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10 Ways to Avoid a Joint Venture Fail

10 Ways to Avoid a Joint Venture Fail

by | Jun 17, 2020 | Business Structures, Contracts, Dispute Resolution, Law for Online Business, Legal

10 Ways to Avoid a Joint Venture Fail

Joint Ventures are great for collaboration

Working together with another like minded entrepreneur is a clever way to accelerate business growth, which is why joint ventures remain a popular way for individuals or organisations to collaborate. But before you ‘Give it Away’ (as there’s always room for a Red Hot Chilli Peppers reference in a legal consideration blog), it’s critical to shore up your joint venture’s credentials to ensure a smooth, surprise-free partnership from beginning to end. In this Onyx Legal blog , we highlight 10 ways to avoid joint venture fails. [Ok, so we ended up with 11 – Ed.]

Joint Ventures are usually for a specific and limited project, goal or purpose and may also be limited by time.

1. Who is party to the joint venture?

Establishing a joint venture is no time to be carefree with the details.

Before entering into a joint venture, establish the legal identity of all parties. This means performing ABN and other similar regulatory checks. It might also mean checking driver’s licence details of individuals. 

A client recently came to us with a proposed joint venture, and we could not establish who would pay him the $400k that he expected to receive as his share of profits. The deal fell over when the other party also failed to establish who would pay that sum.

2. How Should You Structure a Joint Venture?

It is important to understand that joint ventures and partnerships are different structures.

A partnership is a long-term working proposition with full legal liability – a commitment to working together into the future.

A joint venture is project or purpose-focused, and facilitates separate parties to continue working on other businesses simultaneously. Joint ventures can be done by contract with each party paying their own tax, but one of the parties must hold the assets relating to that venture (paperwork, accounts, assets) unless it is established in its own identity.

3. What do you want to achieve with your joint venture? 

It’s easy to get caught up in the potential of success and innovation at the beginning of a joint venture, which is why understanding what you want to achieve from the collaboration is so valuable.

We’ve observed web designers, marketers and programmers enter joint ventures expecting to receive a share in profits at the end of the build, only to have ‘goal posts’ moved so regularly they exit the venture – leaving thousands of hours of unpaid labour in their wake.

Failing to understand – or formalise – expectations in a joint venture regularly leads to disappointment.

Put together a clear written agreement covering all the moving parts of your proposed joint venture, and allowing some flexibility for change as your venture grows. 

have a written Joint Venture agreement

Failing to understand – or formalise – expectations in a joint venture regularly leads to disappointment

4. How long should your joint venture last?

How long is a piece of string?

There’s no single answer to this question; the duration of your joint venture is based on the purpose of the project.

Will you be building something – a house or a piece of technology?

Are you going to be running a developing a piece of software or an education program together?

If you are building or developing something together the period of the joint venture might be the development period, and once you have a completed MVP (minimum viable product) you might roll it over into a company and start building a team to run it. 

Where you’re entering a revenue share deal, it might be a two year focused time frame for growing the base income of the business. 

Whilst you do not need to define a hard ‘end date’ to your joint venture in documentation, it’s useful for all parties to understand the purpose of the relationship, and a general timeline to completion of the project, and what completion looks like.

We regularly write in rolling successive terms, such as a one year agreement that rolls over for another year unless someone terminates before the end of the year. 

5. How can disagreements be dealt with or avoided? 

A joint venture agreement should be robust, providing options should parties fail to perform their role, or decide to walk away from the project.

In collaboration with your lawyer and with your project’s specific risks and opportunities in mind, carefully identify pressure points that require clarification and consider an approach to realistic exit should your working relationship end unexpectedly before the project is completed.

Good joint venture agreements remove the element of surprise from projects, leading to higher rates of completion and reduced conflict.

For a two party joint venture, it is a great idea to have some way of independently breaking deadlocked decisions. You could use a trusted third party as a referee, such as a mentor or board adviser. You could also allocated areas of decision making to each party that give one person a try breaking vote on those issues.

6. What if someone wants out if the joint venture early?

Build the possibility of a party leaving the joint venture into the structure of the joint venture to avoid future problems.

The best laid plans of mice and men often go awry, and a party may need to exit the joint venture for any number of reasons. Family life may be under pressure, there could be financial considerations, or health issues to address.

Fairness is key when devising a graceful exit from a joint venture. 

7. What if you want someone else to join in the venture part way through? 

Joint ventures can be created to allow for the possibility of other experts parties joining the project. Sales professionals are typically invited to join in after an MVP is achieved. 

It’s important that you’re working with a lawyer to structure your joint venture for all possible contingencies … which could  include growing your collaborative group.

8. Who will do what in your joint venture?

Formalising a joint venture is no time for pussyfooting around responsibilities or making assumptions about role workloads.

