Joint ventures and business partnerships

There are different types of joint ventures. How you set up a joint venture depends on what your business is trying to achieve.

Common types of partnership structure in a joint venture

Joint ventures can be:

• incorporated – eg a company or a limited liability partnership (LLP)
• unincorporated – eg a partnership, a cooperation agreement or strategic alliance

Typically, joint ventures are established through either limited co-operation, a separate joint venture business, or a business partnership.

Limited co-operation

This is when you agree to collaborate with another business in a limited and specific way. For example, a small business with an exciting new product might want to sell it through a larger company's distribution network. The two partners agree a contract setting out the terms and conditions of how this would work.

Separate joint venture business

This is when you set up a separate joint venture business, possibly a new company, to handle a particular contract. A joint venture company like this can be a very flexible option. The partners each own shares in the company and agree on how they should manage it.

Business partnerships

In some cases, a limited company may not be the right choice. Instead, you could form a business partnership or a limited liability partnership. You could even merge the two businesses.

Choosing the right type of joint venture

When deciding what form of joint venture is best for you, you should consider if you want to be involved in managing it. Think through what might happen if the venture goes wrong and how much risk you want to accept. You should carry out due diligence when choosing the right joint venture partner.

Protecting your business in a joint venture

You will need to create a joint venture agreement that clearly sets out how the joint venture will work and how you will share any income.

It is a good idea to get legal advice. How you set up the joint venture will affect how it operates, how profits are shared and taxed, and your level of risk if things go wrong.

Typically, each party will sign a confidentiality or a non-disclosure agreement. You may also choose to sign a memorandum of understanding early on. This sets out the main terms and shows a shared commitment to the deal.

Changing your business model into a joint venture, or changing into a different type of venture, can be a challenging process. It is important to fully consider all of the joint venture advantages and disadvantages.

A joint venture is a common way of combining the resources and expertise of two otherwise unrelated companies. There are many benefits to this type of partnership, but it is not without risks - arrangements of this sort can be highly complex.

Advantages of joint venture

One of the most important joint venture advantages is that it can help your business grow faster, increase productivity and generate greater profits. Other benefits of joint ventures include:

• access to new markets and distribution networks
• increased capacity
• sharing of risks and costs (ie liability) with a partner
• access to new knowledge and expertise, including specialised staff
• access to greater resources, for example, technology and finance

Joint ventures often enable growth without having to borrow funds or look for outside investors. You may be able to:

• use your joint venture partner's customer database to market your product
• offer your partner's services and products to your existing customers
• join forces in purchasing, research and development

Another benefit of a joint venture is its flexibility. For example, a joint venture can have a limited lifespan and only cover part of what you do, thus limiting the commitment for both parties and the business' exposure.

Joint ventures are especially popular with businesses operating in different countries, for example within the transport and travel industries. Read about the different types of joint ventures.

Disadvantages of a joint venture

Joint ventures can involve risks, such as legal responsibilities and disagreements between partners. Problems are more likely if:

• aims of the venture are unclear
• communication between partners is poor
• partners have different expectations
• skills, experience or investment are not balanced
• work and resources aren't sharef fairly
• different cultures and management styles cause conflict
• leadership and support are lacking
• contract terms limit a partner's main business activities

Partnering with another business can be complex. It takes time and effort to build the right business relationship and, even then, it can be difficult to completely avoid all the issues.

Success depends on good communication, a carefully planned joint venture relationship and a clear joint venture agreement.

When businesses combine their skills and resources to achieve a shared goal, the outcome can be positive. However, joint ventures do not always succeed, so you should think carefully before entering one.

A joint venture will likely change how your business operates. To prepare, you should:

• have a clear reason for change
• align it with your existing business strategy
• choose the right partner and structure
• agree management, governance and decision processes early
• sufficiently plan for implementation, operations and exit contingencies

Careful planning and research are essential when making any changes to your business. See how to plan your joint venture relationship.

Review your business strategy

It's important to review your business strategy before committing to a joint venture. This should help you define what you can realistically expect. You might decide that there are better ways to achieve your business aims, perhaps through mergers and acquisitions.

Carry out a SWOT analysis

Before you enter into a joint venture, you should take some time to examine your own business performance. Be realistic about your business's strengths, weaknesses, opportunities and threats.

Consider performing a SWOT analysis to discover if the two businesses are a good fit. Seek a strong, credible partner that complements your own strengths and can contribute equally to the project. 

Manage change in your business

You should take into account your employees' attitudes and bear in mind that people can feel threatened by a joint venture. It can also be difficult to build effective working relationships if your partner has a different way of doing things. It may help to follow best practices in change management.

Examples of successful joint ventures

You may also want to look at what other businesses are doing, particularly those that operate in similar markets to yours. Seeing how they use joint ventures could help you choose the best approach for your business. At the same time, you could try to identify the skills they apply to partner successfully.

You should weigh up joint venture advantages and disadvantages before entering any type of partnership structure.

Before starting a joint venture, both businesses need to understand what they each want from the relationship.

