How Do You Structure A Joint Venture?
Joint ventures are essentially partnerships with an end date. Unless you structure them as a LLC, all partners are equally liable for any debts or lawsuits brought against the venture. For more information on partnership structure, read How Should You Structure Your Real Estate Partnership?
In addition to the structure of your partnership, you can further define a joint venture with a written agreement. Let’s take a look at some important questions you should ask when you structure a joint venture agreement.
Who Has Control?
Control is determined by member votes and veto rights. In your joint venture agreement, it’s important to spell out exactly who has voting rights and what percentage is needed to make decisions.
How Will Profits Be Divided?
This decision should be made up front based on how much work, money and time each partner is responsible for. For example, if one partner supplies the cash but will not be involved in the work, the partners may agree his/her earnings will be less than 50% of the profit.
How Will The Joint Venture End?
All joint ventures must have a defined end point. Typically, a joint venture will end at the completion of a project. For example, you and a partner could enter into a joint venture agreement to purchase and flip a specific real estate property. As soon as the property sells, the joint venture agreement would end.
In addition to defining the official end point, the joint venture agreement should also address unforeseen endings. These include irreconcilable differences between partners, partnership buyouts and even the death of a partner.
When all aspects of a joint venture are agreed upon in writing, all partners will be legally protected.
In the case of a joint venture, it’s really important to get an attorney involved because all joint ventures are unique. You want to make sure everything is secured and clear before that joint venture starts. An expert can help.