Success in your project relies on clear delegation of work, as all parties will have other responsibilities that could take their attention, in addition to the joint venture.

It’s important to know exactly who will be paying the bills and who will be responsible for particular milestones.

Having difficult conversations early on about the work or outcomes due for completion by exact parties of the venture will save plenty of strife when life gets busy or timelines become blown-out. 

9. What happens if someone fails to live up to their responsibilities in the joint venture?

As with any project, it’s possible that the whole thing could become scrambled eggs.

Of course you don’t anticipate that will be the outcome, but it’s prudent to plan for unlikely circumstances. Think about COVID-19, a virus which has changed the trajectory of the global economy in the space of months. It was nigh on impossible to imagine the world shutting down a year before the corona virus; but there it is.

People can fail to live up to the responsibilities in a joint venture for a variety of reasons, including circumstances beyond their control.

Build into your joint venture contingencies around ‘failure to perform’ and decide what the dissolution of the relationship should look like. Who gets what? What will trigger the dissolution? How will any debts be paid?

These are important matters to discuss with your collaborative partners and your lawyer.

10. Who retains any intellectual property created during the venture, once it ends?  

Often a complex matter to consider, the ownership of intellectual property is the cause of many disagreements.

If the joint venture does fail, there is likely to be an argument about intellectual property and who owns what. If you can work out IP ownership at the commencement of your joint venture, you’ll design a logical way of dealing with the matter if you fall out.

Maybe each party only walks away with what they contributed; maybe each party walks away with one complete copy of the created intellectual property.

Certainty around what will happen at the time of the exit gives everyone confidence and reduces the risk of legal action. 

11. How will the project be managed?

A joint venture teaches entrepreneurs a whole lot about project management and communication. There are many moving pieces you and your partners will need to consider:

  • planning
  • stakeholder relationships
  • reporting
  • regular meetings and agendas
  • cashflow 

While it is appropriate for different roles to be attributed, a single party needs to be appointed to ensure accountability across the whole of the joint venture. You will need someone with the energy and drive to ensure that things happen. 

Flexibility must be built into this role, and an allowance to break ‘deadlocks’ in decision making.

Many’s the time we have observed joint ventures fall apart when the directors of the governing entity failed to design a mechanism for change, independent of the warring parties. 

Joint ventures are a terrific way for business owners to collaborate, to stretch their skills, test ideas, and to innovate. A well-designed joint venture allows for the clear division of work and responsibility, provides safeguards for failure and disappointment, and deals with the sticky stuff of business relationships before they become complex.

At Onyx Legal we support business owners to come together with like-minded partners in joint ventures, creating structures that respond to your unique projects, packed with safeguards to keep you as confident and safe as possible.

Our key takeaway for joint ventures?

Think on it.

Clarity at the beginning of a project leads to better results in a joint venture, and the chance everyone will meet or exceed their expectations. 

How can Onyx Legal help you?

Joint ventures have a contractual foundation.
You can form a joint venture with a handshake, or you can put a little thought into your expectations and negotiate an agreement that clearly sets out each party’s rights and obligations, as well as exit opportunities. Download our Joint Venture Questionnaire here. We also highly recommend incorporating sensible dispute resolution mechanisms that will support the joint venture moving forward. If you are already in a joint venture, we can review the contract and clarify any legal rights and obligations you don’t understand.
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Using Copyright Material Online

Using Copyright Material Online

by | Jun 10, 2020 | Copyright, Law for Online Business, Legal

Using Copyright Material Online

What is copyright?

Copyright is the legal protection given to any kind of work (eg writing, movies, website content) which has been created by a person. 

Copyright gives the owner of the copyright in the works the exclusive rights to:

  • reproduce the works
  • publish, perform or otherwise introduce the works to the public for the first time and any other time thereafter
  • control the importation of the works to other countries
  • rent the works out to other people
  • assign or license the rights in the works to others. 

There is no need to pay for, register or apply for copyright in any works, it is something that is automatically given when new works are created. 

The work does not need to be published, or made available to the public in order to be protected by copyright, nor does it need the copyright © notice. Protection is free, instant and automatic as soon as the work is created.

Copyright protects a wide range of works which include:

  • written work (“literary works”), which include newspaper and journal articles, songs, poems, screenplays, novels etc
  • computer programs
  • compilations, which include things like albums 
  • artistic works, such as paintings, drawings, photographs, sculptures, architectural plans, buildings etc
  • dramatic works, such as screenplays, theatre works and choreography
  • live performances
  • musical works
  • films 
  • broadcasts, such as television or radio broadcasts
  • published editions (copyright applies separately to the layout of a publication and to the actual content of the publication)

Some works which attract copyright protection, have copyright in more than one aspect of the works.

For example a musical recording will attract copyright in relation to:

  • the lyrics of the song
  • the musical composition of the song
  • the actual recording of the song
  • and also in relation to the live performance of the song.