Issues to consider when planning a joint venture

Normally, you will want to find a partner who is compatible with your business. This partner can be:

• a larger business, offering resources such as distribution networks, specialist staff and finance
• a smaller business, offering flexibility, innovation or access to new products or intellectual property
• a supplier, offering technical knowledge or improved services in return for agreed sales

Think about what both you and your partner want from the venture. You should agree on shared objectives that benefit both sides.
You will need to agree key details, such as:

• the structure of your joint venture
• who will manage the venture and how
• who will finance the venture and how
• the assets and resources you will both contribute
• who will own any intellectual property that comes out of the venture
• how you will share profits and any potential losses
• how you will handle any potential disputes

See how to create a joint venture agreement.

It's important to keep in mind from the start that joint ventures are generally temporary arrangements, and that they normally end when the objectives of the venture are met. You should plan your exit strategy from the beginning, to make sure you get a return on your investment in the joint venture.

Strategy for a mutually beneficial joint venture

Whatever your business aims, the arrangement needs to be fair to both parties. Any deal should:

• recognise what you each contribute
• ensure that you both understand what the agreement is expected to achieve
• set realistic expectations and allow success to be measured

The objectives you agree on should be turned into a working relationship that encourages teamwork and trust. 

The ideal business partner in a joint venture is one that has resources, skills and assets that complement your own. The joint venture has to work contractually, but there should also be a good fit between the cultures of the two organisations.

Finding a suitable joint venture partner

Start by looking at existing customers or suppliers you already work with. You could also consider competitors or other business contacts.
When choosing a partner, consider:

• How well do they perform?
• What is their attitude to collaboration, and do they share your level of commitment?
• Do you share the same business objectives?
• Can you trust them?
• Do their brand values complement yours?
• What kind of reputation do they have?

Consider carefully how you will plan your joint venture relationship with a potential partner.

Joint ventures - due diligence checks

When assessing potential partners, carry out basic due diligence checks. Start by confirming their legal status and that they can enter into a joint venture.
You should also check:

• Are they financially secure?
• Do they have any credit problems?
• Do they own assets that they will be putting into the joint venture?
• Do they already have joint venture partnerships with other businesses?
• What kind of management team do they have in place?
• How are they performing in terms of production, marketing and workforce?
• What do their customers and suppliers say about their trustworthiness and reputation?

You can get information about a company for free on the GOV.UK website.

Protecting your interests in a joint venture

Before entering a joint venture, make sure you protect your business interests. You may want to work with a solicitor to prepare legal documents that protect your trade secrets and intellectual property. You should also check whether your potential partner already has similar agreements in place with their employees or consultants.

When you set up a joint venture, you should put the terms in a written agreement. This helps prevent misunderstandings once the venture begins.

What goes into a joint venture agreement?

The agreement should clearly set out how the joint venture will be formed and how each partner will work together. It should cover:

• the structure of the venture, for example, if it will be a separate business
• the name and aims of the joint venture
• how long it will last and any options to extend it
• what each partner will contribute, such as money, assets or property
• when and how partners can withdraw their investment
• any assets or staff transferred to the venture
• who owns any intellectual property created
• how the venture will be managed and controlled
• how profits will be shared
• how losses and liabilities will be handled
• how any disputes between the partners will be resolved
• an exit strategy for ending a joint venture

You may also need to agree on other issues, such as:

• confidentiality - to protect any commercial secrets you disclose 
• insurance - against loss where reasonable and especially if it is industry standard
• indemnification for both parties in the venture

Multi-party joint venture agreements

Multi-party joint ventures can be complex, especially when dealing with governance, decision-making, ownership and exit arrangements. Whether you are setting up a joint venture between two businesses or several partners, it is important to get independent legal advice before making any final decisions.

You can download a template for a joint venture agreement (PDF, 17K) to help you get started.

Businesses, markets and partnerships change over time. A joint venture may adapt, but most eventually come to an end. It is important to plan how the joint venture will end and agree your exit options and the circumstances for ending the partnership as early as possible.

Exit plan for joint ventures

Joint ventures are often set up for a specific project. They usually end, by agreement, when the project is complete. Depending on your agreement, you may exit by:

• selling the assets
• listing the joint venture company on a public exchange
• transferring the interests from one joint venture party to another
• selling the interests to a third party

Many joint ventures end with a partner buyout, where one partner buys the other’s share. It's always best for partners to mutually agree to the termination, but this does not always happen. For different reasons, one party may wish to exit unilaterally. It is important to agree on possible issues in advance, such as the right of first refusal in the event that one partner chooses to sell their part of the business to a third party.

Sometimes, unexpected events or changes could trigger the exit prematurely. For example:

• a partner's default - if one party breaches the terms of the agreement
• a partner's inability to operate - eg impacting their contribution to the venture
• a deadlock - if parties fail to agree on an issue or a course of action

Within your partnership agreement, you should consider all the circumstances in which the joint venture may end to help you manage separation the right way.

