Commonly confused with partnerships, joint ventures are a business arrangement that involve two or more parties. They are not a strict term under UK law, and instead encompass any business relationship that involves the parties utilizing their respective recourses in order to achieve a specific goal or task, or to carry out a project.
A joint venture can also apply to multiple goals, tasks or projects, though they are often found to be temporary (e.g., they no longer exist once they have fulfilled their purpose, or after a specified time period has passed).
These arrangements can be for any purpose, really – they are often encountered in the housing industry but are in no way limited to this – and can take any structure. It could be that one party will provide funding whereas the other will provide expertise, or that the parties share these equally.
What is the purpose of the joint venture? Who is responsible for what? When will it cease? These are all questions that should be asked before a joint venture is made, in order to avoid confusion arising in the future. It is also essential that the parties decide whether or not a joint venture is truly suitable for them, and take into account what advantages and disadvantages they pose.
Whilst it is true that joint ventures are often:
- Flexible, as they are a separate entity from the business of each involved party. This means that both parties are free to continue to carry out their individual business operations, both during and following a joint venture arrangement;
- Advantageous, as they allow businesses, particularly smaller ones, to branch into new markets and access funding they may not necessarily have been able to otherwise; and
- Convenient, as parties in a joint venture will share risk on either an equal or proportionate basis. This reduces the burden for each party and means that they may be able to undertake activities that they would not have otherwise.
They also carry with them the same risk that any business arrangement does – there is no guarantee that the parties involved will see eye to eye. In the absence of any formal agreement between them, this can lead to a severe lack of direction and difficulty with moving forward with a common goal. This could result in unnecessary disputes or even early termination.
As there is no specific legislation that governs joint ventures, there is no “default.” In the absence of a formal partnership agreement, a partnership will be governed by the Partnership Act 1890, but joint ventures are solely dependent on what is agreed between the parties. This is why it is crucial that a formal written agreement is put into place at the beginning of a joint venture.
Having a professionally drafted document ensures that a joint venture can run smoothly and efficiently in order to achieve its goals, and saves an awful lot of time by ensuring that each party understands their obligations.
Get in touch with us today at 01604 217365 or info@bebconsultancy.co.uk in order to discuss whether you might need a joint venture agreement, or how you might go about entering into an arrangement such as this one.