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A joint venture (JV) is a type of business partnering in which two or more businesses work together to achieve a common goal. It is a combined effort from each party for mutual benefit. A JV agreement can be specific to the project at hand and can help solidify a business relationship before the project begins.
Business partnering can provide an opportunity for businesses to work together and learn from each other without a business merger or takeover. The business relationship may have the potential to continue and grow, be broken off or eventually lead to a full merger.
A JV is a great way to combine resources and skill to take advantage of a business opportunity. There can be benefits for all parties. Typically, a business may lack some specific knowledge and experience in an area where a business opportunity exists, while having the resources and money to achieve it. It can be attractive for them to partner with another business with this knowledge and experience, rather than spending a lot of resources on building their own. Under a JV, businesses can share resources and contributions for their mutual benefits.
JVs can help build capacity for Indigenous businesses to take opportunities and accelerate growth. For this reason, they have been a model that some Indigenous businesses may consider.
Indigenous Business and JVs
Indigenous businesses can benefit from working in a joint venture. Most Indigenous businesses are small to medium sized (SMEs) and are still growing. The resources and experience of other businesses can assist an Indigenous business to achieve larger, high profile contracts and achieve further growth.
Indigenous businesses have their own Indigenous expertise, skills, networks and knowledge to offer. For non-Indigenous businesses, forming a JV with Indigenous businesses can have economic and social benefits. They can meet Indigenous employment targets and network with other Indigenous businesses.
We can expect to see a rise in JVs with the introduction of the Commonwealth Government’s Indigenous Procurement Policy and through the activities of corporates arising from Reconciliation Action Plans. Furthermore, in native title negotiations, many Indigenous Land Use Agreements are covering business opportunities for Indigenous people.
In this environment, there are opportunities for Indigenous business. However, businesses should ensure that the JV is based on strong foundations, which are clearly articulated in a written agreement. The following is an example of what should be in a joint venture agreement.
Some key elements of a Joint Venture Agreement
Purpose of the JV – description and limits of the project
Parties of the JV & their contribution to the JV
Responsibilities of each party
Split of risks and benefits
Financial Arrangements
Funding and costs – a breakdown of the costs involved and the liability of each party to bear components of the costs
Income – a breakdown of the income and the amount allocated to each party for the services they bring under the JV agreement
Decision Making
The governance structure especially for resolving disputes and deadlocks
Risks and Liabilities
Liability – overheads and insurance
Each company should have their own insurance in providing their own services
A warranty could be included to promise this
Risk is usually who is liable if the commercial agreement doesn’t go ahead (after investing time and money) or if the agreement breaks down or terminates (there may be penalties, and who will bear the penalties, and who will bear the costs if a partner is out of pocket)
All parties will indemnify the other parties for any action taken out in reliance of the warranties made by that party
Termination rights
Proprietary Material and IP
What property and intellectual property each party will bring to the venture and how the other parties are permitted to use it
A cultural protocol for dealing with traditional knowledge can be a useful attachment.
The elements above are a few important considerations towards the formation of a strong joint venture. However, each JV arrangement will require detailed analysis to pinpoint the critical issues for discussion, negotiation and agreement for the proposed project. The JV agreement sets up the framework for working together, which can assist parties understand their obligations and reduce the risk of problems arising. Seek legal advice, which we can provide, but also undertake due diligence and make sure you trust your partners.