When two or more businesses come together for the purpose of achieving a specific goal, they form a joint venture. This type of business partnership allows each business to benefit from what its partners have to offer, including resources such as capital and highly skilled personnel, or an expanded capacity in marketing or advertising intended to reach a larger or previously untapped market. Most joint ventures are established under a partnership agreement that details the specific business objective the companies are trying to reach collectively, the responsibilities of each partner, and how profits and losses will be distributed. A partnership agreement establishing a joint venture should also contain a planned exit strategy so that all parties are protected once the partnership reaches its goal.
There are a number of benefits to creating and maintaining a joint venture, but none of the parties reap the full rewards once the venture dissolves, unless a sound exit strategy is in place from the beginning. A joint venture is intended to meet a particular project with specific goals, so the venture ends when the project is complete. However, companies' business needs, product portfolios and served audiences change over time while working through the project, and these shifts can create tension among partners in a joint venture once it comes to an end. If a participating company is left to its own devices to structure the division of new assets or market reach, joint ventures have the potential to end in disaster and possible court intervention.
Within the partnership agreement that establishes a joint venture, partners can protect themselves from conflict with other participating companies by including termination conditions in the contract. These conditions can include requiring a partner to give three or six month's notice prior to ending the business relationship, and the allowance of the remaining partner to buy out the departing partner. Each of the termination conditions should be discussed when the joint venture is formed and agreed upon by each participating company or individual. Most joint ventures are dissolved through a partner buyout, but the addition of clear termination conditions in the joint venture agreement can dictate how the transaction plays out for each partner.
In most joint ventures, an exit strategy can come in three different forms: sale of the new business, a spinoff of operations or employee ownership. Each exit strategy offers different advantages to partners in the joint venture, as well as the potential for conflict. A sale can be a quick way out for partners, but finding the right buyer can present challenges. A spinoff can become a taxable event when not done correctly, but it can allow operations to continue well into the future under a new company structure. An employee ownership buyout transitions the business into the hands of current employees, increasing productivity and the potential for profits. However, this is typically an option only for large joint ventures. No matter the exit strategy chosen, partners in a joint venture can reduce the potential for conflict by having clear termination or dissolution terms in the joint venture agreement from the start.