Ventures

Ventures

Legal Issues & Pitfalls in Ventures

Legal Issues & Pitfalls in Ventures

Businesses of any size can and do use joint venture (JV) models to strengthen long-term relationships or to collaborate on short-term projects. The term “joint venture” has no specific legal meaning. Rather it refers to a commercial arrangement between two or more companies for the purpose of a particular business undertaking.

JVs may take many legal guises but they will usually fall into one of the following categories: a company; a limited liability partnership; a partnership; or a purely contractual co-operation agreement. The vehicle that should be used will depend on the circumstances of the particular joint venture and it is important to take legal advice early so that the most appropriate vehicle is identified.

The formation of each JV will be different but in each case the parties need to address the principal issues requiring resolution. A target timetable should also be established which takes into account the following:

• Undertaking appropriate due diligence;

• Legal and tax structuring;

• Negotiation of key commercial issues;

• Valuation of the contributions made by each party to the JV; and

• Applying for relevant third party consents and, if appropriate, regulatory approvals.

JVs offer an array of benefits which make them an attractive option for businesses with the primary benefit being access to new and/or greater resources including markets, distribution networks, capacity, staff, purchasing, technology/intellectual property and finance.

Pitfalls

There are also pitfalls associated with JVs. Problems often arise whenever the interests of the partners are not properly aligned. This can occur when the objective of the venture is not 100% clear and communicated to everyone involved or when different cultures and management styles result in poor integration and cooperation. Similarly, if there is a perception that one of the partners is not “pulling their weight” or if there is an ...