Protecting Your Business in Joint Ventures
A joint venture can multiply your reach — or multiply your risk. The difference is in the drafting.
Joint ventures are among the most powerful tools in commercial law. Two businesses, each with distinct strengths, combine resources to pursue an opportunity that neither could capture alone. But joint ventures also create shared liability, blurred ownership, and decision-making friction — unless the agreement addresses these issues from the start.
Here's what we focus on when structuring joint ventures for our clients.
Define the Purpose — and the Boundaries
Every joint venture should have a clearly articulated purpose. What is the venture designed to accomplish? Just as importantly, what is it not designed to accomplish?
A JV formed to develop a single commercial property is different from one formed to pursue an ongoing line of business. The scope determines the structure, the capital requirements, the governance model, and the exit strategy.
Governance and Decision Rights
Who makes which decisions? In a two-party JV, deadlock is always one disagreement away. Your agreement should address:
- Day-to-day management — which party (or appointed manager) handles operations
- Major decisions — what requires unanimous consent (capital calls, new debt, litigation, dissolution)
- Deadlock resolution — mediation, buy-sell triggers, or a neutral third party
The worst time to figure out governance is during a dispute. Define it upfront.
Capital Contributions and Distributions
Money is where most JV disputes begin. Be explicit about:
- Initial contributions — cash, property, IP, services (and how non-cash contributions are valued)
- Additional capital calls — who can require them, what happens if a party doesn't fund
- Distribution waterfall — preferred returns, catch-ups, splits after payout thresholds
- Deficit obligations — what happens if the venture loses money
Intellectual Property
If either party is contributing IP to the venture — or if the venture will create new IP — the agreement must address ownership, licensing, and what happens at termination. Does contributed IP revert to the contributor? Does the venture-created IP belong to the JV entity, or is it licensed back to the parties?
In technology and services JVs, this is often the most valuable asset at stake.
Non-Compete and Exclusivity
Can the parties pursue the same type of opportunity outside the JV? This is a common tension: one party wants exclusivity to protect the venture's value, while the other wants flexibility to pursue parallel opportunities.
A well-drafted non-compete clause will be narrowly tailored — limited in scope, geography, and duration — to be enforceable under Illinois law while still providing meaningful protection.
Exit and Dissolution
Every JV ends eventually. The agreement should address:
- Voluntary withdrawal — can a party exit, and what are the financial consequences?
- Buy-sell provisions — if one party wants out, can the other buy them out at fair value?
- Triggering events — what happens on bankruptcy, material breach, or change of control?
- Wind-down — how are assets liquidated and liabilities settled?
The Bottom Line
Joint ventures offer enormous upside — access to new markets, shared risk, complementary capabilities. But they require thoughtful structuring to protect each party's interests while enabling the venture to succeed.
If you're considering a joint venture or have been approached about one, reach out. We draft and negotiate JV agreements for businesses across Illinois.