Who owns copyright?

Although parties may agree to change the standard position on copyright, generally, the person who creates the work is the owner of the copyright in those works.

There are a few exceptions to this rule however:

  • Where work is produced by an employee for the employer. By law copyright belongs to the employer. When signing a contract for employment, the employee will usually confirm that they assign to the employer any copyright in work produced by the employee as part of the employee’s job.
  • Where work is produced by a freelancer, such a photographer, the general position is that the copyright will be with the freelancer. The exception to this is where somebody commissions a freelancer to produce work for a private or domestic purpose. For example, the photos produced by a photographer at a wedding; copyright will sit with the bride and groom, not the photographer unless there is something different in writing between the parties.
  • In relation to film and sound recordings, usually the copyright will be owned by with whoever paid for the recording to be made (eg. the producer).

What are moral rights?

Even if the creator of the works does not own the copyright in the works (such as when an employee develops some work for their employer), the creator still has what is known as ‘moral rights’.

Moral rights give a certain amount of protection to the work of the person who created the works. These rights include:

  • The right of attribution, which means the creator has the right to be given credit for their work when used by anyone else – including the owner of the copyright. For example if a photograph appears in a magazine, although the magazine may own the copyright in the photograph, the photographer still has the right to be given credit for their photo by having their name put on or next to the photograph.
  • The right to defend against any false attributions to their work. That is, if someone gives credit to another person for the creator’s work, the creator may take legal action against this. After this change in the law a variety of people who had had books ghost written suddenly started acknowledging the true writers for their ‘contribution’.
  • The right to take legal action if their work is treated in a way which has a negative impact on their reputation. Like a building being defaced.

A person can only give up their moral rights by agreeing to do so, in writing.

attribution of works

Attribution is like avoiding plagiarism.

Attribution of works means that, in your work, you give credit to the other people whose work you have used within your own work. This ensures that you do not breach the creator’s moral rights.

Attribution of another person’s work may also be necessary where you use material under a creative commons license or where you intend on relying on a ‘fair dealings’ exception to copyright infringement. These are discussed below.

How do I properly attribute the work of someone else?

If the creator of the works has not specified how they would like to be attributed, then as long as your attribution is clear and obvious enough that the audience to your work knows who the original creator of that particular part is, that is all that is needed.

WHAT DOES ‘FAIR DEALINGS’ MEAN – AUSTRALIAN POSITION?

‘Fair Dealings’ are those situations where you may use someone’s work (which would normally be protected under copyright law), without asking for their permission to use it.
There are very defined circumstances when this can be applied. To fall under the ‘fair dealings’ category, the use must be for one of the following reasons:

  • research or study 
  • criticism or review – this involves making a genuine review or critique of the material or the ideas underpinning the material, there cannot be ulterior motives for the review/critique 
  • parody or satire 
  • reporting news – the reporter must be using the copyright protected works for the main purpose of reporting the news, not for any other purpose (such as a funny article which is actually intended to entertain the audience rather than report the news)
  • and for the purposes of advice by a lawyer, trademarks or patent attorney.

To rely on any of the ‘fair dealing’ exceptions to copyright, you must be able to prove that the use does in fact fit into one of those categories above, AND that the use of the work in question was also fair in the context.

In addition, if you use copyright protected works without permission and plan to rely on a ‘fair dealings’ use, then you must acknowledge the source and the author of the original works in your own work (see attribution above).

What does ‘fair use’ mean – United States position?

In the United States, there is a similar concept called fair use. The fair use exemption is wider than the Australian concept of fair dealings. 

The United Sates provision includes purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research. These categories are more flexible than the strict Australian counterpart. 

To determine if a use is a ‘fair use’ the following factors should be considered:

  • The purpose and character of the use, including if the use is of a commercial nature or is for nonprofit educational purposes. The more commercial the intended use, the more likely the fair use exemption will not apply. 
  • The nature of the copyrighted work.
  • The amount of the portion used in relation to the copyrighted work as a whole, and whether it is a substantial part. Substantial does not necessarily mean a lot. It can be a small but distinctive part.  
  • The effect of the use upon the potential market for or value of the copyrighted work. 

So, if you plan to use copyrighted material for one of the categories (eg news reporting) then you may be able to do so if the use would be fair (based on a consideration of the above factors). In general, the word fair means the use is not harmful to the original creator of the work. 

In this example, the use of an audio clip (like a quote from Winston Churchill) or a video clip (from a movie or television program) to emphasise a point in a podcast, would be likely to be considered fair use.

What is a creative commons licence?

A Creative Commons license is a license that the owner of copyright may choose to use to allow other people to use their works without any payment or need to ask permission for use.

