A joint venture is when two or more entities come together for a project, pooling resources such as money, equipment, and knowledge. There are three types of joint ventures: contractual, corporate, and partnership. The agreement can be verbal or contractual, with the latter having more detailed obligations and responsibilities.
A joint venture agreement is similar to a partnership in that two people or companies are coming together for a cause. The main difference between the two is that a partnership is meant to last beyond a single project, whereas a joint venture is typically for one project or limited time. When the joint venture agreement is created, if the entities accept a contract, there are three different types of joint ventures: contractual, corporate and partnership. When creating the joint venture, the entities may agree to allocate resources such as money, employees, equipment, or a combination of those resources.
When two or more entities enter into a joint venture agreement, they do so to pool their respective resources. The general reason for entering into a joint venture is that the entities, individually, cannot complete a project or cannot complete a project without hindering other projects. To achieve a goal, all parties contribute resources, such as physical goods and money, to the project. Other resources that entities bring include experience and knowledge. If the venture is successful, all parties share the profit.
Most joint venture agreements are temporary and limited to a single project or for a short period of time. When entities agree to join a business, they first agree whether it should be contractual or non-contractual. Non-contractual is much easier, because there is only a verbal agreement and no documentation. At the same time, conflicts may arise because one or more partners wish to withdraw assets or not agree on liability if a contract does not stipulate each entity’s role in the joint venture.
If entities agree to a contractual joint venture agreement, there are three types of agreements. The standard version is called a contractual joint venture and a contract is drawn up. It details the obligations and responsibilities of each entity and shows the amount of resources the entity can provide over the life of the joint venture.
A corporate joint venture agreement is similar to a contractual agreement, but this version is much broader. In this scenario, the entities are planning to incorporate their joint venture as a separate business or legal entity. In the partnership joint venture agreement, the entities are planning to be set up as a partnership, rather than a corporation. Both of these versions include contracts setting out responsibilities and obligations, but there are additional documents to establish the joint venture as a corporation or partnership.
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