A typical joint venture exit clause could include:

• requiring each party to give a three months' notice prior to ending the venture
• determining agreed 'walk-away points'
• allowing one business in the partnership to buy out the other
• agreeing when individual parties may be able to force a sale
• agreeing how parties will deal with deadlocks

Key considerations when terminating joint ventures

Your agreement should clearly explain what happens when the joint venture ends. For example, it should cover:

• how you will divide assets and profits
• how you will share intellectual property
• how you will continue to protect confidential information
• who will be entitled to any future income arising from the joint venture's activities
• who will be responsible for any remaining liabilities, eg debts and customer guarantees

Even with a well-planned agreement, there may still be issues to resolve. For example, you might need to agree on who will continue to deal with a particular customer.

Good planning and a positive approach to the negotiation may help you arrange a friendly separation. Find more tips to help you plan your joint venture relationship.

Joint ventures can be risky, but if you use the right processes and carry out due diligence checks, you can increase your chances of success. This checklist can help you prepare for and plan a successful joint venture.

Are you ready for a joint venture?

First, decide if your business is ready. To do this, you should:

• research the activities of other businesses in this area
• carry out a SWOT analysis of your business
• compare your working methods with those of potential partners
• consult your employees to find out their feelings about a joint venture

Find out if your business is ready for a joint venture.

Choose the right partner

When choosing a partner, consider:

• existing customers and suppliers, competitors and professional associates as partners
• if the culture of a proposed partner fits with that of your organisation
• if the finances of the proposed partner organisation are sound
• potential for overseas sales or activities

Read more about choosing the right joint venture partner.

Financing a joint venture

You should prepare the following documents for a joint venture:

• business plan
• marketing plan
• cashflow projection

Each partner should agree who is investing what, and in what form - eg cash, services or other assets. If your venture needs external funding, the partners should agree:

• sources of funding
• who will borrow the funds
• how the borrowing will be guaranteed

You should also agree arrangements for profit and loss, eg:

• how any profits or losses should be divided
• how capital gains or losses should be divided
• if either party will be paid an additional share of profits, eg for providing services

See how to plan your joint venture relationship.

Setting up a joint venture

When you are ready to implement a joint venture, you should set out the terms and conditions of the partnership arrangement in a written joint venture agreement. This should include:

• clear business objectives and trading principles
• communication arrangements between organisations/teams
• financial arrangements
• protection of your interests, eg trade secrets
• day-to-day and strategic decision making
• if either party can pursue other business during the joint venture
• dispute resolution procedures

The written agreement should also specify the legal structure for your joint venture, eg:

• contractual cooperation for a defined project
• partnership or unlimited partnership
• limited liability company
• a full merger of the two organisations

Bank account arrangements will depend on the legal model you choose, although you can set up a new account for a single project. You should agree:

• in whose name account(s) are set up
• arrangements for depositing or withdrawing funds, including co-signatories

See how to create a joint venture agreement.

Working together effectively

Agree who is responsible for key activities, such as:

• sales activities
• marketing activities
• new business generation

Also decide how day-to-day and strategic decisions will be made, and plan how to handle disagreements.Decide if certain things require approval of both parties to happen, or will one partner have full control to make the call.

Ending the joint venture

Your agreement should include clear exit terms. These should cover:

• termination procedure or an exit strategy
• ownership of assets in the joint venture
• allocation of any liabilities resulting from the joint venture

See more on ending a joint venture.

A joint venture is when two or more businesses pool their resources and expertise to achieve a particular goal. A clear agreement is an essential part of building a good joint venture relationship. Here are some other key considerations.

1. Plan carefully

Every partnership should begin with careful planning. Review your business strategy to see if a joint venture is the best way to achieve your aims. Use our SWOT analysis example to consider the strengths and weaknesses of both businesses and see if your partner is a good match.

2. Communicate openly

Good communication is key to a successful partnership. Make sure everyone understands the agreement, including goals, responsibilities, resources and timescales. It's usually a good idea to arrange regular, face-to-face meetings for all the key people involved in the joint venture. In some cases, you may have to legally inform and consult your employees.

3. Build trust

Sharing information openly, particularly on financial matters, helps build trust and credibility, and can prevent partners from becoming suspicious of each other. The more trust there is, the better the chances that your relationship will work.

4. Monitor performance

It's essential that everyone knows what you are trying to achieve and works towards the same goals. Establishing clear performance indicators lets you measure performance and set targets and can give you an early warning of potential problems.

5. Be flexible

With two companies making decisions, things can get complex even with simple projects. You should aim for a flexible relationship. Regularly review how you could improve the way things work and whether you should change your objectives.

6. Find a way to deal with problems

Even in the best relationship, you'll almost certainly have problems from time to time. Approach any disagreement positively, looking for 'win-win' solutions rather than trying to score points off each other. Your original joint venture agreement should set out agreed dispute resolution procedures in case you are unable to resolve your differences.

Forming a joint venture can be challenging, but if managed well, it can be worth the effort. It can move your business in a positive direction and offer opportunities through increased revenue and reputation. Read more about joint venture advantages and disadvantages.