming together for a cause. The major difference between the two is that a partnership is meant to last beyond a single project, whereas a joint venture is typically for one project or a limited amount of time. When the joint venture agreement contract is created, if the entities agree to a contract, there are three different joint venture types: contractual, corporate and partnership. During the creation of the joint venture, entities can agree to allocate resources such as money, employees, equipment or a combination of these resources.
When two or more entities are entering into a joint venture agreement, they do this to pool their respective resources. The general reason for entering a joint venture is that the entities, individually, either cannot complete a project or cannot complete a project without hindering other projects. To achieve a goal, all parties contribute resources, such as physical goods and money, to the project. The other resources entities bring include experience and knowledge. If the venture is successful, all parties share in the profit.
Most joint venture agreements are temporary and limited to a single project or short amount of time. When the entities agree to join a venture, they first agree to whether it should be contractual or non-contractual. Non-contractual is much easier, because there is only a verbal agreement and no paperwork. At the same time, conflicts may arise because one or several partners want to withdraw resources or do not agree on responsibilities if a contract does not stipulate each entity’s role in the joint venture.
If the entities agree to a contractual joint venture agreement, there are three types of agreements. The standard version is called a contractual joint venture, and a contract is written up. This details the obligations and responsibilities of each entity and shows how much resources much be contributed by the entity for the duration of the joint venture.
A corporate joint venture agreement is similar to a contractual agreement, but this version is much more extensive. In this scenario, the entities are planning to incorporate their joint venture as a separate business, or legal entity. In the partnership joint venture agreement, the entities are planning to be established as a partnership, rather than a corporation. Both of these versions include contracts to detail responsibilities and obligations, but there is extra paperwork to establish the joint venture as a corporation or partnership.
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