Massachusetts Business Law - Massachusetts Joint Venture Contract Considerations

Joint ventures between two or more companies may provide a competitive edge in bidding projects and may also provide permit companies to go after work that neither could perform on their own.

As most business lawyers in Massachusetts can attest however, they are not without pitfalls and requiring careful contract negotiation. Joint venture agreements truly require the ounce of prevention.

While each situation is different and each negotiation will reflect the particular deal structure of the joint venture, there are some negotiating points common to all joint ventures which must be given great attention.

WHO DOES WHAT? An important contract issue is the allocation of responsibilities. While this may seem almost too obvious to mention, it is not the concept that is important, but the level of detail and attention to all aspects of the venture which are important. For instance, many lawyers in the Boston metropolitan area deal with software development and marketing. If, in a joint venture, each of the parties to a software development contract is responsible for certain design and implementation and that is carefully delineated in the contract, have the parties also given as much attention to administrative functions and sales and marketing? Each discreet issue must be clearly delineated, to avoid conflicts and possible litigation down the road.

WHO PAYS FOR WHAT? Equally important is the funding of joint venture projects. Not only does the venture need accurate budget forecasts, but it must be clear what the contributions of the respective parties will be. Does each party pay for its own costs? Is there a 50/50 split? Is it anticipated that there will be bank financing? What happens if the venture needs more money? Is there a call option requiring additional capital? A good business lawyer will help you identify the financial terms and work through them with you so that each is identified and addressed.

WHAT ARE THE HUMAN RESOURCE COMMITMENTS? Perhaps the most contentious issue arising out of poorly conceived joint ventures is the idea that one party has not fulfilled its obligation by putting in the required effort. In other words, if it is clear what role each party has undertaken and it is clear how much each party will contribute, issues may still arise based upon the number of hours, days, weeks or months that one party is providing to the joint venture. Most business lawyers, in most joint venture situations will advise you that setting firm minimums will provide an objective standard for evaluating the other party’s performance. This is especially true in situations where the joint venture is only one part of each party’s operations and either  party may wish to move resources away from the venture and toward its other businesses. If both parties understand what the minimum requirements are, there is a greater likelihood of compliance.

While this list of issues is not intended to be exhaustive and there are other considerations in drafting a good joint venture agreement(including tax and liability considerations), the list does identify some of the more common business issues which must be dealt with specifically and carefully. It is crucial that you also engage an experienced Massachusetts business lawyer to help you identify the issues, negotiate terms and provide good draftsmanship.

The lawyers at Parker | Scheer, LLP have strong backgrounds and years of experience providing business law and business litigation representation to Massachusetts businesses. Should you desire further information, please contact senior partner Barry Scheer.

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