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Joint ventures can be an outstanding opportunity for your business to explore new opportunities alongside another organisation that can bring fresh experience and resources to bear. However, there are risks to consider as beginning a joint venture with another business is a serious undertaking. It is essential to ask some hard questions about the joint venture arrangement before starting work, no matter how spectacular the opportunity may be. This article will set out three questions to ask when starting a New Zealand joint venture, including: 

  • the joint venture agreement;
  • considering what the other business is contributing; and 
  • considering some of the risks involved.

Do You Have a Satisfactory Joint Venture Agreement?

It is vital that you have a joint venture agreement with the other business or party that addresses all of the key aspects of the arrangement. You should ask yourself whether you are fully satisfied with the agreement overall, as well. As a default, the agreement should include some standard clauses. For example, the agreement should detail:

  • the financial investment from each participant; 
  • how parties will manage the joint venture; and 
  • the term of the venture.

However, whether a joint venture agreement is satisfactory is not simply down to the terms included. The devil is often in the details. You should be satisfied that the stated purpose of the venture in the agreement reflects your understanding of your business’ interests. In addition, you should be happy with the dispute resolution clauses and how the agreement would break a deadlock in the venture’s management. 

Ultimately, the joint venture agreement will govern the venture and your relationship with the other participants. Hence, it is vital to ensure that you fairly and correctly reflect your business’ interests in the document. Without doing so, you are vulnerable to any issues or misunderstandings that may arise throughout the joint venture process. 

What Will the Other Party Be Contributing?

You want to be confident about what the other participant(s) in the joint venture brings to the table. Particularly if your business is well-positioned to take on an opportunity or challenge on its own, there needs to be a clear value proposition for the joint venture. This could involve an array of different features. For instance, your partner in the joint venture may have experience in the kind of operation planned for the venture. Or, they may be bringing financial or other resources to bear. 

The question to ask yourself is whether the other party is adding enough to the equation to justify the joint venture.

No matter how good an idea or opportunity the venture is, for it to be sustainable and successful, you must be satisfied that your business is getting a good deal in terms of the other participants’ contributions. 

What Are the Risks of the Joint Venture?

All joint ventures carry some range of risks. You should be clear with yourself and your team about what the risks of any particular venture may involve. This can include risks in several different areas. Some examples of possible risks to be aware of include the:

  • risk of cultural differences between your business and other participants of the joint venture. This may be true in the sense that other businesses in the venture may be based in other countries and be used to different ways of working. It can also be as simple as two businesses with different work cultures which impede the progress of the venture; 
  • possible dispute risks if your business’ relationship with the other participant(s) in the venture breaks down. This can be additionally complicated if there are jointly created products or services, intellectual property. Keep in mind that if things turn sour, you may have to resort to litigation; and
  • commercial risk of the joint venture failing. Despite all involved parties’ best intentions and work, sometimes ventures do not work as intended or are as successful as could be hoped. 

Key Takeaways

Joint ventures can be an exciting opportunity for you and your business. However, you should be asking yourself some key questions before committing to beginning any new venture, no matter the potential or opportunity. These include making sure that the joint venture agreement is to your satisfaction. It should include default terms and have terms that reflect your understanding of the venture. You should also be clear on what the other party will be contributing to and the risks of the venture. Considering these elements is essential no matter how likely you think the venture is to succeed. 

For more information on starting a successful joint venture, contact LegalVision’s business lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

What should you include in a joint venture agreement?

There are many standard terms to include in a joint venture agreement, including governance, contributions, term, purpose and roles. It is best practice to seek legal advice when considering a joint venture and preparing an agreement.

What are the cultural risks with a joint venture?

There can be cultural differences between businesses of all kinds, which can complicate the work required for a joint venture to be successful. For example, a large business may have very different norms of working compared to a start-up. There may also be significant differences between businesses in different countries.

What are the litigation risks with a joint venture?

There is the possibility that a joint venture will result in a relationship breakdown with other participants of the venture. It may even lead to litigation. A common example is if the joint venture has created new intellectual property with the work of two businesses, who subsequently suffer a relationship breakdown. Litigation is sometimes required to resolve the resulting battle over intellectual property.

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