Joint Venture Agreement: Definition + Free Template
A joint venture agreement (also called a JV agreement) is an official document detailing a business relationship between at least two companies for a certain project in a specified time frame.
Types of Joint Ventures
Joint venture agreements may take one of two forms:
- Contractual: A contractual joint venture exists on paper alone — meaning each business maintains its separate status.
- Separate legal entity: Businesses may also choose to form an entirely new business entity for their venture, either as a corporation or an LLC.
Joint Venture vs. Partnership
Joint ventures and partnerships may sound similar, but they’re different in a few key ways:
- Participating entities: A partnership is formed between individuals, while a joint venture is formed between companies.
- Time frame: In a partnership, work continues indefinitely, while a joint venture specifies a limited time frame of work.
- Scope: A partnership entails a broad scope of work, encompassing all business activities, while a joint venture specifies a single project or “venture.”
- Taxes: Neither partnerships nor contractual joint ventures are recognized by the IRS as taxable entities. A partnership files taxes as a pass-through entity, meaning individuals report income tax rather than the business. In a joint venture, each business files a tax return separately.
- Liability: In a partnership, the liability is shared, while in a joint venture, both companies’ liabilities are separate.
Why Do Businesses Form Joint Ventures?
Businesses typically form a joint venture when each one specializes in something different and coming together proves advantageous for all parties. For example, a graphic design agency may come together with a technical SEO marketing firm to provide a full array of services to businesses looking for content marketing.
Joint ventures are also common in the construction and real estate industries, where one party handles the legal and financial aspects while the other handles construction management.
Besides the combined resources and expertise, forming a joint venture is often cost-effective, too. That’s because each business can tackle more projects in-house instead of hiring contractors, which can become costly.
Partnering with another business can be complicated, especially if there are major differences in work culture or how each company operates. Disagreements are likely to happen if there’s a mismatch in each party’s skill or competence, leading one side to believe they’re pulling more weight. Miscommunication is also common if leadership styles clash, posing barriers to cooperation. Make sure to thoroughly vet a potential business partner before entering a venture to ensure it’s a good fit.
What Should a Joint Venture Agreement Include?
Our template has everything you’ll need for your agreement. At a high level, a joint venture agreement should include at least the following:
- Business location
- Type of joint venture (contractual or separate legal entity)
- Venture details, such as its name, address, purpose, etc.
- Start and end date of the joint venture
- Members and their capital contributions
- Member duties and obligations
- Meeting and voting details
- Management structure details
- Dissolution details for ending the agreement
- Assignment of interest details
- Non-compete, confidentiality, and dispute resolution clauses
Before you sign, seal, and deliver your JV agreement, there are a few things to consider on the legal front. Always consult your attorney if you’re ever unsure about legality.
Does a Joint Venture Require a Written Agreement?
Yes, a joint venture requires a written agreement to detail each party’s rights and responsibilities in case of a legal dispute.
Is a Joint Venture Agreement Legally Binding?
Yes, a joint venture is a legally binding agreement. Review it carefully to protect your business in case of potential disagreements.
If executed properly, a joint venture agreement can be an effective way for companies to pool their resources and work together to accomplish lofty goals. For more contract templates, check out our business resources — they can help your small business reach new heights.
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