Many businesses set up joint ventures after noticing how they and another company can work together, maximizing each other’s strength to make a profit. That said, there are many forms of joint ventures. Some can come in the form of various shareholders acting as different parties creating a single entity or a contract agreement between two separate entities. Regardless, joint ventures are generally extremely profitable for all the parties involved. However, this only happens if joint ventures are done well.
Are you planning to set up a joint venture with another party in hopes of maximizing your profits? If so, there are some considerations you must make to ensure success.
1. Create a structure
When setting up a joint venture, a structure is required. This structure will revolve around addressing various issues such as tax, financing, profits, losses and overall responsibilities. It dictates how all of these will be shared between different parties. Without a structure, a joint venture is doomed to fail.
2. Set up an exit plan
Not everything works out as planned, and not all joint ventures succeed. If an agreement has been breached or that an issue cannot be resolved, a plan is required to dictate actions to take for specific scenarios. For instance, a party can set up the process of changing ownership, allowing for a new party to replace one that wants to leave.
Plans can also be set up on how one party can terminate their participation properly to avoid costly court cases. Such plans will ensure that any conflict can quickly be dealt with without causing too many problems for either party in the venture.
3. Document everything
Everything, from the roles of different parties to the joint venture’s objective, should be documented accurately and clearly. This makes sure everyone who’s part of the venture knows exactly what is in it for them, what they have to do and how they will go about doing it. This will also serve as a guideline of what they cannot do and the limitations set forth for each party to reduce conflict. Put simply, the primary purpose of documentation is to avoid any misunderstandings that can lead to the joint venture’s failure.
4. Get advice from third parties
It is always smart to get advice from third parties such as lawyers, accountants and other professionals about the joint venture. Through the excitement, simple issues and problems can easily be missed that can prove devastating. As such, help from such professionals can ensure that the joint venture does not run into potential problems that can add to cost, stress and the likelihood of an abrupt end of the joint venture.
It is not easy to set up joint ventures. More often than not, problems will arise now and then. However, with the right procedures and planning, it can be done without facing too much trouble. Even if you run into challenges, you and your partners can easily and effectively tackle them to ensure the business can continue smoothly. With that in mind, do take the time to plan out a structure, create an exit plan and document everything to be agreed upon. Do not be afraid to reach out for third-party help and more insight to ensure success for everyone in the venture.
GLG Legal is a commercial and property law practice providing services to help clients find solutions to meet their needs. If you are looking for commercial lawyers in Milton to help you set up a joint venture, contact us today.