Embarking on a joint venture (JV) can be an exciting opportunity, bringing innovation and growth opportunities to your business, but it’s crucial to step cautiously.
Missteps in the early stages can cause long-lasting legal repercussions for you and your business that should be avoided at all costs.
Our team have worked on several JVs in the past and here’s what you need to watch out for to ensure your JV is a success and not a legal headache.
Document everything
Every experienced lawyer will tell you that thorough documentation isn’t just useful, but essential.
You should keep a record of conversations (either via phone, video conferencing, letters or emails), any agreements or any shared information that is provided during the JV negotiations.
Ensuring all legal aspects are covered from the start with proper documentation will save you both time and money if things don’t go as planned.
Whilst slightly onerous, you should consider it an investment in your future security, effectively reducing the work – and potential income – for your lawyers in case of disputes.
Ownership and control
Starting a JV will often require you to create a newly incorporated entity. It is important that during this process the transfer and rights to use assets are clear.
Ownership issues require strict monitoring from the start and should be managed through detailed agreements that dictate how assets are handled during the life of the JV and upon its dissolution.
Similarly, control mechanisms must be predefined. How will decisions be made? What happens during a disagreement? Setting these rules in advance through written contracts and agreements can prevent conflicts in future.
Capital investment
JVs often require more capital than anticipated – even where meticulous planning and costings have taken place.
To avoid disputes over financial contributions, it’s crucial to outline each partner’s investment responsibilities clearly.
This includes specifying the type of contributions – be it cash, assets, or expertise – and the timings of these contributions.
Terminating joint ventures
Typically, JVs aren’t meant to last forever, so it is important that you clearly define the terms on which they will end from the beginning.
You will need to outline how assets and profits are divided and who assumes any ongoing liabilities.
Without clear exit strategies, unwinding a JV can tie up resources and delay your return to business as usual.
Competition law traps
JVs, especially larger agreements in sectors like energy and resources, must overcome complex competition laws.
Informal agreements or collaborations that might seem innocuous can sometimes stray into areas covered by competition law.
Violations of these laws can lead to serious legal consequences, including penalties for what’s known as ‘sham’ ventures that are merely fronts for anti-competitive behaviour.
From failing to properly document the venture, to premature coordination (gun-jumping), mismanagement of competitively sensitive information, and engaging in unprotected ancillary coordination – each of these missteps can turn a JV into a compliance nightmare.
If you are unsure whether your JV may be affected by these issues, always consider seeking authorisation from competition authorities to safeguard against potential legal challenges.
Going global
In today’s interconnected world, a JV may need to comply with multiple competition law regimes. What’s legal in one country could be problematic in another.
Ensure your JV agreement is lawful in all applicable jurisdictions to avoid unforeseen legal complications.
Need help?
While JVs can be highly lucrative, they come with a landscape of legal and operational pitfalls that require careful consideration and preparation.
If you are considering a JV, make sure you seek legal advice from experienced professionals at the earliest opportunity. Speak to our team today.