A joint venture brings two or more businesses together to pursue a specific opportunity, sharing risk, resources and expertise, with profits shared according to what the parties agree upfront. It differs from a full merger or partnership in that it is typically scoped to a specific project or period rather than an indefinite combining of two businesses.
The agreement itself is what determines whether the arrangement works or becomes a dispute.
When a joint venture makes sense
A joint venture suits situations where each party brings something the other lacks: one has capital, the other has market access; one has technical capability, the other has an existing customer base or distribution network. Combining these for a specific project can achieve more than either business could alone.
It is a poor fit where the parties’ goals are not genuinely aligned, or where one party is contributing significantly more than the other without that imbalance being reflected in how profits and control are structured.
What the agreement needs to specify
Each party’s contribution, whether capital, resources, expertise or connections, needs to be defined clearly, along with exactly how profits, losses and decision-making authority are shared. Vague or verbal understandings are where joint ventures most often break down.
Include a clear process for resolving disagreements and a defined exit mechanism, covering what happens if one party wants to leave, the venture underperforms, or the specific project it was formed for concludes.
Structure and liability considerations
A joint venture can be structured as a separate legal entity, jointly owned by the parties, or as a contractual arrangement between two existing entities without creating a new one. Each carries different implications for liability and tax, and the right structure depends on the scale and duration of the venture.
Confirm how liability is apportioned between the parties, since a poorly structured joint venture can expose one party to obligations created by the other’s actions within the venture.
Get proper legal advice before signing
A joint venture agreement is a binding contract with real financial and legal consequences, and it should be drafted or reviewed by a legal professional rather than adapted from a generic template, particularly where meaningful capital or long-term commitments are involved.
Both parties should confirm their own registration is in good standing with the Companies and Intellectual Property Commission before entering into any joint venture, since a compliance problem on one side becomes a risk for the whole arrangement.
Frequently asked questions
What is a joint venture?
An arrangement where two or more businesses combine resources, risk and expertise to pursue a specific opportunity, sharing profits as agreed.
How is a joint venture different from a merger?
A joint venture is typically scoped to a specific project or period, rather than an indefinite combining of two businesses into one.
What does a joint venture agreement need to cover?
Each party’s contribution, how profits and decisions are shared, a dispute resolution process, and a clear exit mechanism.
Can a joint venture be its own legal entity?
Yes, it can be structured as a separate jointly-owned entity or as a contractual arrangement between existing businesses, each with different liability and tax implications.
Should a joint venture agreement be reviewed by a lawyer?
Yes, particularly where meaningful capital or long-term commitments are involved, rather than relying on a generic template.
Further reading
Originally published in 2024. Updated September 2026 into a clearer explanation of what a joint venture agreement covers and when to use one.
