When another business wants to work with you, it’s normal to be overjoyed. What this means is that your business is liked so much that another company is willing to put their name alongside yours. They saw something special in you and among all the other choices they went for your business. Products and services that really strike at the heart are very rare and even more so in the business to business world. However it’s one of the most important things to get past first, and that’s a the operating agreement. Usually this is referred to as a joint venture agreement as you’re not entering into a multi-member LLC and you’re not merging together to form a corporation either. Both parties still have their sovereignty, but the responsibilities and conditions that they sign up to will bind them together on a particular project. Joint venture ventures are when you’re working with another business for whatever reason whereby you need each other’s capabilities. For example it could be for a model of car an automobile company is making. The manufacturer builds the car and another company builds the engine. Mercedes-Brabham is a perfect example. But what kind of clauses should you focus on most?
The most delicate subject
Without a shadow of a doubt, the most delicate clause of any joint venture venture agreement is the decision making part. Who has majority control of the project? Just because it’s a joint venture doesn’t means it’s a 50/50 relationship. Usually if the larger company is contracting unique and special products, the overall command of the venture will be with them. The smaller company will enter into a venture whereby they will be taking orders for the benefit of having their brand name featured alongside a well renowned brand. For this to be decided properly so that both parties are happy you will need to have very open and honest discussions with each other. It’s vital that everybody knows where they stand before they even sign the agreement. It could be that certain decisions are made unilaterally and other bilaterally. A great example of a unilateral decisions type is how what the product or service will provide and or produce for the customers. If you want a certain niche to be filled the features need to be to your liking. However in terms of material choices, your partner may want to have a say in that so a unilateral decision has to be made.
The fiscal aspect
Capital contribution is a very close second to the delicacy of decision making agreements. This is the fiscal aspect of the venture where you decide how much money each side is going to pour into the project. Both sides need to be open with each other right from the get go so your funding capabilities are understood. For this to occur, both sides need to show each other documents and reports that no one else outside of the businesses would ever get their hands on in such detail. Agree to keep whatever you read confidential as without a doubt, your rivals and media companies would love to get their hands on your performance reports with internal details. Show each other quarterly reports for the past 5 years or more. In terms of sales figures and profit earnings, you’ll have a rough guess of how much they can contribute to the funding of the project.
Plan for the worst possible scenario such as an economic crash. Who picks up the pieces? What if your partner is gravely hit and cannot live up to their end of the agreement? Certain clauses like this will prepare your business to financially be more responsible for the project to continue. Other things like material purchases, distribution costs, transportation, manufacturing labor, testing and evaluation as well as also paying for the expertise are just some of the considerations you must have.
Pieces of the pie
Did you think it was going to get less stickier? Well you’re wrong, because the sharing of the profits is another tense affair that has to be agreed upon. We’re all in the world of business to make money. Yes of course we want to make products and services that we hope will also change the world but at the end of the day, we are all in the business of creating wealth. Obviously when you don’t have full control of a project and you are linking arms with another party, then there must be a sharing of the profits. You just have to go through the nitty gritty and decide what percentages they will be. If one of the partners is a national brand and the other is a smaller business, then the lion’s share will go to the bigger business that is burdening more of the risk.
What kind of currency will the profits be given in? If you’re working with a foreign partner then you need to consider what the laws in their nation are and if they coincide with your demands. That’s why you need to create a contract using a company like http://www.authentifier.com.au/ that can draw up agreements with different national trading laws in mind. They have China, UAE and Qatar legislation knowledge which you can have in your corporate agreement document if you’re doing business with a company from those nations. If not then speak to them directly and see what they can do for you. Another area of money talk will be what the salaries will be for the employees involved in the deal. If you’re working on a very complex project together, normal 9 to 5 salaries are going to go out the window. So decide on what kind of monetary boost you can give to your employees in this venture.
Joint venture venture agreements are very complex. Both parties remain sovereign so it’s not a merger which means that both parties will have more of an independent say. Decide on what kind of profit share will there be with the pertaining to project responsibility percentage share as well.