There are various Creative Commons licenses which set out the different terms of use according to the type of license chosen by the person who owns the copyright. Some licenses may only need you to give credit to the person whose work you are using. Other licenses will prevent you using that particular work for commercial or profit generating reasons etc. 

WHERE CAN I GET CREATIVE COMMONS LICENSE MATERIAL FROM?

Material which is made available for you to use via a creative commons license (ie. you don’t have to seek the copyright owner’s permission before using it), is available right across the internet.

One good place to start is creativecommons.org.

This website allows you to search a range of sites which offer creative commons licensed material for your use. 

WHEN DO I NEED PERMISSION TO USE COPYRIGHT MATERIAL?

As a general rule you must get permission to use someone else’s works whenever you want to use those works in a way which is reserved for the exclusive use of the owner of the copyright. ie. whenever you want to publish, communicate, reproduce, perform or alter the works, or any part of the works.

Even using a small part of some copyright protected works could see you infringe copyright. If the part that you want to use is a “substantial” part, that is it is an “important, essential or distinctive” part of the works, then you will need to get permission from the copyright owner.

As an example, still shots from movies and television programs are something you should, in theory, seek permission to use. However, unless you are using that still for a commercial purpose (eg. putting on mugs or t-shirts and selling them because of the image) you are unlikely to have any problems.

Some good questions to ask yourself, “Am I using somebody else’s work?” If yes, then: 

  • Has the creator of that work used any skill or labour to create the work that I would like to use? For example, have they gone out to a statement from a source themselves, or have they copied the statement from somewhere else? If they made the effort to get the statement themselves, that act has required some skill and labour from the copyright owner, whereas copying a statement obtained from another source would not. 
  • Do I want to use a “substantial” part of the other person’s work? ie. Is it an important, essential or distinctive part of the work that I want to use? The word “substantial” does not indicate the amount of the work that you want to use, as a percentage for example, just the overall significance of what you want to use.

If you answer ‘yes’ to these questions, the safest option is to seek permission from the copyright owner to use the material in questions.

There are some exceptions to this rule however, where there is: 

  • a ‘fair dealings’ exception
  • creative commons license, or
  • copyright has expired (generally 70 years after the death of the creator however there are various times depending on the year it was created or first published).

WHERE DO I GET PERMISSION TO USE COPYRIGHT MATERIAL?

A good place to start when looking for permission to use the work of someone else, is with the publisher of those works.

Another place is with a copyright collective agency. These are agencies which grant permissions and receive payments for copyright licenses in a range of copyright protected industries. There are many such agencies right around the world which operate locally (such as across Australia) or globally.

In relation to use of government owned materials, you should check the government websites for permitted use for each particular government.

How can Onyx Legal help you?

If you want purchase copyright work, license copyright work, ensure your employees understand that you own copyright in their creation, protect your copyright work, or defend a claim of copyright infringement contact us.

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The Alarming Rise of the Fake Self-Assessing Tax-Exempt Private Foundation in Australia

The Alarming Rise of the Fake Self-Assessing Tax-Exempt Private Foundation in Australia

by | Jan 16, 2020 | Business Structures, Law for Online Business, Legal

The Alarming Rise of the Fake Self-Assessing Tax-Exempt Private Foundation in Australia

The Alarming Rise of the Fake Self-Assessing Tax-Exempt Private Foundation in Australia

When things occur in 3s they tend to attract our attention.

In last few months we’ve encountered three people who were stunned to find out the foundations they had formed with all good intents and purposes were in fact, fiction.

Unfortunately, we haven’t been able to persuade any of these misguided individuals into telling me where they got their information in the first place. In fact, when we told the first prospective client about the nebulous nature of his foundation, he blocked our phone number and emails.

When a long standing business client of ours approached us for legal advice just after Christmas, querying the legality of providing intellectual property as a volunteer for the self-assessing tax-exempt private foundation he had established after significant research, we balked.

How can educated, intelligent individuals be misguided into believing that “personal sustenance” of the founder is a legitimate, tax free distribution? Or that a foundation is legitimate when its founding documents specifically deny the rule of law?

If you are failing to lodge tax returns and claiming your foundation is private, tax exempt and self-assessing, at some stage you are likely to get caught for tax avoidance.

IF IT SOUNDS TO GOOD TO BE TRUE…

We should start by saying that we are not tax lawyers and the statements in this article are for general educational and informational purposes only.

If you are an individual in Australia receiving more than minimum wage, you will be paying some tax. If you operate any type of business in Australia, other than an international business which uses related cross boarder transactions and tax treaties to minimise tax, then your business will be paying tax on any profits.

Even charities and not-for-profits are not exempt from every form of tax, and they still submit annual reports to substantiate income and liabilities.

Although it is not uncommon for people to look for ways to minimise their tax obligations, if someone is suggesting that you can establish a foundation for the purpose of avoiding paying tax, please do not believe them!

