When going into business with another person or company, one of the key things you’ll need to decide on is how you will structure the business. One of the most common confusing areas is the subtle differences between a partnership agreement and a joint venture agreement. The ability to differentiate between the two is important when deciding on the right agreement to enter into.
If two or more people (up to 20) enter into an agreement to start a business with a view to profit, they enter into a partnership agreement.
Specific rules apply to the duties and obligations as well as the profit and liability share of each partner in the partnership. A partnership agreement:
- sets out the interest of each partner, and
- Clarifies the terms of the business in the event of a dispute.
In a partnership agreement, all parties to the agreement share the cost of the project and are liable for the debts incurred.
Terms of a partnership agreement
Partnership agreements usually contain the following:
- Full names and addresses of the partners.
- Obligations and liabilities of partners to contribute money, assets and project costs.
- Decision-making process.
- Management and administration.
- Disputes and resolution procedures.
- Restrictions on the sale of the partnership.
- Duration and termination of the partnership.
Joint venture agreement
A joint venture agreement is usually created when two or more companies agree to enter into a contractual arrangement for a specific project. Joint venture agreements can also involve competing businesses. It allows each member of the joint venture agreement to have access to new markets, technology and even staffing. It is intended to create more business opportunities for all members of the agreement.
In a joint venture agreement, parties have undefined interests and are usually liable only for their own company’s debts.
Terms of a joint-venture agreement
Joint venture agreements usually contain the following terms:
- Each company’s contribution to the joint venture.
- The activities or duties of each company during the duration of the joint venture.
- The reporting obligations of each.
- Dispute resolution and procedures.
- Termination of the joint venture.
Getting the right agreement prepared
A business lawyer will be able to provide you with legal advice and draw up an agreement that will meet your unique business needs.