A joint venture business plan is a document that defines a business arrangement between two or more companies. Just as with a normal business plan, this plan also includes numerous sections and extensively describes the aim, companies, and responsibilities of each company in the joint venture. This plan also outlines temporary activities that help to attain specific goals.
Coming together to form a joint venture is nothing new in the business world. However, the real deal is to have an arrangement that equally protects the interests of each party so that everyone in the joint venture can put their best creative foot forward. Have it in mind that the best way to guarantee all parties understand their obligations and are fully participating is to put together a detailed joint venture business plan.
Although each company in the venture can put together the business plan, a legal review is often recommended to validate if the plan is legitimate. These plans are also known to be above and beyond a standard business plan. Most often, the plans will vary based on the specifics and interests of each party in the arrangement.
Steps to Write a Joint Venture Business Plan
Forming a joint venture involves several critical steps that begin with identifying and analyzing a viable joint venture partner to agree with. This sort of agreement requires well-detailed documentation and other allied/ancillary agreements. To write a solid joint venture business plan, here are steps to take;
Table of Content
- Step 1: Write a Detailed Company Profile
- Step 2: Spell Out your Marketing Strategies
- Step 3: Input your Financial Projections
- Step 4: Your Executive Summary
- Parties to the Joint Venture
- Nature of the Relationship
- Business Objectives and Purpose of the Joint Venture
- The Structure of the Joint Venture
- Parties’ Contributions
- Distribution of Shares
- Rights and Obligations of the Parties
- Representation and Warranties
- Indemnity Clause
- Dispute Resolution
- Non-compete clause
- Force Majeure
- Exit Mechanism
- Deadlock Resolution
- Financial and Administrative Record Keeping
- Intellectual Property
Step 1: Write a Detailed Company Profile
Although this wouldn’t be the first page of your joint venture business plan, it is often recommended you start the writing process by first providing a brief description of each company involved in the joint venture. You have to include the management teams of each company, the resources, or goods available, and every other detail vital to the joint venture.
Consider creating a profile to briefly describe the partners in the agreement. You should also outline the expertise of each company and the reason for inclusion in the joint venture. You may also have to write a statement on the purpose of the joint venture as well.
Step 2: Spell Out your Marketing Strategies
The next step will be to discuss the market strategies you intend to leverage to achieve success for the joint venture. Just as with a normal business plan, it needs to define the market the goods and services are meant for. This section will also need to contain a thoroughly done analysis, graphs, and all other vital information that describes the market and why the joint venture will attain success.
Most often, companies in the agreement are advised to cooperate on this section to put together an analysis from each partner. Have in mind that the length and detail of this section will depend on the purpose of the joint venture; a competitive analysis may also be necessary.
Step 3: Input your Financial Projections
Note that every joint venture business plan is expected to include financial projections. While this may be the final section of the business plan, it will include information specific to product prices and cost of goods or services sold, and possible expenses from the activities.
You may need to include Pro forma financial statements in this section. Note that these statements provide a formal look at potential profits and let banks or lenders properly evaluate the venture’s possibility for success. Other statements or documents may also be included in this section.
Step 4: Your Executive Summary
Although the Executive Summary will be the first page of the joint venture business plan, it is always recommended you write it last. This page of your joint venture business plan provides a concise view of the business agreement. Depending on the joint venture activities, the section of the business plan will span anywhere from a few paragraphs to a few pages.
Important Clauses to Include in a Joint Venture Business Plan
A joint venture business plan is the bedrock of any joint venture. It outlines the objective and purpose of the joint venture. Have in mind there are ideal clauses a joint venture agreement is expected to contain. Here are very important clauses that should be inserted in the joint venture business plan:
It is critical for every business plan to have a clause that defines all the necessary terms in the plan. This is primarily to avoid any form of misunderstanding and misinterpretation in the plan. Have it in mind that certain words or terms are given confining definitions for the purpose of interpretation of the plan. This clause will help guarantee a mutual understanding between the parties as to what a certain term means.
Parties to the Joint Venture
A joint venture business plan is meant to identify all the parties involved in a joint venture. Have in mind that there is a possibility that the original party won’t be the investing party, and the investing party may be the parent company of the original party. In such circumstances, this clause is very necessary to ensure that the joint venture agreement is binding to the investing parties as well as the original parties.
Nature of the Relationship
This is one of the most vital functions of the joint venture business plan. This clause in a business plan is meant is to outline the nature of the relationship between the joint partners, whether the parties owe any contractual obligations to one another, or whether the arrangement is just a contractual relationship where each party remains at arm’s length.
Business Objectives and Purpose of the Joint Venture
Note that this clause outlines the purpose why the joint venture was established. There are numerous reasons why businesses enter into a joint venture, from expanding their markets to completing a specific project. The purpose of the joint venture will need to be extensively considered before proceeding with finding a joint venture partner.
