A joint venture agreement Florida is a unique type of business relationship that individuals and organizations may consider to achieve a variety of business purposes. Our guide will provide you with a foundation understanding of JV agreements, why they exist, key terms to consider, and sample agreements.
What Is a Joint Venture Agreement? Our Definition
If you consistently work on business projects with one or more different party organizations, then you may wonder what is a JV agreement? Our joint venture agreement definition is a contract between two or more parties working together on a business endeavor for profit.
You may wonder about joint venture vs partnership agreements. Partnerships tend to be exclusively for long-term relationships while joint ventures can be for short or long-term endeavors. Additionally, joint ventures exist for many different reasons and in many different contexts (e.g., real estate and other industries). In the following section, you will learn more about some of the different types of joint venture agreements and other deal points to consider.
Types of Joint Venture Agreements
Part of the beauty of a joint venture partnership is the flexibility it provides to the parties when it comes to structuring the terms and business arrangements. Different forms of joint venture and format options are available to tailor to the specific project and specific goals of the parties. Below are some of the common types of Florida joint venture agreements based on the principles of Florida contract law.
Simple Joint Venture Agreement
You may think of a simple joint venture agreement as the standard, most flexible type of JV contract. Parties could use this type of joint venture contract can meet the different needs of the underlying parties. Some popular uses of a simple joint venture agreement may include:
- producing a special event
- introducing a party to new markets
- collaborating with designers or manufacturers to produce a new product line
- licensing and contributing the limited use of intellectual property to a project (e.g., trademarks, patents, copyrights)
- reducing competition and price demands for starting a business project on your own
- achieving other business expansion goals
Simple Joint Venture Agreement Example
A company produces a popular widget. They’ve done some market research and believe their product would do well in a country where they don’t currently have a principal place of business. The company is hesitant to immediately enter the new market because it would require extensive capital costs and compliance with regulatory demands. To reduce these costs, the company enters into a simple joint venture agreement with a domestic company to sell the product in the new market.
Real Estate Joint Venture Agreement
A real estate joint venture agreement is a type of JV contract that parties use to buy, develop, sell, and otherwise manage real property transactions. Joint venture partnerships in real estate are common for several different reasons depending on the needs of the parties. Usually, the purpose of the joint venture will be to address one of the following demands of a real estate project:
- Obtaining the connections and capital necessary to purchase a particular piece of real estate
- Working with parties skilled in the management and development of a project
The parties to a real estate joint venture contract are generally either a resource member or an operating member. The resource members provide the funds to finance a project while the operating members provide the knowledge and logistical background to bring a project to completion.
Real Estate Joint Venture Agreement Example
Some real estate investors recently assembled a private firm they use to fund and develop their property investments. An opportunity arises for them to purchase an older property that’s perfect for a fix and flip project. However, the group does not have anyone in their group with the expertise to restore the real estate. Most of their past projects involved purchasing already developed projects and leasing them out for a profit.
So, the group searches for someone with the skills they need and they find the perfect company to restore their prospective investment. Because this is a new business relationship in a new aspect of real estate, the group is hesitant to bring the company on as a member of their investment group. Instead, they propose a joint venture partnership that will allow them to continue with the project without having to commit to the new party long-term.
Joint Venture Profit-sharing Agreement
The main purpose of the joint venture is to generate a profit for you and your partners. A joint venture profit sharing agreement sets each party’s rights to the profits from the project. Determining this allocation upfront through a written contract is key to mitigating the risk of conflict later.
Negotiating how to share the profits from a joint venture depends on the bargaining power of the parties involved and which party has the greater motivation to enter the partnership. The party that provides the financing or capital investment to a project may generally have the power to demand a greater share of the profit because they are taking on the greatest risk. In contrast, other parties may seek an equitable share of the profits if they are contributing most of the labor to a project or otherwise taking on extra liability.
