Joint ventures - lawyer guide

Joint ventures (JVs) are collaborative arrangements between two or more businesses to achieve specific commercial objectives while maintaining their separate legal identities. They offer a flexible approach to business collaboration, enabling parties to share resources, expertise, risk, and reward.

Strategic benefits of Joint Ventures

Several key strategic and commercial factors typically drive businesses to consider joint venture arrangements:

• Risk Mitigation - sharing investment costs and financial exposure, reducing exposure in uncertain or volatile markets, creating financial buffers for complex or long-term projects generally using a separate entity to ring-fence liability.

• Resource Constraints - where there is Insufficient capital for sole investment in a project or market and/or limited internal expertise in critical technical areas and/or limited access to production facilities or infrastructure

• Access to New Capabilities - such as technical expertise or proprietary technology, established distribution channels or customer relationships, leveraging a partner's regulatory relationships or permits

• Speed to Market - faster entry into new markets than organic growth allows and achieving rapid scale through combined resources

• Competitive Positioning - achieving economies of scale more quickly and creating barriers to entry for new market players

• Supply Chain Integration - securing supplies of critical components or raw materials and sharing logistics infrastructure and capabilities

• Technology Commercialisation - bringing together technical innovation and commercial expertise

• Regulatory Compliance - sharing compliance costs in heavily regulated sectors and creating industry-wide infrastructure for regulatory reporting.

Risks with a JV

The success of a joint venture fundamentally depends on well-crafted agreements that anticipate common problems before they arise.

Key areas of risk include :-

• Misaligned Objectives - where commercial strategies and timelines diverge over time. The solution is clearly agreed contractual objectives, flexible governance structures, and practical dispute resolution mechanisms.

• Funding Issues - typically where unplanned capital requirements exceeding initial commitments or there are disagreements over non-cash contributions and profit distribution. The solution is detailed funding provisions, consequences for missed capital calls, and transparent distribution frameworks.

• Exit Complications - including valuation disputes when one partner wishes to leave and any ongoing obligations and restrictions. Solutions include pre-agreed valuation methods, clear asset allocation, and defined post-exit responsibilities.

Our experienced team creates bespoke agreements that address these critical risks with commercial practicality, allowing you to enter joint ventures with confidence.

Joint Venture structures

Several legal structures are available for joint ventures in the UK, each with distinct characteristics, advantages, and disadvantages. The most common are :-

• Contractual Joint Venture - a contractual JV (sometimes called a "strategic alliance") is based solely on contractual arrangements without creating a separate legal entity. Best suited for project-specific collaborations with defined timeframes, situations where parties want to avoid shared liabilities, testing collaborative potential before establishing a more formal structure and/or international arrangements where a common corporate structure is difficult to establish.

• Corporate Joint Venture (JV Company) - a separate limited company owned by the JV partners in agreed proportions with limited liability protection for shareholders. Best suited for long-term collaborative enterprises that may later be sold or listed , ventures requiring significant capital investment, projects where a separate brand identity is desirable and a clear governance structure is important.

Joint Venture Agreement and other documents needed

Establishing a joint venture typically requires preparation of multiple documents, which will typically include some of the following :-

• Confidentiality/Non-Disclosure Agreement (NDA) - protects information shared during negotiations

• Memorandum of Understanding (MoU) or Letter of Intent (LoI) - outlines key terms and negotiation framework

• Heads of Terms - more detailed preliminary agreement on main commercial terms

• Exclusivity Agreement - prevents parties from negotiating with others during discussion period

• Process Agreement - sets out timetable and responsibilities for establishing the JV

• Joint Venture Agreement - master agreement setting out parties' rights and obligations (contractual JV)

• Shareholders' Agreement - governs relationship between shareholders (corporate JV)

• Articles of Association - constitutional document for corporate JV (filed at Companies House)

• Share Subscription Agreements - terms of equity investment

• Loan Agreements - terms of debt financing provided by partners

• Asset Transfer Agreements - transfer of property, equipment, or other assets into the JV

• Intellectual Property Assignments or Licenses - transfer or licensing of IP rights

• Business Transfer Agreement - transfer of an entire business or division

• Service Level Agreements - services provided by partners to the JV

• Supply Agreements - product or material supply arrangements

• Distribution Agreements - product distribution arrangements

• License Agreements - ongoing IP licensing

• Secondment Agreements - terms for partner employees working in the JV

• Data Protection Impact Assessments - for joint ventures involving personal data processing

• Employment Contracts - for JV employees

• TUPE Consultation Documents - where employees transfer from partners

• Incentive Schemes - share options or bonus plans

Industry specific JV considerations

Different sectors have particular joint venture considerations. Examples include :-

• Technology and IP-Intensive Industries - background IP protection particularly critical, technology transfer provisions and controls, patent and trademark strategies.

• Financial Services - heightened regulatory requirements (FCA/PRA approvals)

• Real Estate and Construction - land ownership and security interests, planning permission responsibilities, construction risk allocation, environmental liability management, development profit crystallisation and distribution

We can help

Joint ventures offer flexible, strategic options for business collaboration but require careful planning, structuring, and documentation to succeed. The right structure depends on commercial objectives, tax considerations, regulatory context, and partner preferences.

Comprehensive agreements addressing governance, contributions, operations, and exit provisions are essential to manage risk and provide certainty. With proper legal support throughout formation and operation, joint ventures can provide an effective framework for successful business collaboration while protecting the interests of all parties involved.

For specific advice on establishing or operating a joint venture, please contact our Commercial or Corporate team to arrange a consultation.