Five common mistakes with joint ventures

Working together with someone to bring something new to market is an exciting time for any business.

However, in the rush it is easy to slip up and miss things which may come back to haunt you once the dust has settled. If you are thinking of entering into a joint venture, make sure that you don’t fall foul of any of these:

Documentation

As with any business situation, proper legal documentation is essential. Lawyers may sound like a broken record in this regard, but getting the legals right at the outset will save you time and money in the event that things don’t go to plan. Bear in mind that this potentially deprives the lawyers out of work and fees in the long run, so it must be good advice!

Ownership

Most joint ventures are conducted through a newly incorporated company or similar corporate entity. To that end, all of the assets, rights and property needed to make the JV work will need to be either transferred to the JV company, or the JV company must be given the right to use such assets in advance. Careful checks will need to be included to ensure that such ownership or usage is properly regulated on incorporation, during the life of the JV, and on dissolution.

Capital investment

All JVs will need capital investment to get them up and running. Inevitably, more capital than initially thought will be required once the business is up and running. Detailed provisions as to who has to provide this, and in what form (such as cash, assets, know-how) will prevent any disputes in this area once the JV is up and running.

Control

Inevitably, the JV company will require a management structure which is independent of the JV partners. Agreement in advance as to how this will work, and provision for dispute or deadlock, is essential in the event that disagreements over the direction of the JV arise down the line. Will each JV partner have an equal vote in decisions? Will anyone have a casting vote? In the event of disagreement, what happens?

Termination

Many JVs are for a limited period only. Other JVs will come to an end naturally, or due to a lack of desire from either or both parties at some stage. Unwinding the JV will throw up all sorts of questions as to dividing up assets, profits, capital, ownership and rights, and liabilities. At this stage, each party will want the best deal for them, and lack of clarity as to what happens at this stage can lead to delay for each party in getting back to normality, with money and assets being tied up while disputes are settled.

To discuss your joint venture, or any other legal matter relating to Mergers and Acquisitions, please contact David Filmer on 01772 258321.