9 Questions to Answer Before You Start a Joint Venture

9 Questions to Answer Before You Start a Joint Venture

A “joint venture” is any time you are engaged in a project with another business or individual.

Joint ventures can range from a short one-time project that doesn’t generate any money, to an ongoing venture that’s really an entirely new business. In many ways, this is a complex relationship, because it may be part partnership, part independent contractor, part co-owners, and even part client/customer.

Be sure to be intentional about the relationship you’re creating.

In a joint venture, it’s very easy to find yourself in an accidental legal partnership (with all the liability and tax consequences), even if you expressly state in a written agreement that you do *not* intend this venture to be a partnership.

Why is that a problem? In a general partnership, each partner is personally liable for the actions and decisions of the other partners (even if you do not know about it), which may not be what you intend. If you do intend to go into business together, it may be more appropriate to form an entity such as a corporation or a limited liability company (LLC), to reduce your potential liability.

If you are creating a project that will likely be ongoing and where you will be sharing the profit and loss, you are probably creating a new business partnership. If that happens, you need to consider the tax implementations (the partnership will likely be filing a tax return) and liability issues.

If you are creating a one-time project with no revenue or a sharing of net revenue, or where one party is paid a commission or royalty, then you may be able to limit the relationship to being defined as a a non-partnership joint venture.

Tip: Be careful about referring to each other as “partners.” While you may both feel that way, that word has legal implications and may confuse your clients into thinking you are legally partners, and therefore liable for each other.

Here are nine questions to consider for your joint venture. Be sure to include the answers in your Joint Venture Agreement!

  1. What will each side provide? This includes roles (marketing, content creation), intellectual property (copyrights, trademarks), marketing assets (mailing list), or services (speaking at an event).
  2. What is each side not allowed to do?  For example, do you have access to each other’s lists? Are you allowed to self-promote during the project?
  3. Who is liable for debts, losses, and damages? Will you be getting insurance?
  4. What is the time frame of this project?  Milestones? Deadlines?
  5. What happens if one party wants out early? What if someone doesn’t do their share?
  6. What are the benefits to each side? This may include profit sharing, revenue sharing, the payment of commission or royalties, the sharing of assets (lists), or the leveraging of each other’s assets.
  7. Who owns what is created via this joint venture, such as mailing lists and intellectual property? You may have ownership by one party with a license to the other (good to avoid confusion later, and to avoid the creation of an accidental partnership), or co-ownership by all parties.
  8. Do you need a Non-Disclosure Agreement (NDA)? You will most likely be sharing business plans (which may include trade secrets), confidential information, and intellectual property. You will want protections such that the other side will not share your secrets with others, and they will not use them for other purposes (such as to compete with you in the future).
  9. Do you need to make disclosures to the public? If you share an office, event, or website, the public may think that you are one business—which introduces liability for each other’s practices. Make sure to be transparent and disclose the nature of your relationship, so your clients are not confused.

Want a lawyer to help you craft a custom Joint Venture Agreement tailored for you and your particular situation? We can help! All for one flat fee.

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