Joint Venture Profit-sharing Agreement Example
Two parties are entering into a joint venture profit-sharing agreement as part of a real estate fix and flip project. They plan to contribute equally to the financial costs of the project (e.g., raw materials, permits, etc.) However, one party is doing the majority of the work because they are an experienced contractor and real estate agent. To compensate for this additional investment, the parties agree that the contractor will receive 70 percent of the profits from the joint venture.
What Else Is Recommended or Required in a JV Agreement?
Each JV agreement requires some level of customization to accommodate the purpose of the joint venture and its specific goals. The following are some joint venture terms and other considerations that might be required or generally recommended when establishing the partnership.
Create a Written Agreement
Substantial risks exist when entering into a JV agreement that is not in writing. Florida and other states treat joint ventures as partnerships, which carries certain assumptions about the relationship unless a written agreement states otherwise.
The law may also require that some Florida joint ventures have a written agreement. For example, contracts involving real estate or that have a term length greater than a year must generally be in writing to avoid violation of the statute of frauds. Regardless of the application of the statute of frauds, having a written agreement will help increase the chances of a successful business relationship through clearly defining expectations upfront.
Start with a Joint Venture Term Sheet
A joint venture term sheet is the first document to consider during the process of entering into a joint venture partnership agreement. The term sheet identifies the big picture deal points of the involved parties. This allows the parties to have a general understanding of the arrangement before the parties invest considerable resources with law firm legal fees, due diligence, and other costs of executing the JV contract.
Establishing a Holding Company for Your Interest in the Joint Venture
A potential downside to a joint venture partnership is that the involved parties are jointly and severally responsible for their liabilities and obligations. This could include financial obligations to suppliers, vendors, etc., or liability from civil lawsuits that arise because of the joint venture’s actions.
To mitigate this risk you may consider establishing a limited liability company (LLC), corporation, or other business entity that provides liability protection to hold your interest in the joint venture. The business entity needs to meet other corporate formalities to avoid a piercing of the corporate veil claim (e.g., adequate capitalization, separate bank account, filing the business name with the Florida Secretary of State, etc.).
Having Written Consent or Other Necessary Authority for the Joint Venture
The joint venture agreement should reflect through each party’s covenants and attached exhibits that the undersigned has the authority or other written consent from related parties to enter into the partnership. For example, an LLC may need authority from its members and managers. A corporation, in comparison, would need written consent from its board of directors or shareholders. Having records of each party’s authority to enter into the JV helps with its enforceability should the need arise.
Determine Each Party’s Capital Contribution and Profit Interest
One of the most important terms of a joint venture partnership is determining what each party’s initial investment (i.e., capital contribution) to the project will be. As discussed above, the financial resources of the parties may be at a different level, which can result in some disparity in capital contributions. Some may provide all of the funding while others provide the skill and labor to see the project to completion.
Equally important to capital contribution discussions are the profit interests each party will receive. Usually, such interests are a percentage of the venture’s profit that correlates with the level of investment and effort the parties contribute. Parties should also discuss the process if the JV were to need additional capital (i.e., how the parties would contribute and how it would affect their profit interests).
Dividing Tax Benefits from the Joint Venture
If you do not house the joint venture inside a limited liability company or other legal entity, then its taxation will be that of a partnership. In other words, the partners will pay tax based on their respective interests and payouts from the joint venture on their respective tax returns. As a result, the joint venture may also have available deductions and credits attributable to its income. The JV agreement should describe how the parties will allocate these benefits to each other.
State Each Party’s Covenants to the JV
Covenants are the promises that each party makes to the joint venture about their future acts necessary for the project’s success. Common covenants that you may incorporate through the agreement or by reference include:
- Promises to follow various fiduciary obligations (e.g., duty of care, duty of loyalty, good faith, etc.)
