When your company joins forces with another business for a specific project, you might form a joint venture, governed by a written agreement that outlines your respective rights and obligations. Joint venture agreements will contain multiple critical clauses that protect the parties’ interests and facilitate smooth governance of the joint venture. Here are some key provisions you should focus on when negotiating and working under a joint venture agreement, in case a dispute arises.
Dispute Resolution Clauses
During a dispute with a co-venturer, you should review your JV agreement’s dispute resolution provisions, which govern how you must resolve that dispute. A dispute resolution clause in a JV agreement may require parties to attempt settlement negotiations before escalating a dispute, followed by submitting the dispute to mediation or arbitration. Many JV agreements contain alternative dispute resolution clauses to help the parties quickly and amicably resolve disputes to preserve their business relationship, or when their relationship has become untenable, to settle or resolve a dispute as cost-effectively and privately as possible.
Governing Law and Jurisdiction Clauses
A JV agreement may also contain choice-of-law and choice-of-forum clauses that determine which state’s or country’s laws govern the parties’ joint venture and which arbitral forum or court the parties must pursue disputes. Choice of law/forum clauses can become important when co-venturers reside or operate in different jurisdictions, as these clauses can prevent parties from trying to gain a litigation advantage through forum shopping. Selecting a governing law for the JV agreement can help the parties understand their legal rights and obligations.
Exit and Termination Clauses
At some point, a party may wish to exit a joint venture or cease work on the joint venture’s project. In this situation, a JV agreement’s exit or termination clauses will determine how a party may terminate the contract or leave the joint venture and what conditions they must satisfy for an exit or termination. Exit and termination clauses may also address the parties’ rights or obligations in the event of disputes that lead to deadlock or when the joint venture fails to achieve expected performance, including settling outstanding financial issues and determining ownership of assets like equipment, inventory, or intellectual property. Having exit and termination provisions that allow parties to amicably end their business relationship when disputes arise can help prevent prolonged, costly litigation.
Confidentiality and Non-Compete Clauses
Joint venture agreements frequently contain restrictive covenants like confidentiality, non-compete, and non-solicitation provisions. These clauses can protect each co-venturer’s proprietary information and business or employment relationships from the other parties, as a joint venture may require the parties to grant in-depth access to each other’s operations. Restrictive covenants in a JV agreement can also give parties the right to seek temporary injunctive relief to maintain the status quo while they resolve ongoing disputes.
Profit and Loss Allocation Clauses
Finally, disputes in a joint venture may arise over financial issues like allocation of profits and losses. Having comprehensive, clear contractual language governing how the parties will share profits or losses can help avoid potential disputes, especially if the parties have disputes over other issues or if the joint venture fails to achieve success.
Contact a Business Law Attorney
Parties in a joint venture may have disputes over their respective rights and obligations. As a result, specific terms of a joint venture agreement may become critical legal issues for parties to resolve. Contact Brick Business Law, P.A., today for a free, no-obligation consultation with a business litigation lawyer to learn more about the most critical clauses your company should enforce when you enter into a joint venture agreement.
