Please keep in mind that this is not legal advice. The information provided herein is for educational purposes only. If you would like to get in touch with a lawyer to help you draft, interpret, negotiate or resolve a dispute about a joint venture, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers). We have Toronto and Ottawa lawyers who can assist you in this regard (I would know, I’m one of them!).
So this blog will deal with the basics of a joint venture agreement or contract. In other blogs, I’ll get down to the nitty gritty.
Definition
Plaint and simple, a joint venture is a contract between two or more parties to share resources, knowledge, skills, etc. towards a common objective.
Parties
As usual in these types of agreements, the parties are identified at the get-go (make sure this is done properly or else your contract won’t be worth the paper it’s written on!).
Recitals
This is the background story you want to tell that leads up to the formation of the joint venture. It could go something like: Party X does Y and has Z. Party A does B and has C. The two would now like to join forces to make even more $$$. So they’re agreeing to have a joint venture in accordance with the terms and conditions set out in the joint venture agreement or contract…
Definitions
It’s a good idea to set out the definitions you’re going to be relying upon near the top of the joint venture agreement (for ease of reference and good organization). You could include definitions here about “Confidential Information” (assuming there will be confidential information passed between the parties as a result of the joint venture), what constitutes “Force Majeure” (e.g. act of God that relieves a party of liability under the agreement in certain circumstances), etc.
Business Structure
The joint venture agreement or contract will generally state how the joint venture is structured. Is it simply two separate entities acting in concert through the joint venture agreement or contract? Will there be a new corporation formed? Will there be a partnership formed? Will that partnership be a general or limited liability partnership? For more discussion about the general forms of business one can structure in Ontario, check out this free information about business structures we’ve been accumulating.
Nature of the Relationship
So will the joint venturers be partners (capable of binding each other), corporate shareholders, or simply joint venturers (i.e. their rights and obligations are limited to the terms of the joint venture agreement or contract).
Term and Termination
How long will the joint venture last for and what events give rise to its premature termination? Will the parties simply be able to give each other notice? Will the joint venture dissolve by operation of law, by one party filing for bankruptcy, by one party attempting to illegally assign their interest in the joint venture to a third party, etc.? Again, you should consult with a lawyer to find out what kinds of things typically go in this section. Also important is what to do in the even of default. Does one of the joint venturers become liable to pay the other if they are at fault? Who determines fault and according to what test (e.g. sole and absolute discretion)? There’s a lot to think about here…
Joint Venture Assets and Benefits
How will these things be deal with? Will there be a percentage of ownership? Will the benefits be based on revenues or profits? Can these interests be assigned?
Operations
How will the joint venture be operated on a day-to-day basis? Will the joint venture committee have the power to enter contracts on behalf of the joint venture? Perhaps the joint venture committee will create a new corporation to take on a certain responsibilities and simply own equally the shares of the new corporation. That new corporation would operate as a separate business, but its shareholders would be the joint venturers (who would elect the directors, who in turn would appoint the day-to-day officers). This would be a good place to put reporting and record-keeping requirements too.
Joint Venture Responsibilities
Here, we get to the nitty gritty of who will be responsible for what in the joint venture. Separate paragraphs will be needed for each of the parties.
Joint Venture Management
Will there be a committee? Will representatives from each of the parties be on the commitee? Will there be a chairperson? How will meetings be managed, votes and decision made? Will there be direction from owners and delegation to the committee? In my opinion, and as I’ve previously blogged about, businesses should be run as dictatorships with consultants, not as democracies (too many voices means things won’t get done).
Representations and Warranties
What kinds of true, fair, and complete statements must the parties make to induce the other parties to enter the agreement? The parties want to know that their joint venturer partners have the authorization and operational wherewithall to do what it is they are about to do. If these representations and warranties no longer hold true, then what’s the consequence? Notice? Termination? This should be spelled out here…
Liability and Indemnification
Will the joint venturers try to limit their liability from each other in connection with the joint venture? Will they indemnify each other for their own wrongdoing – whether in contract, tort, negligence, misconduct, breach of statute or otherwise?
General Terms and Conditions
This section of the Joint Venture Agreement will deal with things like (which I’ve previously touched on in teh context of an independent contractor agreement):
- Notices
- Entire Agreement
- Governing Law
- Interpretation
- Assignment
- Waiver
- Cumulative Remedies
- Counterparts
- Enurement
- Entire Agreement
- Time of Essence
- Independent Legal Advice
- Force Majeure
- Severability
- Survival
- Currency
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