Joint venture agreements guide

The main options are a contractual joint venture (a collaboration agreement with no separate entity), a joint venture company, an LLP, or a general partnership. A contractual arrangement is quick and flexible, suits defined projects and avoids incorporation, but offers no liability ring-fence and no separate balance sheet.

A joint venture company gives limited liability, a clear ownership split, the ability to hold assets and IP, and a natural home for employees and contracts. It costs more to establish and run, and unwinding it takes longer. Be careful with unincorporated arrangements: sharing profits from a joint business can inadvertently create a partnership with unlimited liability.

Document precisely what each party contributes: cash, staff, equipment, customer relationships, licences, background intellectual property and know-how. Value them consistently, because contributions usually justify the equity split.

Separate background IP from foreground IP. Background IP — what each party already owns — should be licensed to the venture on defined terms rather than transferred. Foreground IP created by the venture needs an agreed owner and agreed licence-back rights, so both parents can continue their own businesses after the venture ends. Ambiguity here is the most common source of joint venture litigation.

Agree board composition, appointment rights, quorum requirements, chairing arrangements and whether the chair has a casting vote. Set out which decisions require unanimity or a supermajority — budgets, business plan changes, capital expenditure above a threshold, new borrowings, hiring senior staff, entering new markets.

In a 50/50 venture, deadlock is inevitable at some point. Provide an escalation ladder: management, then senior executives of each parent, then mediation, then a defined resolution mechanism such as expert determination, a buy-sell arrangement or an orderly wind-down. Decide in advance which outcome you can live with.

State the initial funding commitment and the mechanism for further funding: agreed capital calls, shareholder loans, or dilution for a party that does not contribute. Anti-embarrassment and dilution mechanics prevent a stalemate where one parent cannot or will not fund.

Set out how profits are distributed and whether reinvestment takes priority. Where parents supply services or staff to the venture, use separate services agreements on arm's length terms, both for tax reasons and so that the venture's real performance is visible.

Joint ventures between actual or potential competitors raise competition law issues under the Competition Act 1998 and, where relevant, EU law. Information exchange, market or customer allocation, and price coordination are the main risks; put information barriers in place and take advice before sharing commercially sensitive data.

Full-function joint ventures may require merger clearance if the turnover or share-of-supply thresholds are met. Also consider sector-specific regulation, the National Security and Investment Act 2021 for sensitive sectors, and export control where technology transfer crosses borders.

Define the term: a fixed period, completion of a project, or indefinite with termination rights. Set out termination events — material breach, insolvency, change of control of a parent, failure to achieve defined milestones, prolonged deadlock.

Then set out the consequences in detail: who takes which assets, what happens to foreground IP and licences, how employees are dealt with, how customer contracts are allocated, what restrictive covenants apply and how the venture's name and brand are treated. A well-drafted exit section is the clause you will be most grateful for.