What is a Joint Venture?
There may come a time when your company has an opportunity to collaborate with another firm in order to work together to achieve a common commercial goal. In these cases, companies often form ‘joint ventures’ in order to most effectively complete their business objectives.
At Pike & Lustig, LLP, our Miami business law attorneys have extensive experience handling issues related to joint ventures. Here, we highlight some of the most important things that business owners need to know about joint ventures in Florida.
Four Things to Consider Before Entering Into a Joint Venture
- Define the Scope and Purpose of the Business Relationship
When two or more businesses create a joint venture, it is imperative that the companies clearly define the scope and purposes of their relationship. When joint ventures are not clearly defined, the risk of a dispute or another type of problem rises dramatically. Among other things, companies starting a joint venture should:
- Define what activities the venture will engage in;
- Define what activities the venture will not engage in;
- Consider any potential additional corporate opportunity issues; and
- State the conditions under which the joint venture will end.
- Prepare to Deal With Complex Regulatory Issues
Joint ventures are complicated business arrangements. There are many unique regulatory issues that must be dealt with. For example, parties to the joint venture agreement must take care of all tax issues prior to the starting the business. In addition, businesses in a joint venture must resolve who has ownership rights to specific property, who has control of certain assets, how debts and liabilities will be handled, and the dilution and liquidation rights of each individual business.
- Carefully Consider Governance and Management
Running a business is challenging. When multiple companies are working together to run a joint venture, things can get even more confusing. There has a potential to be a “too many cooks in the kitchen” problem. Lack of communication has undermined many joint ventures that could have been successful. Fortunately, companies can take action to alleviate this problem. Before entering into a joint venture agreement, please be sure that the agreement sets up a clear, workable structure to deal with governance, management, and day-to-day decision making.
- Set Up a Clear Structure for Funding and Distribution
Finally, a well-crafted joint venture agreement will always deal with issues of funding and the distribution of profits. You need to make sure that your joint venture agreement clearly states how the entity will be funded, how it can acquire additional funding if such a need arises, and how the profits will be distributed. Without the proper structure in place, there is a serious risk that there will be a dispute over the venture’s finances.
Contact Our Florida Commercial Litigation Attorneys Today
At Pike & Lustig, LLP, our skilled business law attorneys are committed to providing top quality legal services to clients. If you have any questions or concerns about joint ventures or joint venture litigation, we can help. For a free consultation, please contact our law firm today. From our offices in West Palm Beach, Wellington and Miami, we serve business law clients throughout the area, including in Kendall, Homestead, North Miami Beach, Aventura, and Hollywood.