Joint Venture Agreements

A joint venture is when two or more individuals or entities get together specifically for a project rather than a long-term continuing business with a view to making and sharing the profit or loss in accordance with the joint venture agreement.

A joint venture can be undertaken by way of partnership, company or trust (see Business Structures) or any other arrangement governed by the joint venture agreement. Joint venture allows the parties to pool their resources and expertise for the project. In a joint venture, the individual or entity may contribute money, skill or other asset such as property.

It is therefore important to ensure that the joint venture agreement is drafted in as much detail as possible covering all aspects of the relationship between the parties including the joint venture project. Typically, the joint venture agreement should cover:

  • the reasons and objectives for the joint venture and the scope and terms including conditions under which the joint venture will operate
  • the activities of the joint venture in achieving the objectives and the joint venture parties to be prohibited from engaging in those activities in competition with the joint venture
  • details of the parties to the joint venture, the percentage of interest each joint venture party has in the joint venture and how dealings between the joint venture and any joint venture party are to be transacted
  • the contribution each joint venture party is to make to the joint venture, whether cash or kind, including with respect to set-up costs, on-going costs, how the contribution is to be transferred to the joint venture and who retains ownership of any real property
  • what the roles, responsibilities and obligations of the joint venture parties including meetings and decision making and how new parties are to be introduced to the joint venture
  • reimbursement of expenses to and distribution of profit or loss amongst the joint venture parties
  • whether the joint venture will need to raise funds externally and to that extent, the responsibilities of the joint venture parties to provide any security
  • the functions and responsibilities of the joint venture Board, including appointments to the Board, frequency of meetings, quorums, voting powers and the extent of the authority of the joint venture Board
  • the roles and authority of the joint venture manager and other officers of the joint venture, appointment and replacement of the joint venture manager and other officers
  • banking, insurance, record keeping, auditing and reporting by the Board and management to the joint venture parties
  • how people are to be employed by the joint venture and any performance requirements and performance indicators
  • where to set up the joint venture, registration of the joint venture for tax and any other requirements under relevant federal or state laws in respect of the project such as licenses and applicable law
  • maintaining confidentiality, rights to intellectual property and any license, patents or trade marks issues
  • how any dispute is to be resolved as between the joint venture parties with respect to the joint venture and any dispute resolution mechanism
  • the consequences of default by a joint venture party or insolvency of a joint venture party and the procedure for withdrawal of a joint venture party from the joint venture, how to terminate the joint venture and the rights and responsibilities of the parties upon withdrawal or termination

It is important for the parties to discuss and agree to the above (the list not being exhaustive) before instructing solicitors to draft a joint venture agreement. It is important that you seek proper legal advice so please call P M Lee and Co. to assist you.

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