Avoid Legal Hassles By Putting Your Joint Venture In Writing

Published: 23rd August 2008
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So you're going to take the plunge and start a joint venture. Excellent! As long as you consider the details and think it through as if it's a whole new business, your new venture could mean exponentially greater profits for you!

The key to creating a truly successful JV is to take the time to thoroughly plan every aspect of the partnership. And, you need to get everything -- and I do mean everything -- in writing. Those written documents are essential to getting started on the right path to success, staying on the path, and safely stepping off it if necessary.

There are three written documents that are necessary for every joint venture: 1) a joint venture agreement; 2) a business plan; and, 3) an exit strategy.

The joint venture agreement is really a contract between you and your partner. It's the legal document that creates the entity formed by the venture. The agreement spells out the purpose of the JV, the responsibilities of each partner, the length of time the JV will last or the circumstances that signal its end, how the JV will be run, and how the revenues and expenses will be handled.

Due to the legal status of a contract, both parties would benefit from hiring council. The partners in the JV might be able to construct the entire agreement together, but it's just good practice to have your lawyer review the contract before you sign it. He or she might see a hole, and this added security will help protect both your interests.

If you do decide to go it alone and create your own original contract, it's a good idea to consult the Web for templates and tips and hints. The vast amount of information you will need to cover, plus all the foresight you must have into any eventuality makes it easy to miss some things.

Then there's the business plan. This document absolutely requires the presence and input of all parties in the agreement. Writing the document can also be fun, because it outlines all your future plans, such as goals, revenue benchmarks and what each party is bringing to the JV. The business plan will also outline how you intend to fund the venture, and how you plan to acquire loans or other outside money if necessary.

Even if you don't plan to look for funding, it's very important to develop a sound business plan. This is the document you and your partner will refer to when you're planning future moves and reviewing your business to see if you're on your way to reaching your goals. It also specifically states how many of the practical aspects of your business will be accomplished, such as your human resources strategy, marketing strategy, and communication.

When they're done right, business plans can be long -- and often complicated. If this is your first time creating a business plan, it is advisable that you do plenty of research or hire a professional writer. There are writers who do nothing but write business plans for people just like you, and they are easy to find on the Web. Plus, a professional-sounding business plan has a greater chance of getting funded, if that's what you're after.

Sadly but truly, you will also need an exit strategy. Don't worry, you aren't condemning yourself to failure by thinking about how it might end. The average joint venture lasts about seven years, and they end for a myriad of reasons. Your JV might have an expiration date when you write your initial contract, or someone's circumstances may change -- you might win the lottery! You just never know.

A proper exit strategy will protect all parties involved in the agreement. If you came into the project with a patented item, you still want to hold all the rights to that item when you leave the team. Likewise, as we all hope will happen, if the JV is wildly successful and you decide to sell, you want to make sure you get your share of the profits.

The exit strategy will line out in definite terms what each partner will leave with. Most exit strategies also include a list of possible events that would lead to the dissolution of the partnership, such as meeting specific goals, a rise or fall in the economy or a sale of the JV. Again, since this document is legally binding, it is advisable to have a lawyer peruse it for errors or things you might have overlooked.

When you put your joint venture in writing, you prepare for your success and insure against losses in the event of failure. Having these written documents on hand from the start shows your commitment to the business, gives you a clear path to follow, and helps you and your partner remain on track. And, when the JV ends, you'll know exactly what each partner walks away with -- without a complicated, nasty legal hassle.

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