No matter how a foundation is established, if your personal expenses such as your rent or mortgage, car payments and food are being covered by the foundation, then those payments are likely to be considered your personal income, and taxable.

In 2019 the Supreme Court of Tasmania rejected an argument proposed by members of the Beerepoot family that they were not obliged to pay tax because they didn’t own anything. They argued their possessions belonged to God and to be answerable to an external entity such as the government, would be going against God. Their failure to lodge tax returns did not absolve them of their obligations, and they were each ordered to pay more than $1 million in taxes and penalties.

How to Tell if Your Foundation is a Fake?

If your foundation is not recognised under a law, then it is fake. Start by reading the founding document.

Having three very similar founding documents to reference, there are clearly a couple of pro-forma template “Articles of Association” going around to help people establish fake foundations. “Establish” might be a strong word because the documents we’ve seen don’t create a foundation or other entity at all.

Some of the words that should trigger alarm bells are:

  • sentient living souls
  • natural sentient people
  • divine attributes
  • tax-exempt
  • non-government organisation
  • sovereign rights of humankind
  • environmentally sustainable self-sufficiency of humankind
  • imprescriptible and unlegislatable
  • domicile on the land mass commonly known as Australia
  • involuntary servitude
  • unalienable rights for sustenance
  • bona fide compensation for services rendered, expenses incurred, sustenance or surplus on behalf of the foundation
  • not to be lodged with any public or government agency
  • autograph

Each of the documents we have received includes at least one paragraph which claims that being human creates some form of natural right which cannot be removed or controlled by government or law. This is an extension of the “Freeman on the land” philosophy which says essentially that “the law doesn’t apply to me unless I say it does”.

Here is a sample:

‘Natural Innate Status/ Sovereign Rights’ mean the natural rights of private men and women, their divine attributes, to love, to liberty, to independence, to privacy, to remain silent, to give and to receive, to apply their natural energy, to think, to breath, to treat others the same way as they would like to be treated, to apply effort and to work, to take decisions, to increase their capacity, and to reserve all natural divine law rights which are unalienable, imprescriptible and unlegislatable, and to express and include their soul infused nature.

Don’t be fooled.

Unless you have some diplomatic immunity from another country, when you are in Australia, Australian law applies to you, over and above any spiritual or religious belief you may have.

There is no such thing as an “innate status” or “sovereign” right of an individual at law.

Some of the wording of the Articles assumes that “privacy” is some form of enforceable right separate from law, and something that validates keeping foundation records private.

Here is another sample:

The Foundation is a private Foundation and as such operates privately, not revealing any of the private information related to its operation to any public or government agency or any purported legal authority.

One of the side effects of attempting to exclude the law is the creation of something without legal basis or enforceability. The privacy of personal information is protected by law, but there is no inalienable right to privacy of any entity or foundation by virtue of its alleged existence.

If you don’t notify a government agency of the establishment of a legal entity separate from you as an individual, there is no separate legal entity and you as an individual are personally responsible and liable for any action taken or omitted by, for or on behalf of the fake foundation.

a self-assessing tax-exempt private foundation is no more than a house of cards

But it’s a Non-Government Organisation (NGO)!

What is an NGO?

An NGO can refer to different types of organisations depending on where you are in the world.

Generally speaking, they refer to organisations legitimately established somewhere in the world, which may work with government, or with government funding, to provide community support in some form or another. International aid organisations are often NGOs.

In relation to the United Nations, NGOs can be described as “any non-profit, voluntary citizens’ group which is organised on a local, national or international level. Task-oriented and driven by people with a common interest, NGOs perform a variety of service and humanitarian functions, bring citizen concerns to Governments, advocate and monitor policies and encourage political participation through provision of information. Some are organised around specific issues, such as human rights, environment or health. They provide analysis and expertise, serve as early warning mechanisms and help monitor and implement international agreements. Their relationship with offices and agencies of the United Nations system differs depending on their goals, their venue and the mandate of a particular institution.”

Just because you call something a non-government organisation does not mean that it has no obligations at law. NGOs in Australia are established and recognised legal entities, being either incorporated associations, public companies or registered foreign entities. All are registered and have reporting obligations. 

How to establish a Real Foundation

Under Australian law, you have three or four options to set up a real foundation, all of which involve the law and notice to a public or government agency. 

You can establish:

  • an unincorporated association (small local sporting or community clubs)
  • an incorporated association (state-based sporting or community groups or charitable organisations, also membership associations)
  • a company limited by guarantee (for national organisations, big or small)
  • a trust (often used by families or individuals wanting to establish a fund for contributing to charity)

None of those entities will be properly established without reference to the appropriate law. This is typically done within the founding document. Some examples include:

  • Subject to the Associations Incorporation Act 2009 (NSW)…
  • The company has all the powers of a natural person and a body corporate. That includes powers expressly or impliedly conferred by the Corporations Act 2001 (Cth) or by law. 
  • Subject to the laws governing trustees at the Place of Governing Law [which is then defined in the document]

Tax status is not independently chosen by the foundation.

