Starting a new business or venture is a deeply exciting prospect, but it’s essential to ensure proper legal protection to keep all parties involved protected. Joint venture agreements and shareholder agreements are both very common elements of establishing a business – but are they the same thing?
The simple answer is no. Here are the basics you need to know about each.
What is a joint venture agreement?
A joint venture agreement is a legal agreement whereby two or more parties enter an agreement for an established period of time, or for the duration of a project. This is normally done for strategic purposes, namely to facilitate the easier pooling of resources, networks, skills, or capital in order to complete a given project – take for example a housing project, which would be difficult to complete alone. It’s important to note that the parties of a joint venture agreement do not become a singular legal entity – they are both still independent. The nature of the agreement, the obligations of each party, and the duration of the agreement’s terms will all be laid out and notarised before being signed by both parties. This is a good way of having a consistent and reliable record of obligation and responsibility. A joint venture agreement will also cover the termination of the agreement, any resources that have to be returned and can form the basis for a new agreement.
What is a shareholder’s agreement?
A shareholders agreement is an agreement relating specifically to the shareholders of a company. A shareholders agreement is normally drafted during the formation of a company and gives the company’s shareholders an element of common ground. The goal of a shareholder’s agreement is to mitigate the likelihood of protracted disputes by laying out key responsibilities, obligations, and due process. Generally, a shareholders agreement will cover issues such as the decision-making and management approach of the business, it will have buy-sell provisions covering the approach to company share interactions, the nature of individual shareholder contributions, and the timetable of shareholder payouts. There will also often be dispute resolution procedures outlined to resolve any disagreements.
How are they different?
A joint venture agreement covers the nature of a partnership between two private or corporate entities for the purposes of a given project. Two or more parties coming together for a project gives rise to the name “joint venture agreement”. A shareholders agreement, on the other hand, specifically relates to the shareholders of a company, outlining their rights, responsibilities, and recourse for dispute resolution, among many other things. If as a part of a joint venture agreement a company is to be formed, then a shareholders agreement may be a subset of that, but they are still completely different agreements covering different circumstances.
Which do you need?
If you’re entering a venture with another party for a specific duration, such as a construction project for example, then you’ll need a joint venture agreement. If you’re going to be starting a company with shareholders, you’ll need a shareholders agreement. Whichever type of agreement you need, it’s important to ensure you get appropriate legal counsel and advice for the purposes of drafting it. Be sure you have thoroughly thought out the terms you’re agreeing to, and seek advice for potentially beneficial additions to consider during the drafting process.
Need help understanding which agreements suit you from a legal perspective? Contact one of our legal team today to discuss how we can help you.