Oftentimes, you may have a need to set up a 'joint venture' with a third party. These collaborative businesses can be extremely profitable for all parties involved, but you must ensure on the way in to such an agreement that you have done your due diligence, and that everyone understands exactly what the terms and conditions of the venture are.
For this reason, we here at www.lawyersbench.com have put together a quick 15 point checklist that will help you determine that you have all the bases covered.
This is more important than you may think - after all, mid venture is NOT the time to be arguing about basic terms and conditions!
1. Identity. Confirm in writing exactly who is involved in the joint venture.
Do you need a Non Disclosure Agreement to be signed? (typically if one party has a great idea, and the other will be involved with manufacture or promotion).
3. What are the responsibilities of each party? List in writing what each of you will bring to the 'party'.
4. Is the enterprise global, or limited in geographical scope?
5. Are there any legal considerations related to setting up the business (are licenses required from the Government etc)
6. Structure of the joint venture. Is it a partnership or a Company, or simply a JV contract between 2 parties? If it is a company, who sits on the board and how are they appointed? What classes of shares are in circulation, and under what conditions? How are minority shareholders protected?
Who supplies the capital for the venture? Is it split in some way between the Joint Venture parties or does it come from an outside source, such as a Bank or venture capital firm? Is the investment in cash or goods or services?
8. If a Company structure is to be used, what exit provisions are needed? For example, if one side wanted to sell their shares, what conditions apply? Will the other party have first refusal to buy? Can they also demand to be bought out at the same time? How is a shareholding to be valued? Will new incoming shareholders have the same rights and responsibilities as the existing shareholders? Is there a right of veto?
9. Non competition. Will the parties to the venture be prohibited from competing directly with the new business? Is it restricted territorially?
10. Sharing of information.
What rights do the partners have to know about the internal workings of the venture? Are regular management accounts to be provided? For example, would www.lawyersbench.com have rights to a product developed by a JV partner, even if we had no direct involvement in the day-to-day running of the venture? What about independent auditing?
11. Profit sharing. How are profits to be distributed? When? Under what conditions? Can one party force a distribution of profits?
What Intellectual Property Rights will the new venture acquire? DO they revert to any particular party if the venture is dissolved? Who owns new IPR developed by the venture?
13. Employees. How many employees will be needed, and how will they be organized? Will there be share options, or other incentives? Transferring employees from one business to another will almost certainly involve you in taking legal advice on the process and the related employee rights. At www.lawyersbench.
com we would always have relevant 'key-man' insurance policies in place for special employees.
14. Administration. Map out who manages the venture, who the bankers will be, who will audit the business and who is responsible for regulatory compliance?
15. Exit. Does the venture have a defined life-span, or is it open-ended? What circumstances can force it to end prematurely? If this happens, how are the assets to be distributed (including cash and IPR).
If there are liabilities, not assets, who do they devolve onto?
If you answer all these points adequately, you should be well on the way to a sensible well structured joint venture. As always, take legal advice before committing to any legal arrangement.
About the Author .Jeff writes article on the day's legal issues for the public, and often contributes to website www.lawyersbench.com the free site for useful legal advice and tips.
By: Jefferson Highway, General Counsel