Not-for-profit organisations must apply to the ATO for tax exemption, and it is generally limited to income tax exemption. So, GST (goods and services tax), PAYG (pay as you go) and FBT (fringe benefits tax) will usually still apply, and the foundation must report and meet its ongoing obligations. 

Genuine Belief in Creating a Better World

A strong theme in the foundation documents I have read is the intent to take action to create a better world for all humankind. That is an admirable goal. Unfortunately, the fake foundation is not the way to get there and is likely to create personal difficulties for you down the track.

If you’ve inadvertently been swayed into thinking you are doing something good for the world in establishing or becoming involved in one of these fake foundations, don’t worry. Take a deep breath and acknowledge that no one is perfect and all of us get caught out from time to time. Now you have the opportunity to do something about correcting your situation.

We strongly encourage every person who suspects they may have become involved in a foundation that displays any of the elements highlighted in this article to seek appropriate legal and tax advice. Now. 

How can Onyx Legal help you?

Get the Right Business Structure for You
Make a time to speak with someone in our team about what business structure fits for what you aim to achieve (avoiding the fake foundation) and we can help you get the right structure set up properly to avoid nasty surprises in the future.
 
 
 
 
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Joint Venture Advantages and Disadvantages

Joint Venture Advantages and Disadvantages

by | Oct 15, 2019 | Business Structures, Contracts, Law for Online Business, Legal

Joint Venture Advantages and Disadvantages

What is a Joint Venture?

Possibly your first question will be “What is a joint venture?” and then possibly “How is that different from a partnership?”. And yes, it is commonly referred to as a “JV”, but first question first.

A joint venture is an alliance between parties for mutual benefit. Still doesn’t really explain things, does it?

Where different companies that might not even be in the same industries see an opportunity to work together for mutual benefit without giving up any of their core business, that is a joint venture.

Joint Ventures are usually for a specific and limited project, goal or purpose and may also be limited by time. They allow each of the parties to leverage the resources, technology, finance or markets of other parties, for mutual benefit.

Property developments are often completed by joint ventures, where each party contributes different resources or expertise to complete the project. One party might have all the knowledge necessary to set up, manage and complete the project, another party might own the land and the third party might be a builder. By forming a joint venture, they all limit their risks to the areas where they have knowledge and experience and get to participate in a project that would otherwise be out of their league.

Telecommunications companies might form joint ventures to construct and use infrastructure that is costly to build and maintain and would otherwise be underutilised. They each gain access to a necessary resource, but at a reduced cost.

Its also common for joint ventures to form between foreign companies wanting to break into a new market where there is an allied provider who already has their customers in that territory. Consider a home and contents insurance company that teams up with a car insurance provider in a market where they don’t currently have a foothold, being able to increase the variety of insurance products offered to the car insurer’s customer base.   

Joint ventures can involve more than two parties and can involve different types of entities, such as a mix of individuals, companies and trusts. There is no specific formula. Some joint ventures are formed by contract and some are formed as companies where each joint venture party owns shares. An incorporated joint venture is more likely to become a saleable asset in the future than an unincorporated joint venture.

Famous Joint Ventures You Might Not Have Heard About

Some recent international joint ventures include the following:

Haven – This health care focused joint venture was formed in 2018 between Amazon, Berkshire Hathaway and JPMorgan Chase. Think about the benefits each party might be contributing to the venture. Amazon has amassed huge amounts of data on consumer spending and is increasing its data collection into our homes with Alexa and Amazon Prime. Berkshire Hathaway has been around for 180 years accumulating incredible knowledge and experience in operating successful businesses and understanding market changes. JPMorgan Chase is an investment bank. The stated goal of Havel is to simplify insurance benefits, improve healthcare services and reduce the cost of health care services and prescription drugs.  

Self-driving cars – Google’s Waymo self-driving division has joint ventured with Jaguar Land Rover and Chrysler rather than building cars themselves and the car manufacturer doesn’t have to start its self-drive tech from scratch. Volvo and Uber, Honda and General Motors’ Cruise Unit and most recently, Hyundai and Aptiv have teamed up, all for similar reasons. Predictions are that the motor vehicle industry will be dominated by tech companies in the not too distant future.

Cosmotec – is a joint venture between the Sumitomo Corporation Group and a Brazilian based cosmetics company, with a view to gaining access to one of the world’s largest cosmetics markets.

