Protecting Yourself When Forming a JV

Copyright (c) 2009 Christian Fea

Pursuing a joint venture is a great business strategy that could result in lasting profits and friendships. However, as much as we like to trust other people, especially those with whom we do business, you should always approach a potential JV partnership with a mindset of protecting yourself and your own business.

Why Protect Yourself?

Why should you want to protect yourself when entering a JV partnership? Through activities that may be intentional or accidental, you could face losses that could set your business back or even devastate it.

* Lost Income - Unscrupulous JV partners may be untrustworthy in revealing true profits resulting from the JV, or even outright steal your share of joint income.

* Lost Secrets - Your business secrets and proprietary methods and information may be susceptible if left in the wrong hands.

* Lost Employees - Your best employees may even be tempted to leave you and work for your JV partner.

* Lost Customers - Your established customer base may be swiped and convinced to switch their loyalties away from your business.

* Lost Reputation - In a worst-case JV partnership, you and your business may face malicious attacks or unfounded accusations.

Taking a look at this list should give you plenty of incentive to protect yourself and your business in every step you take. There are no guarantees that your business partners will always be upfront, forthright, or even ethical with you.

What You Should Include in a JV Agreement

The number one thing to remember is to ALWAYS get an agreement in writing not only to protect you, but also to ensure there are no misunderstandings. Here are just a few important items you should include in a JV agreement:

* NDA - If you have any proprietary secrets or intellectual property you want protected, include a Non-Disclosure Agreement. A NDA will give you legal protection in the case where your business secrets are revealed or stolen.

* Indemnity - Another set of protections you may want to include in a JV agreement is indemnity. An indemnification inclusion will indemnify or hold harmless you or any of your business associates, managers, or even your family, from any liabilities, claims, or lawsuits resulting from the other party.

* Other Liability - Know how your JV will be liable for other business practices, such as customer returns or vendor accounts payable.

* Term of Agreement - Your JV agreement should include whether your JV is expected to run in perpetuity or if there is a specific timeframe for the venture. This portion could be written as a "let's see how it goes" condition, with a limited initial term that would extend if both JV partners are satisfied with the venture.

* Money Handling - Set up in writing who will handle all the monetary transactions and how information will be fully disclosed and shared between JV partners. This includes all sales, chargebacks, refunds, accounts payable, and profit distribution.

A joint venture should be a pleasant and profitable experience for both parties. But setting up some of these important protection clauses before your JV begins can save a lot of heartache and unpleasant business experiences.