Businesses thrive on solid relationships. But there are times when multiple businesses opt to join forces for their mutual benefit. These partnerships can be immensely valuable for all involved, but they can also be a massive headache if things go wrong.
Businesses can join forces through joint ventures and strategic partnerships (also known as strategic alliances). While these terms sound similar, they have distinct legal meanings and requirements, and you must know what these differences are before you embark on either a joint venture or strategic partnership. With a long history of advising businesses on potential partners, the North Carolina business lawyers at Mullen Holland & Cooper P.A. share some insights into the pros and cons of joint ventures and strategic partnerships.
Why Form a Joint Venture or Strategic Partnership?
Many business owners pride themselves on being able to “go it alone,” but there are certain times when it is in your interest to cooperate with another business. Some reasons to form a joint venture or strategic partnership include:
- You lack the resources to embark on a major project yourself.
- You and a potential business partner offer services or products that complement each other.
- You want to expand your market share or obtain access to new markets.
These are all valid reasons to ally yourself with another business, but before you do, you need to understand the terms of your relationship and what that partnership will entail. It’s critical to know how joint ventures and strategic partnerships differ and to seek legal counsel before moving forward with either type of alignment.
What Makes Joint Ventures and Strategic Partnerships Different?
Before you agree to a joint venture or strategic partnership with another business, keep these core differences in mind:
- A joint venture involves forming a new company and legal entity, while a strategic partnership keeps all parties separate — If you value your independence, committing to a joint venture can be a big leap, as you will be forming a new business entity with your partner. Furthermore, a joint venture requires a binding contract, while strategic partnerships can be done with a handshake deal (though you should still put the terms of the agreement in writing).
- A joint venture generally involves new management, while a strategic partnership does not — Because a joint venture entails the creation of a new business entity, this arrangement usually comes with new management as well. The new managers will likely be from outside the companies that created the joint venture to minimize potential friction. If you want more direct control and are confident you can work with your business partner, you might be better off with a strategic partnership since representatives from both companies usually manage these.
- Joint ventures are generally limited in scope and are for short-term projects, while strategic partnerships can be broad and may last for many years — A joint venture is usually formed to accomplish some specific goal or project, and the venture is designed to last a specific amount of time. A strategic partnership, on the other hand, can last indefinitely and may involve working together on a range of projects. Your goals will determine which type of agreement is better for your situation.
Talk to a Lawyer Before Forming any Joint Venture or Strategic Partnership
Whether a joint venture or strategic partnership is right for your business depends on your unique goals and needs. But before you form either type of business partnership, be sure to draft the agreement in writing and have a lawyer review it. The North Carolina business agreement lawyers at Mullen Holland & Cooper have been assisting businesses with joint ventures and strategic partnerships for decades, and we can make sure your business is properly protected in any agreement. Contact us today for more information.