Joint Venture Examples

For small business we see a lot of joint ventures where parties collaborate to develop a product or service they couldn’t offer on their own. Some very common joint ventures include collaborations between:

  • software developer + industry expert
  • web or app developer + industry expert
  • digital marketers + tradies
  • digital marketers + professional services
  • digital marketers + any business that needs leads
  • salesperson + any business that needs to convert leads
  • professional onboarding or training + any business with a high demand for bringing on new staff
  • international company + local distributor
  • industry expert + allied industry expert
  • property owner + property developer
  • financier + any business needing capital

We’ve already talked about some joint venture examples, so perhaps we should also look at the characteristics of a joint venture, or examples of the kind of provisions you’d expect to see covered in a joint venture agreement.

Governance/ Setup

  • there is usually a joint venture agreement setting out each party’s rights and obligations, as well as what will happen to any venture assets at the end of the project
  • the proportionate interests of the parties are described in the joint venture agreement, sometimes 50/50 and sometimes a different proportion
  • the joint venture agreement should set out how decisions will be made and any deadlocks broken and also provide for prompt dispute resolution to avoid holding up the project

Control

  • each party has a proportionate interest in the revenue or profits of the joint venture, but that may be different from their level of authority in decision making – investment partners are sometimes silent partners to a joint venture, meaning they don’t have a say in how the project is conducted
  • each party to a joint venture continues to control and operate their own business independently to the project
  • transactions may be recorded separately by the parties involved and invoiced back to the venture, or accounts will be maintained so that each of the joint venture parties can separately account for their contributions and any distributions they receive

Termination

  • what happens to the assets of the venture, particularly intellectual property when the project ends?
  • are the parties restrained from competing with the joint venture for a period?

What is the Difference Between a Joint Venture and a Partnership

Partnerships are generally long-term whole of business ventures whereas joint ventures are often project specific side gigs. In a partnership you also agree to take full responsibility for the partnership liabilities, whether you created them or not, and even if you didn’t know they were created by one of the other partners.

We generally discourage people from calling a party a joint venture partner or calling their venture a joint venture partnership. In fact, we prefer joint venture and partnership not to be mentioned in relation to the same project.

Some comparisons between a joint venture vs partnership

Partnership
  • separate legal entity
  • whole of business
  • long term business
  • joint and several liability
  • responsible for actions of other parties
  • change in partner requires new partnership
Joint Venture
  • only separate legal entity if incorporated
  • side gig
  • project or goal specific
  • several liability only
  • not responsible for actions of other parties
  • joint venture parties can enter and exit without affecting the setup of the venture

Benefits of a Joint Venture

The benefits to a party in a joint venture will depend upon their goal in entering the arrangement in the first place. Some common benefits of joint ventures include:

  • business diversification
  • entry into new markets
  • new distribution channels
  • leverage expertise of another party
  • flexibility
  • limited scope
  • defined risks
  • defined rewards
  • potential to create saleable asset
  • reduced costs
  • economy of scale
  • strategic information sharing

Risks of a Joint Venture

One of the scariest parts of going into a joint venture for small business owners is that the other party won’t be as committed to the project as you are, and you end up doing everything yourself. We’ve seen it happen.

One of our digital marketing clients stopped joint venturing when they realised that they were doing everything for the venture and the other party was sitting back and doing nothing. Our client had the team and the methodology and the impatience to get things moving, but each joint venture became a project where they should have simply been paid for their digital marketing services and ended the relationship after delivery. While we were able to exit them from all agreements without too much fall out, it put their business back 12 months and impacted their revenue goals.

Your main risks are the same as any business venture, loss of time, loss of money, loss of trade secrets or other intellectual property, loss of staff and reputational risk. Weigh up the benefits against the risks, mitigate your risks and consider your options. 

How can Onyx Legal help you?

Joint ventures have a contractual foundation.
You can form a joint venture with a handshake, or you can put a little thought into your expectations and negotiate an agreement that clearly sets out each party’s rights and obligations, as well as exit opportunities. Download our Joint Venture Questionnaire here. We also highly recommend incorporating sensible dispute resolution mechanisms that will support the joint venture moving forward. If you are already in a joint venture, we can review the contract and clarify any legal rights and obligations you don’t understand.
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Contracts don’t have to be in Writing to make them Binding

Contracts don’t have to be in Writing to make them Binding

by | Aug 8, 2019 | Contracts, Law for Online Business, Legal

Contracts don’t have to be in Writing to make them Binding

Not all contracts are in writing, and they don’t have to be

A contract, in its most basic form, is an agreement between parties that legally binds them. Even without a handshake to seal it.

People bind themselves to contracts every day, sometimes without even realising it, and as a result also acquire certain legal rights and responsibilities.

It is commonly thought that a contract can’t be binding unless it is put in writing. While this is true in some cases, generally speaking – unwritten contracts ARE enforceable.

There are only a very small number of contracts that have to be in writing – like the sale of land.

You can form a contract through an exchange of emails or private messages, through a telephone call or a combination of those activities. It is helpful to think of a contract as a bargain and when a dispute arises, the law aims to determine whether or not the bargain made can be enforced.