The Structure of the Joint Venture
This clause will have to include details about what structure the joint venture will be, such as an LLC, LLP, or incorporated. This clause shall also contain the details of the formation of the joint venture thereof. It shall also mention the registered office and the location where the joint venture will be carrying out its business.
This clause will note if the work will be split 50/50, who’s bringing what to the table, and what you can expect from the other person or company. Outlining this in your joint venture business plan in detail will ensure that all partner’s expectations are aligned. This is to ensure that each party understands what they will be committing to the venture, and also to ensure that they are bound by that commitment.
The shareholding of all the partners will have to be outlined under this clause. Note that the distribution of shares is a very important aspect as the shareholdings will more or less dictate the proportion of ownership among shareholders.
Note that distributions of shares must not be 50:50; they can vary depending on the agreement between all parties. The shares can be distributed by a mutually agreed ratio or based on the capital contribution of the parties.
Rights and Obligations of the Parties
Indeed every party in a joint venture has certain rights that they can exercise and certain obligations. In the joint venture business plan, this clause will have to explain in detail everything that is expected from the parties. This is to limit or avoid future disputes and misunderstandings.
Joint venture business plans will need to explain who will manage the venture and take care of its day-to-day operations. It will also specify different levels of approval for different types of decisions.
Some joint ventures agree to establish a management committee instead of appointing the board of directors where the joint venture has been entered into for a particular short-term project. The mode of management needs to be explicitly outlined in the joint venture business plan.
Representation and Warranties
Note that these are statements of fact made by the parties entering into the joint venture. Representations and warranties are more or less made before entering into an agreement and such representations and warranties will also have to be mentioned in the joint venture business plan.
Representations and warranties are necessary so that the parties have adequate and vital information about each other such as financial standings of the parties or the loans taken by the parties, pending litigation, etc.
Indemnity is a legal obligation on the parties to compensate the other party in case of breach of any contractual obligation. Most often, the party that suffers due to a breach of representations and warranties is entitled to be indemnified for the losses. Have it in mind that the indemnity clause will have to be fair, mutually agreed upon, and well balanced. The language and scope of this clause will also need to be clear and precise.
In all business arrangements, there are bound to have disagreements and issues. While these issues will not always lead to litigation, it is recommended that all parties agree on a mechanism to deal with such situations.
Each party in a joint venture can be from different jurisdictions and governed by varying laws. Therefore the mechanism to resort to in case a dispute arises will need to be mutually agreed upon by the parties and explicitly noted in the plan.
This is a very important clause to include in a joint venture business plan. Depending on the nature of the agreement, it might be necessary to note that the two businesses are restricted from directly competing with one another, at least for a stipulated time. However, the non-compete clause will need to be reasonable otherwise it might be treated as a violation of a person’s fundamental right to trade.
Within a joint venture agreement, parties are expected to disclose certain vital information concerning the company. Note that this information can be related to technology, trade secrets, or intellectual property. The information in the wrong hands might cause the party to incur massive losses.
This is why this clause is very important in a joint venture business plan. The clause may also need to provide that the information disclosed for the joint venture should never be used for personal gains.
This clause is used to provide relief and protection to a party in a situation where the party is unable to meet some of its obligations. Note that this inability to fulfill obligations may be due to events that are totally beyond the control of the parties. The event could be a flood or an earthquake or a fire so on and so forth.
You need to understand that not every joint venture survives long and is often terminated. Owing to that, this clause will have to be included in the joint venture business plan. The termination clause centers on instances, breaches, or the occurrence of which the joint venture will be terminated.
Even while still under an agreement, there can be many reasons why the parties would want to exit the joint venture. This could include short of funds or the joint venture going into a loss for some time. It is very common for a party to want out of the joint venture, maybe due to certain unresolved issues. Owing to that, the exit mechanism will need to be noted in the joint venture plan.
Deadlocks tend to arise when the parties in the joint venture have equal powers and are finding it hard to agree on a common conclusion.
Note that things like this can lead to disagreement especially when neither party is ready or willing to surrender their powers or accept the other party’s decision. While this cannot be entirely avoided in a joint venture, you should establish a mechanism that will help the parties to come to a common agreement or to resolve the deadlock.
Financial and Administrative Record Keeping
All parties in the joint venture must collaborate on maintaining their financial records. They also need to decide the process of administrative record keeping. While this may not be necessary, it is good practice for joint ventures to work with one accounting firm that is agreed upon by all members. This will help to limit the risk of any conflict of interest or complications in the future.
For joint ventures that will produce intellectual property that is of potential value to each of the parties, this clause is very necessary to avoid the risk of one party attempting to take advantage of the other’s intellectual property. This clause in the joint venture business plan should note who will own any new intellectual property created by the venture, and the extent to which the parties are permitted to use that property outside the venture.