Navigating joint ventures and partnerships

Ensuring two is company – not chaos

Teaming up could be the best business decision you ever make – or a costly failure. Set yourself up for success with our joint venture tips to help mitigate the risks.

Possibilities and pitfalls

Running a business is not for the faint-hearted and going it alone can be just that… lonely. Joint ventures and business partnerships offer an exciting opportunity for collaboration, innovation and growth. But they also present unique challenges and potential pitfalls.

Ensuring your protection from the outset is a must with clear agreements, thorough risk management and a good understanding of regulatory compliance. Selecting the right partner or collaborator is key. So too is seeking specialist accounting support and legal expertise to guide you along the way.

So, how do you maximise the opportunities of a joint venture or partnership and navigate the risks? Let’s cover the ins and outs to put you on a path to success.

The 101 of joint ventures and partnerships

First up, what’s the difference between a joint venture and a partnership? Typically, a joint venture is formed for a single goal or project over a defined period, whereas a partnership is formed with the intention of continual business.

A joint venture is formed between two parties while a partnership can consist of up to 20 partners. Unlike a company though, a partnership is not a separate legal entity. This means the partners are jointly responsible for the activities of the partnership – for better or worse. In a joint venture, your debts are your own – but in a partnership, you are liable for the partnership’s debts if other partners are unable to pay.

Deciding on a structure will depend on your objectives, with advantages and disadvantages to both.

The need for a well-defined and legally sound agreement for both structures is clear, but the elements covered will differ for each.

A joint venture agreement should cover:   

• details of the joint venture, including your objectives
• each party’s obligations and warranties
• financial contributions
• division of profits and losses
• audited accounts
• dispute resolution process
• agreed exit strategy.

A partnership agreement should cover:   

• details of how the partnership will work
• the partners’ obligations
• ownership of the IP created in the partnership
• division of assets
• confidentiality expectations
• dispute resolution process
• agreed exit strategy.

Your agreement is your main means of protection should things go awry, so seek legal and financial advice when drafting your agreement before you enter the joint venture or partnership.

Choosing the right partner

The most important predictor of a successful joint venture or partnership? Choosing the right partner. Key factors to consider include:

1. Aligned objectives and culture. Unified vision and values are key to avoiding conflict and ensuring the joint venture or partnership doesn’t end prematurely on bad terms.
2. Complementary strengths. Perhaps you run a tight operational ship but you’re lacking in new ideas. A partner with a flair for innovation and creativity who struggles with organisation could be the perfect fit.
3. Thorough due diligence. In a joint venture or partnership, there’s a lot at stake. Don’t just take your potential partner’s word for it, do your research thoroughly to ensure they’re financially secure, trustworthy and enjoyable to work with.

Managing and mitigating risk

Even with the most thorough due diligence, risk is an unavoidable part of entering a joint venture or partnership. From liability for partners’ debts and actions, confidentiality breaches, partners becoming ill (or worse), premature dissolution leading to profit loss, through to stressful disputes and costly litigation, there’s a lot that can go wrong.

With so much at stake, a thoroughly prepared exit strategy is key to mitigating risk. A well-defined exit plan means parties know their rights and obligations, as well as being prepared for all possible scenarios, saving time, reducing costs, avoiding expensive legal battles, and – ideally – leaving all partners on good terms. 

Prevention is better than cure

When entering a joint venture or partnership, it pays to be proactive and ensure all bases are covered. Seek legal and financial advice from a business partnership accountant to ensure you maximise the opportunities and mitigate the risks for peace of mind. An upfront investment in your protection could prove to save you significant heartache, stress and expense in the long run.

Get joint venture and partnership savvy with expert accounting advice. 

Ask for a callback from Scotts Chartered Accountants.