September 03 2014
So you’ve been looking at doing with a joint venture with a business partner you know you can trust. Before going ahead, there are three key areas you need to nail down.
Economics: Fundamentally, both parties need to agree on and be comfortable with what they’re each contributing to the venture at the outset and on an ongoing basis. This includes cash funding, expertise, intellectual property, and so on.
Control: You need to carefully consider and agree how the venture will be controlled, both strategically and at an operational level. If control is in your hands then make sure you have enough freedom to get on and do your job. If you don’t have control, you need to make sure that you have a say on major changes to the venture and any major transactions, as well as sufficient information access/audit rights. Also, you need to ensure you have appropriate dispute resolution processes.
Exit arrangements: When and how should the parties be able to terminate the venture? Is a fixed term appropriate? Should there be an exit process that applies if there’s a deadlock in a decision about a major matter or a breakdown in the relationship? Also, you’ll want to be able to tightly control what the other party can do with their interest in the venture in such circumstances.
Trust and compatibility at the outset of a joint venture are of utmost importance, but they’re not enough. People change, business dynamics change. Clear agreement on the fundamentals will go a long way towards ensuring a successful outcome.