- Promises to provide raw materials or other elements on certain dates
- Non-disclosure and confidentiality terms
- Promises to not compete with the JV through other business endeavors
Similar to covenants are representations, which are statements of fact that parties can attest to as true to their knowledge within the agreement. The other party(ies) to the JV rely on the accuracy of representations when agreeing to the terms of the JV contract. Representations often focus on statements about a party such as:
- Their status as a legal entity able to do business in a particular state or jurisdiction
- Having the requisite skills or abilities to complete their share of the JV project
- Knowledge about any ongoing or potential litigation that could jeopardize the JV
JV Terms for Dispute Resolution and Termination
Most JV contracts are for specific goals that have foreseeable end dates. Even if your JV has the potential to be indefinite, you should consider terms for how to terminate the relationship. Termination provisions should provide the order for liquidating the venture, paying creditors, and making final distributions to the partners.
Likewise, the termination terms should address scenarios where one party wishes to leave or transfer their interest in the joint venture. This may include a right of first refusal or other terms that restrict the assignability of interests. Related to termination provisions are terms that explain how the JV and its members will resolve future conflict should it arise. This may be through a voting system, arbitration, or an agreement to settle the conflict in a particular venue.
Use a Joint Venture Checklist
A joint venture checklist helps you stay organized and on track as you work toward executing the joint venture agreement. The checklist provides information about the necessary forms, consents, and agreements in addition to which parties need to review and sign them.
Sample Joint Venture Agreements
Below are our free joint venture agreement template samples, including a real estate joint venture agreement form. You can download them as a Word doc or PDF. As a disclaimer, these forms are examples meant for general education purposes and will require modifications to meet the necessary terms of your joint venture. If you have any questions about the forms or the joint venture agreements, please consider a consultation with one of our attorneys.
Real Estate Joint Venture Agreement Template
This is our joint venture real estate agreement sample. You may consider some of the terms in this form if your joint venture involves the purchase, sale, or other use of real property.
Free real estate joint venture agreement doc (Word) | Free real estate joint venture agreement PDF |
| Coming soon | Coming soon |
Simple Joint Venture Agreement Template
Our simple joint venture agreement sample is meant as a starting point for all other types of joint venture partnerships that don’t involve real estate. Both the joint venture PDF and Word document are a general forms that provide the opportunity for greater customization to meet the specific goals of the project.
Free contractual joint venture agreement doc (Word) | Free contractual joint venture agreement PDF |
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Need Help with a Joint Venture Agreement in Florida?
The business attorneys at Cueto Law Group offer their skills and experience to clients on all matters related to joint venture Florida law. This includes the negotiation and drafting of deal points along with representation in the event of a dispute or other civil action.
Contact us today to schedule a consultation about your Florida joint venture agreement.
Our Key Takeaways on JV Contract Agreements
JV contract agreements are a useful tool for entering into new or temporary business relationships that are mutually beneficial. However, these partnerships often require assistance from experienced attorneys and professionals to help protect the rights and interests of involved parties.
Creating an enforceable written agreement provides the necessary structure to the partnership and avoids confusion over key terms like capital contributions, profit sharing, dispute resolution, and other covenants.
Joint Venture Contract FAQs
Below are some quick answers to other common questions you may have about joint venture contracts.
What Needs to Be in a Joint Venture Agreement?
The precise terms that need to be in a joint venture agreement depend on the nature of the project and the parties involved. Generally, the agreement should list fundamental terms like who the parties are, their capital contributions, how you will divide profits and losses, and the venture’s termination.
Is a Joint Venture Agreement Legally Binding?
A joint venture agreement is legally binding but will have greater enforceability if you have a written contract. Some oral joint venture agreements may not be enforceable if they violate the statute of fraud or other Florida laws. Florida partnerships law usually governs the use of joint ventures.
What Are the Disadvantages of a Joint Venture?
Many of the disadvantages of a joint venture stem from miscommunications between the parties about the scope of the business project and the steps necessary to accomplish the goal. Additionally, differences in expectations around a party’s involvement (financial or otherwise) can also be a disadvantage.
Here are some specific disadvantages of joint venture partnerships:
– Misaligned purpose (i.e., what are the parties hoping to achieve
– Inequity over the profit-sharing that leads to varying levels of productivity amongst parties
– The parties are each responsible for the liabilities of the joint venture
– A lack of forethought regarding the venture’s termination, which can lead to conflict