So whether a bargain is based on a verbal agreement, written agreement or a combination of the two, remember that actions can speak louder than words. However, its the written words you will want to rely on if something goes wrong.

It is always wise to write down the details of an agreement, especially if large sums of money are involved and where there are no reliable witnesses or other evidence of the details. I’ve seen business partners waste all of their profits in legal disputes because they didn’t put their agreement in writing 10 years earlier while they were still friends. The beauty of having something in writing is for reference, when people have forgotten the details, or remember different things.

 

Making a Contract

A contract must have three identifiable features, whether it is written, verbal or partly verbal and partly in writing:

  1. Agreement (offer and acceptance)
  2. Intention
  3. Consideration

A contract is formed when there is an agreement between the parties to undertake certain obligations.

Agreement

The point at which negotiations have been concluded and the agreement is reached is not always easily worked out, but there must have been a clear indication (offer) by one party of a willingness to be bound on certain terms and an unqualified acceptance of that offer.

‘Unqualified’ means that it shouldn’t be subject to conditions. Anything subject to conditions is not acceptance, it is further negotiation. This is where counter-offers and acceptance can become confused.

If you offer to sell 1800 widgets at $40 each, with a discount of 30% for volume, and the buyer says ‘okay, I’ll take 600 at the discounted price‘, then the buyer has made a counter-offer, not accepted your original offer. You may not agree to that level of discount at the reduced volume.

There are legal cases debating the point at which agreements are eventually reached, and whether or not an agreement was even made.

Intention

For there to be a legally enforceable contract the parties must have intended to enter into a legally binding agreement.

Intention is seldom something you say out loud, but is usually inferred from the circumstances surrounding the agreement.

This is where the bet in the pub becomes the primary example. Someone making an off-hand bet is unlikely to be serious.

Another good example is where someone promises something you know they simply can’t deliver – for example ‘I’ll give you a million bucks if you …‘ when you know the person simply doesn’t have that money to spare.

Consideration

Before there can be a contract there must be an agreement to exchange. Each party must provide something in return for what the other is providing. The item or action exchanged is called the consideration.

It does not matter if the consideration given by each side is of unequal value. The law requires only that something is given by each party.

So consideration can be money, or actions, or property. Swapping items (like sports uniforms at international sporting events) is treated no differently than money being exchanged for an item.

Donations are not the same thing. Only one party has the benefit of a donation, so a pledge to donate is usually unenforceable. However, where something is offered in exchange for a donation – like a red nose, or a yellow daffodil – then that may be sufficient consideration to create a binding contract.

Nominal consideration is usually enough. So when a seller says you need to pay a substantial deposit to secure the deal, their actions may be capable of being considered misleading. There are many cases where $1, or similar small amount have been found to be sufficient to secure a deal.

Signing a Contract

You should also be aware that a contract or agreement need not necessarily be signed to be enforceable. The circumstances surrounding the contract can be enough to demonstrate that something in writing has accurately set out the parties’ intentions. A signature is usually relied upon as evidence that a person has read the document and agrees to be bound by its terms, but clicking an ‘I agree‘ check box on an electronic form or web page can have the same effect.

A person who signs a contract or click a check box is generally bound by any terms it contains regardless of whether they have read the document, and legislation like the Electronic Transactions Act 1999 (Cth) allows for that.

It was commented in the explanatory memorandum that ‘An addressee who actually knows, or should reasonably know in the circumstances, of the existence of the communication should be considered to have received the communication. For example, an addressee who is aware that the communication is in their electronic mail ‘box’, but who refuses to read it should be considered to have received the communication.‘

Despite this rule, in some circumstances a person may still be able to withdraw a contract, start a court action to enforce it, or apply to a court to have the contract voided.

These are technical legal arguments that generally only arise at the point of dispute.

Remember, if you do find yourself in a dispute, the enforceability of an agreement or contract will depend on what law applies. For example – people buying or selling products or services online could be anywhere in the World. The law in Victoria, Australia is not the same as the law in Singapore. Different rules apply, not to mention different courts. But that is a conversation for another day.

The final word on Contracts

Contract law can be extremely complex, and there are different nuances in all legal systems. Look at the type of contracts you are entering into and consider the risks involved in doing so.

If you plan on entering into a deal that is worth more than you can afford to lose, then it is highly advisable to invest in legal assistance to ensure the point of agreement, and the terms of the agreement are clear. If the contract doesn’t make sense to you, how do you know what deal you are getting involved in?

We’re happy to assist you with a short advice, a quick review or drafting a whole new contract.

How can Onyx Legal help you?

Let us help you craft a contract that suits your business. With a written contract, you have a clear record of what is agreed rather than having to rely only on memory. Contact us to draft your agreements.

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