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What is a Joint Venture?
A joint venture is an arrangement between two or more businesses to combine their resources and expertise to achieve a specific significant competitive advantage and allow businesses to capitalise on market opportunities quickly. Check out our recent article ‘How to expand your business and propel it into new sectors’ for more information on the benefits of Joint Ventures'.
Frequently, Joint Ventures involve an equal ownership structure. This makes sense if each party is contributing equally to the new business, specifically when it comes to financial investment, time and expertise. However, when the Joint Venture is owned equally by two or more parties, disputes commonly arise.
WHY DO DISPUTES COMMONLY ARISE IN JOINT VENTURES?
Financing: Tensions can quickly arise around initial and subsequent funding.
Operational and Strategic Management: Disagreements can occur in relation to company culture, priorities and goals for the business.
Shareholder Dividends: Disputes can arise in relation to the distribution of dividends or the retention of capital for reinvestment into the Joint Venture.
Diversion of Business: In some instances, a party may seek to divert new work directly to their core business, rather than to the Joint Venture.
Clients, Suppliers, Key Contacts and Employees: In the same way that business can be diverted, sometimes the parties may seek to divert, or even poach the other party’s Clients, Suppliers, Key Contacts or Employees.
Deadlock: In a Joint Venture that is owned 50/50, an issue can sometimes arise that the parties cannot overcome, which results in a deadlock situation.
Exit: If one party wishes to exit the Joint Venture, disputes can quickly arise if there is not a pre-determined procedure
HOW CAN THE OCCURRENCE AND IMPACT OF DISPUTES BE MITIGATED?
Ensuring that you have the right agreements, policies and procedures in place will put your Joint Venture on the track to success from day one.
Having a properly drafted Joint Venture Shareholders’ Agreement and Articles of Association is likely to reduce the number of disputes that arise. These documents will also assist in the swift and straightforward resolution of any disputes that do arise.
If you are thinking of entering into a Joint Venture, FG Solicitors can work with you to put you in the driving seat, with the confidence that if a dispute arises, your interests are protected.
Contact FG Solicitors today on 0808 172 93 22 or complete our quick contact form for a no obligation discussion!
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This update is for general guidance only and advice should be taken in relation to a particular set of circumstances.
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