Articles

Is a joint venture partnership for you?

July 13th, 2011

Does your business need to be involved in a joint venture and if so, what are some advantages and disadvantages and why would you bother?

Let’s consider some key points if you are considering a joint venture.

  1. Why would you want to enter into a joint venture
  2. What advantage is there in a joint venture
  3. What disadvantage is there in a joint venture
  4. What is the structure and ownership
  5. Robust shareholder agreement
  6. Independent voice
  7. How to manage conflict
  8. Exit strategy

Why would you bother with a JV?

  • You may decide that you want growth but you can’t do it on your own
  • It may be a strategic decision
  • Part of a takeover strategy
  • Succession planning
  • Equity injection

Advantage of a JV

  • Capital
  • Balance of skills
  • Potential for more profit
  • Risk is shared

Disadvantage of a JV

  • Potentially less profit
  • Less control
  • Conflict
  • Incompatibility

Structure and ownership

  • Who owns how much
  • Shareholding v director
  • Voting rights
  • Share value

Robust shareholder agreement

  • In place before the relationship commences
  • Addresses all possibilities
  • Becomes the ‘go to document’ for dispute resolution
  • Fair for all parties

Independent voice

  • Use an independent director or advisory board arrangement with independent member(s)
  • Helps to remove the dominant partner
  • Allows for objectivity
  • All parties able to debate issues rather than personalities

How to manage conflict

  • First recognise there will be conflict
  • Explore what it is likely to be
  • Set in place policies (use shareholder agreement or house rules to record)
  • Agree what dispute resolution process will be before it is required

Exit strategy

  • What happens when one party wants to leave
  • Have as an annual board item
  • How the business will be valued

Always speak to your lawyer, accountant and any other advisors before entering into any joint venture. It would pay to bring them into the conversation in the early stages so you are aware of any issues that can be addressed while you are in discussions with the other party.

There is an excellent New Zealand business book – ‘The Guide to Successful Business Partnerships’ by Ian Brooks and Noel Davies that will give practical tips and advice if you are thinking of entering into a JV.

PlanA Consulting works with companies where multiple partners are involved, so if you would like to discuss joint ventures and how they may relate to your business then contact John Hutchinson on:

+64 6 974 6236
+64 21 748 142
[email protected]
www.planaconsulting.co.nz

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