How To Structure A Business Joint Venture Legally

By - June 26, 2025 - Uncategorized

Collaboration can be a great way for multiple businesses to help each other reach shared goals. Through a business joint venture (JV), two or more businesses can pool their resources, knowledge, and market access to support each other’s growth. Business joint ventures can help businesses enter a new market, develop a new product, and improve operations. Properly structuring the joint venture is key to making the collaboration successful. Let’s take a closer look at how to structure a business joint venture legally.

Determine the Purpose and Goals of the Joint Venture

Aligning on the joint business venture’s purpose helps ensure you’re partnering with the right business and that both parties are working towards the same goal.

When determining the purpose and goals of the joint venture, consider factors like:

• The JV’s specific business activities
• How long the partnership will last
• How you’ll measure success
• Each company’s long-term goals

It’s also helpful to evaluate compatibility by looking at factors like:

• Each company’s values and culture—are they similar?
• Each company’s business model—would they work well together?

Choose the Right Legal Structure for the Joint Business

How you structure the business joint venture has a big impact on your tax obligations, what you can be held liable for, governance, and other aspects of the joint business. A variety of options are available when choosing a legal structure, including:

• Contractual joint venture: Rather than forming a new legal entity, businesses use a binding agreement to dictate each party’s roles, responsibilities, and profit share.
• Partnership: The parties involved create a separate entity and the profits, losses, and management duties are shared. Partnerships can be general (the partners have unlimited liability) or limited (liability is limited to the investment).
• Limited liability company (LLC): LLCs offer joint business ventures tax flexibility, liability protection, and flexible management structures. They also allow parties to determine how to best share profits and losses.
• Corporation: Liability is limited and there is a formal governance structure, making this structure popular for large or international joint ventures. However, corporations may face double taxation if they aren’t set up as an S Corp.

The right choice depends on how much control, liability, and tax obligation each partner is comfortable with taking on. An experienced business attorney can help you decide which structure best suits your needs.

Draft a Comprehensive Joint Venture Agreement

To keep all parties on the same page, it’s important to create a joint venture agreement for your joint business venture. This document outlines the rules for the venture as well as each party’s role and responsibilities. A comprehensive agreement should include information on:

• Ownership and equity percentages
• Each party’s contributions and contribution timelines
• Decision-making processes
• How profits and losses will be shared
• How disputes will be resolved
• How breaches of contract will be handled
• Terms for confidentiality and non-disclosure
• Exit strategies and conditions for termination
• How often financial and operational updates will be provided
• How the joint business venture plans to comply with any applicable law

As the joint venture’s strategy or operations change, the agreement should be updated to ensure it has the most accurate and up-to-date information. A business attorney can help you make these updates and ensure the agreement fits the specific needs of your joint business venture.

Outline Governance and Decision-Making Processes

Who makes decisions in the business joint venture and how will those decisions be made? Clearly outlining governance and decision-making processes can help keep things running smoothly. Be sure to consider:

• Will each partner be represented by a board or management committee?
• Will decisions be made by a unanimous vote, simple majority, or supermajority?
• Which decisions will be made by both partners versus one partner?
• Who will oversee the day-to-day operations of the joint business?
• What does the business organizational chart look like?

Allocate Profits, Losses, and Tax Law Responsibilities

When structuring the joint venture, determine how profits and losses will be shared between the partners. Consider the profit-sharing ratio, how and when profits will be distributed or reinvested, and whether or not the distribution model will be based on contributions, performance, or milestones.

When it comes to taxes, determine who will be in charge or filing taxes, compliance reporting, and withholding obligations. Additionally, make a plan for how losses are treated for tax purposes and whether or not the joint venture will choose a specific tax status.

Address Intellectual Property and Confidentiality

Intellectual property (IP) is often an important asset of a joint venture as well as the individual companies involved. When structuring the joint business venture, make sure it’s clear who owns pre-existing IP that is contributed to the venture as well as who owns IP developed jointly. Consider how IP can be used or licensed during the partnership and what happens to the IP when the JV ends. IP provisions should also include confidentiality and non-disclosure terms, directions for protecting IP, and a list of fees and royalties associated with using proprietary technology.

Plan for Dispute Resolution

Even with your best efforts to avoid disputes, they can still arise. When drafting legal agreements, include mediation and arbitration clauses, which provide alternatives to going to court. Make a list of state and federal laws that apply when disputes occur, and outline the steps that will be taken to address disagreements before legal action becomes necessary. Making a dispute resolution plan can help all parties save money, time, and business relationships.

Establish Exit Strategies and Termination Clauses

Joint business ventures aren’t always permanent. Plan ahead by establishing exit strategies and termination clauses. Consider factors like:

• Buy-sell provisions, which establish how one party can buy out the other
• Right of first refusal, which gives one party the option to buy the departing party’s interest in the business before it’s offered to anyone else
• Dissolution procedures, which outline how assets and liabilities will be divided when the joint venture ends
• Trigger events, which initiate the joint business venture’s termination. For example, breach of contract or bankruptcy.

Be sure to also choose methods for how the joint business’s value will be estimated, and make a continuity plan for the JV’s employees, contractors, and customers.

There’s a lot to consider when it comes to structuring a business joint venture legally. One of the most strategic things you can do is consult an experienced business attorney. At Stevens Law Firm, we can help protect your interests when creating a joint venture, draft contracts and agreements, and even represent you in court if needed. Contact us today to learn more about our services and book a free consultation.