Joint Ventures (JV) are collaborations between two or more independent parties (JV partners) undertaken for their mutual benefit for a variety of commercial, strategic, or financial reasons, such as to jointly develop a single purpose project or new technology, or to own and operate a business. Joint ventures can be formed:
As new entities, jointly owned in an agreed proportion by the JV partners.
When one party buys an interest in an existing entity’s start-up or developing business.
Through a contractual relationship without the use of a separate entity (sometimes referred to as an alliance or strategic alliance).
As a JV partner, you make contributions to the joint venture, such as cash or non-cash assets, or services. You typically would take an active role in the governance, and sometimes the management, of the JV, either directly or through your representatives
As your attorney, our goal is to help you create a structure that:
Captures your underlying goals.
Meets the your and your JV partner’s technical, operational, financial, accounting, regulatory, legal, and tax requirements.
Provide you with a framework that will allow you and your JV partner to successfully carry out the purpose of your JV over its life, including dealing with the issues and challenges that can often arise.
Reasons for a Joint Venture
If you are considering a JV, you first should be satisfied that a JV structure is the best way to achieve your objectives. Despite potential advantages, JVs are complicated arrangements that often last for a long, if not indefinite, time period and can be difficult to exit or unwind. You will sacrifice the control and flexibility you might have enjoyed had the business or project remained independent. Although you and your JV partner initially share a common goal, conflicts are likely to emerge over time as the your and your partner’s interests and priorities evolve and sometimes diverge, and as developments and changes occur in their primary businesses. Therefore, the purpose and scope of your JV, and any actual or potential differences in your goals and interests vs. your JV partner’s goals and interests, should be identified and carefully considered to determine if a JV is the best structure.
Parties enter into JVs for different reasons, including to:
Spread costs and risks. You may want partners to help spread the risks and costs of expensive, large, or speculative projects, such as research and development. After investing heavily in developing a new product or technology, you may not meet your projections or a competitor’s new product or technology could reach the market first. You may be more willing to take on these types of projects if it can share the reputational and other risks and costs with other JV parties.
Expand access to financing. A JV that has access to the pooled resources of two or more independent JV parties may offer a more attractive investment for a third party investor. A JV with a financial investor can sometimes provide a needed alternative to traditional debt financing.
Access new technologies and customers. Entering into a JV with a party that already has a particular technology or customer base can provide a means to avoid the time and expense of independently developing these assets. If you have more cash than product or market knowledge, investing in a JV with a party that has the requisite product or market knowledge, but needs cash, is an effective way to access this knowledge.
Gain entry into a new market. In markets controlled by only a few players, a JV with an established party is sometimes the only means of gaining access.
Enhance credibility and reputation. Partnering with an established, well respected JV party may enhance the credibility and market reputation of the other party. This can be particularly valuable in the case of an early-stage company or start-up that partners with a larger, more established JV party.
Explore the viability of a full sale transaction. A JV can sometimes allow you to achieve your goals without having to fully surrender your control or involvement in your business as you would through a merger or acquisition. In other situations, a JV with a potential acquiror can provide it access to the JV’s business before deciding whether or not to complete a full acquisition, or allow you to evaluate a potential acquiror (or target) before proceeding with a full sale.
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