Many times, a syndication or an investment fund isn’t just one sponsor coming together to do this, to find investors, to do the whole project. It’s two or three. Sometimes you’re doing what’s called a joint venture, where multiple parties are participating as the GP, or the sponsor, the manager, however you want to call it for yourself. And exactly how do you do a joint venture agreement? What are those key tips to make sure the joint venture is successful so that, at the end of the day, investors are happy and keep investing with you, one of the sponsors?
So first of all, what is a joint venture agreement? It is where two or more parties come together for a single project or a series of projects, but they each retain their own identity. So they’re coming together just for that particular project or series of projects, but they’re not merging companies or anything like that.
A good joint venture agreement has several key components. First, you need to define the purpose of the joint venture. What are you doing? Is it just for this one project? Is it for a series of projects? What exactly are you trying to accomplish together? Then you need to define the roles and responsibilities of each party. Who is doing what? Who is responsible for what part of the project?
Next, you need to define how decisions are going to be made. Is it going to be unanimous consent? Is it going to be majority consent? How exactly are you going to make decisions? And then you need to define how profits and losses are going to be shared. Who gets what? How are you dividing up the pie?
Another key component is capital contributions. Who is putting in what money? How is it being tracked? Are there any penalties for not putting in the money when you’re supposed to? And what happens if someone doesn’t put in their money? Are they diluted? Are they kicked out of the joint venture? What exactly happens?
Management and control is another crucial area. Who is managing the day-to-day operations? Who has control over the bank accounts? Who is signing contracts? All of these things need to be defined in your joint venture agreement.
You also need to define the term of the joint venture. Is it for a specific period of time? Is it until the project is completed? What exactly is the term? And then you need to define how the joint venture can be terminated. What happens if one party wants to leave? What happens if the project is completed? How do you wind up the joint venture?
Dispute resolution is another key area. What happens if there is a dispute? How are you going to resolve it? Are you going to go to mediation? Are you going to go to arbitration? Are you going to go to court? All of these things need to be defined.
And finally, you need to define any other miscellaneous provisions. Are there any confidentiality provisions? Are there any non-compete provisions? Are there any non-solicitation provisions? All of these things need to be thought about and included in your joint venture agreement.
So those are some of the key components of a joint venture agreement. It’s a very important document, and it’s crucial that you get it right. If you don’t, you could end up with a lot of problems down the road. So make sure you work with an experienced attorney who can help you put together a solid joint venture agreement that will protect your interests and help ensure the success of your project.
Thank you for watching. If you have any questions or need any assistance with your joint venture agreements, please feel free to reach out to us. We’re here to help.