Joint Venture Agreement

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Australian startups and businesses should ensure they have the right agreements in place depending on their own circumstances. Progressive Legal can assist with:

• Determining whether a joint venture agreement is right for your business;
• Setting up your join venture; and
• Ensuring compliance with the relevant legislations, including the Corporations Act 2001 and the Competition and Consumer Act 2010.

It is important to seek legal advice to determine which legislation is relevant to your specific circumstances and to ensure that your joint venture agreement complies with all applicable laws and regulations.

Article – What is a Joint Venture Agreement and What Should it Include?

Joint venture agreements (“JVA”) are agreements which outline the terms of a joint venture. JVA’s are common in business enterprises and allow various parties to combine expertise in pursuit of a common venture. If you are intending to enter into a JVA, it is important to understand the processes and risks associated with JVA’s. 

This article will consider: what is a joint venture, what is a JVA, advantages and disadvantages of a JVA, joint ventures vs partnerships and key takeaways.

What is a joint venture? 

Put simply, a joint venture is an agreement between 2 or more parties who intend to work together for a common project or a goal. A joint venture can arise between 2 or more individuals, or companies.  

Joint ventures are typically used in projects which involve high risk, require large capital costs and/ or where there are certain market dynamics that one party to the joint venture does not have. Joint ventures are used for many short and long term projects like: 

1. property development;  
2. research and development; and 
3. publishing.  

How are joint ventures set up?

Joint ventures can be set up as follows: 

Incorporated joint ventures

In certain situations, parties can elect to set up a company for the sole purpose of the joint venture; or  

Unincorporated joint ventures

Where parties do not elect to establish a separate legal entity, parties continue to work together without a company. 

What is a joint venture agreement?

A JVA is an agreement between the joint venture parties. Essentially, the JVA is a contract which sets out the terms of the joint venture.  

What should be included in a joint venture agreement?

There are not set requirements for what should go into a JVA. However, it is important that the JVA is comprehensive enough to protect both parties sufficiently.  

Some key terms to include within a JVA are: 

Scope

Clearly identify the scope of the joint venture. This includes, ensuring that the JVA defines the purpose and scope of the venture, and clearly specifies the responsibilities and goals of the joint venture as agreed between the parties. 

Contributions to joint venture

Given the importance of each parties contributions to a joint venture, it is important that expectations regarding contributions are clearly set out. Contributions are not simply monetary and can include, equipment, personnel and other resources.  

Dispute resolution and jurisdiction clause

It is important that the JVA, provides provision for situations of disputes arising. Dispute resolution clauses outline what the parties are to do when a conflict arises (i.e. refer the matter to mediation).

Further, jurisdiction clauses outline what governing law is applicable to the JVA.  In situations where the JVA is a cross boarder joint venture, this is particularly pertinent to ensure parties agree on which jurisdiction the disputes are to be brought in.

Intellectual property

Where parties are creating intellectual property during the course of the joint of venture, it is vital to ensure that ownership of intellectual property is clearly set out.

In situations where parties are actively working on a project, consideration must be given to the ownership of different types of IP, such as registered and unregistered trade marks, copyright, design registrations, patent registrations and trade secrets, if applicable.

The JVA, should also cover any licences or royalties applicable to the JVA. 

Confidentiality

Before, during and after the course of the JVA it is more likely than not that the JVA parties will be exposed to confidential information. As a result, it is important that the JVA covers that confidential information is not to be used for any purpose other than the purpose intended by the JVA.

Further, such clauses should survive the termination/cessation of the JVA to ensure maximum protection of that confidential information even after the agreement has finished. 

Termination

In situations where there are high stakes projects, it is important to have termination clauses which clearly cover what is to happen in situations where a party leaves or terminates an agreement.  

The advantages and disadvantages of a joint venture agreement

Advantages

There are many advantages associated with JVA’s, including: 

1. the sharing of finances and responsibilities;  
2. flexibility;  
3. access to markets that the other joint venture partner may not have; and  
4. the temporary nature of JVA’s. In most cases, these arrangements end when the project is finished.   

Disadvantages

Alternatively, there are also disadvantages associated with JVA’s, including: 

1. potential conflicts between the joint venture parties due to differences in work styles; 
2. lack of clear objectives; and 
3. potential for imbalances among the joint venture parties such as unequal expertise levels and unequal contributions being made between the parties.  

Joint ventures vs partnerships

Joint ventures are distinguishable from partnerships as partnerships are ongoing relationships. In partnership arrangements, a partner is jointly and severally liable for the actions of the other partner.  

Across jurisdictions, there is commentary suggesting that joint ventures are the same as partnerships (i.e. in the United States). However, the position in Australia is such that joint ventures and partnerships, are in fact separate and distinct.

Key takeaways

Joint ventures are becoming an increasingly popular mechanism for parties to utilise. This is particularly true in situations involving high risks/ high stakes projects.  

Joint venture agreements should be properly drafted in order to ensure the interests of the contracting parties are properly represented, protected and maintained during the course of the joint venture.

Joint Venture Agreement FAQs

“Ian and his team have been great, […]. I offer innovative products and unusual business partnerships, and Ian’s team have been very accommodating and flexible helping me get everything in place.”

Graham Ewins, Director