Unpacking the Joint Venture Agreement

Joint venture agreements determine business growth, market expansion, and innovation. 

This comprehensive guide breaks down everything legal teams need to know about structuring these essential business arrangements.

So, what exactly is a joint venture agreement?

A joint venture agreement is a legal document that establishes the framework for two or more parties to collaborate on a specific project or business arrangement. These contract types are typically project-focused with defined timelines and objectives.

Before diving into the details, let’s understand why these agreements matter.

Why do joint ventures exist?

Companies typically pursue a joint venture for one of four reasons: to gain faster entry into a new market, to acquire expertise in, for example, products or technology, to increase production scale, efficiencies, or coverage, or to expand business development by gaining access to distributor networks.

Let’s see how in detail. 

1. Combining forces: Legal structures to leverage resources and expertise

Joint ventures enable business collaboration that goes beyond simple commercial contracts. The optimal ownership structure depends on which partner is best suited to control the JV. Which partner has the local contracts, can manage the local team better, and has the expertise needed to maximize shareholder value? Other considerations include how much control your company wants, the size of your risk appetite, and how much of a financial investment you want to make.

2. Breaking new ground: Entering foreign markets

Joint ventures are appealing when some countries have inherent challenges. In China, for instance, regulatory restrictions on foreign ownership make joint ventures the only viable option for gaining access to certain markets. Other markets, such as India and Indonesia, are too complex for foreign owners to navigate alone. Strong local partners are more practical.

3. Sharing the load: Reduce costs and risks

Joint ventures enable parties to share financial and operational risks. This mechanism becomes particularly valuable when entering uncertain markets or developing innovative technologies.

Next, we’ll look at how they’re structured to maximize value.

The core ingredients: What JVs consist of

Joint venture agreements set expectations for ownership and control. Here are the must-have elements that define how it works.

Who’s involved?

Every joint venture agreement must explicitly identify all participating entities, their legal status, and their capacity to enter binding agreements. This includes corporate entities, individual stakeholders, and any subsidiary companies involved in the arrangement – all essential elements of a contract.

What’s the goal?

The agreement should articulate the specific project or business arrangement, including deliverables, timelines, and success metrics. Ambiguity in purpose is one of the leading causes of joint venture disputes.

Who’s bringing what?

Spell out contributions of capital, resources, and intellectual property. These contributions determine the valuation of each party.

How profits (and losses) are shared

The profit-sharing mechanism should align with each party’s contributions and risk exposure. This isn’t always a 50/50 split and should reflect the real value each partner brings to the venture.

Who’s in charge? 

Clear management and governance structures help decision-making. Despite general satisfaction with the value their JVs create, 83% of BCG survey respondents say there is room for improvement, often pointing to governance issues as primary concerns.

The ‘what ifs’

The predeal issues were “poor cultural ‘chemistry’ between partners (62%), poorly defined or misaligned strategic goals (61%), and a lack of definition or alignment on the business plan (46%),” according to BCG research. Effective dispute resolution mechanisms address these challenges.

The end game

At the end stage, the main difficulty was the “lack of a clear exit plan… cited by 19% of respondents.” Exit strategies should be clearly defined from the agreement’s inception.

Once these components are defined, a joint venture has the clarity needed to operate effectively and fairly. But how do JVs differ from partnerships? Let’s unpack that next.

Joint venture vs. partnership

The differences between the two in purpose, liability, and management are significant.

1. Purpose and timeline

Joint ventures are typically project-specific with defined endpoints, while partnerships are ongoing business relationships intended to operate indefinitely. This fundamental distinction affects everything from tax treatment to liability exposure – considerations that are crucial when learning how to write a contract.

2. Understanding liability

In joint ventures, liability is often limited to the specific project or business arrangement. Partners in general partnerships face broader liability exposure for all partnership activities.

3. Making decisions

Joint ventures allow for more flexible management structures tailored to specific projects. Partnerships typically require more formal management hierarchies.

Next, let’s explore how to set a joint venture up for long-term success.

Setting your joint venture up for success

BCG’s research reveals eight lessons from successful joint ventures. 

1. Set strategic objectives

Joint ventures work best when both parties know exactly what they want to achieve—whether that’s market entry, access to new technology, or scaling operations.

Example: Airbus entered China through JVs by sharing established (not cutting-edge) technology, keeping focus on growth without compromising its competitive edge.

2. Structure the JV to fit the context

There isn’t a single model that works everywhere. The design—equity split, governance, and control mechanisms—should align with long-term goals and risks.

Example: A global automaker held only a minority stake in a Chinese JV but kept authority over R&D, quality, and marketing to safeguard its brand.

3. Consider nontraditional partnerships

Sometimes the most effective JVs are with competitors or customers. Running multiple JVs in the same market can also reduce risk and speed learning.

Example: Zhengzhou Coal Mining Machinery partnered with several customers to become their preferred supplier, while another company created competing JVs in China to test different strategies simultaneously.

4. Use all available sources of value

Beyond capital, JVs succeed when they tap into intellectual property, supply chains, employees, and government or local relationships. 

Example: High-performing JVs in emerging markets relied heavily on local suppliers and government ties, while those in developed markets often underused these levers.

5. Build operating models that leverage partner strengths

Each partner should lead in areas where it is strongest. This avoids duplication and improves efficiency.

Example: ABB’s JVs in China managed production locally, while ABB retained responsibility for sales and customer relationships to ensure consistent service.

6. Dedicate the right people early on

JVs need specialized teams from the beginning—not just general M&A support.

Example: 83% of high-performing JVs had a dedicated predeal team, compared with 36% of low performers. Strong staffing carried through post-deal as well.

7. Manage the external ecosystem deliberately

The success of a JV depends not just on internal alignment but also on its ability to build strong external networks with suppliers, regulators, and research institutions.

Example: One manufacturer collaborated with more than 70 universities in China to strengthen innovation and talent pipelines.

8. Define exit terms in advance

Planning for the end of a JV is as important as planning its start. Clear triggers, valuation methods, and post-exit rights help avoid conflict later.

Example: Only 19% of surveyed JVs had exit plans, but those that did included details such as branding rights and continued sourcing obligations.

Clear objectives, tailored structures, strong governance, and planned exits help ensure that both sides capture lasting value.

At Qapita, their legal team uses HyperStart to track critical clauses like liability, indemnity, and obligations. 

“HyperStart has made it very easy with their AI extraction of metadata. Multiple teams like finance, business, operations see value in having this data in one place,” according to Mayuri Jaltare, Company Secretary at Qapita. Read the case study.

Wrapping up

A well-managed joint venture agreement serves as the foundation for successful business collaboration. With proper legal structure, clear governance, and comprehensive risk management, joint ventures can unlock significant value for all parties involved. 

The key lies in thorough preparation, transparent communication, and leveraging technology to streamline the drafting and review processes.