A joint venture offers businesses a strategic path for expansion, especially in emerging markets like Vietnam. However, while joint ventures bring exciting opportunities, they also carry significant risks. Without a carefully structured agreement, businesses may face financial losses, operational conflicts, or legal disputes.

This guide explores how to protect your business interests when entering a joint venture. From essential clauses to risk mitigation strategies, these tips will ensure your agreement is solid and future-proof.

Clarify Ownership and Control Early On

One of the most common sources of disputes in joint ventures is the lack of clarity around ownership and control. Deciding these terms early on can save a great deal of conflict later.

Who owns what percentage of the business? How will profits and losses be distributed? These are key questions that need to be addressed in the agreement. Define each party’s capital contribution and ownership stake, and outline how decisions, both day-to-day and strategic, will be made.

Without clear terms on ownership and control, disagreements can escalate quickly, especially when one party feels their contribution isn’t being properly recognized.

Avoid Common Pitfalls with an Exit Strategy

Why is an exit strategy essential in joint ventures?

While joint ventures are often formed with long-term goals in mind, not all partnerships last forever. It’s critical to plan for a potential exit, even when all parties are entering the agreement in good faith.

An exit strategy allows the joint venture to be dissolved smoothly if one or more partners wish to withdraw. This includes defining how shares will be sold or transferred, and how assets will be divided. Without this clause, dissolving the partnership can become a long and expensive legal battle.

Planning for an exit doesn’t mean you expect failure; it means you’re prepared for unforeseen circumstances.

Protecting Intellectual Property (IP) Rights

In any joint venture, intellectual property (IP) can be a critical asset. Protecting your IP is essential to avoid it being used or claimed by the other party in ways that go against your interests.

In particular, if your company contributes proprietary technology, processes, or branding to the joint venture, you’ll need to make sure that the agreement specifies:

  • Who owns the existing IP contributed to the venture
  • How new IP developed during the partnership will be shared or owned
  • Licensing terms, if applicable

For example, if one party develops a new product during the venture, is that product jointly owned? Or does the partner who created it retain full ownership? Address these questions upfront to avoid potential disputes over IP rights.

Use a Non-Compete Clause to Shield Your Business

It’s not uncommon for one party in a joint venture to continue their own business operations independently. However, this can lead to conflicts if those operations compete with the joint venture.

A non-compete clause is essential in joint ventures where there’s a risk that one party might undermine the shared business by engaging in competing activities. This clause should specify what types of business activities are restricted and for how long after the venture ends.

Dispute Resolution Mechanisms

Plan for Disagreements Before They Happen

No matter how carefully you plan, disputes can arise in any partnership. The best way to handle these disagreements is by including a dispute resolution mechanism in your joint venture agreement.

You can choose from several methods, including:

  • Mediation: A neutral third party helps facilitate a solution.
  • Arbitration: A more formal process where an arbitrator makes a binding decision.
  • Litigation: Court action should be the last resort due to time and cost, but it may be necessary in serious disputes.

In Vietnam, arbitration is a preferred method of dispute resolution for business agreements. It is less formal than court litigation and offers confidentiality, which is often important in business disputes.

By deciding how disputes will be handled beforehand, you reduce the chances of escalating a disagreement into a costly legal battle.

Ensure Governance and Flexibility

Managing a joint venture is often more complex than running a business independently. To avoid operational confusion, define the governance structure early on.

Define Roles Clearly

Who will manage the day-to-day operations? Which decisions need to be made jointly, and which can be handled independently? Outline these roles in the agreement to prevent overlaps or power struggles.

  • If one partner takes on a management role, the agreement should reflect this authority.
  • For significant decisions, consider requiring a majority or unanimous vote.

Plan for Unexpected Events with a Force Majeure Clause

Sometimes, external factors such as natural disasters, economic changes, or government regulations can prevent either party from fulfilling their obligations. A force majeure clause is designed to protect both parties when such events occur, allowing them to pause or modify their obligations until the situation improves.

This clause ensures that neither party is penalized for circumstances beyond their control, making it a critical aspect of any joint venture agreement.

Conclusion

When structured properly, a joint venture can be an incredibly successful business strategy. However, without a well-drafted agreement, the risks can outweigh the benefits. By focusing on key elements like ownership, dispute resolution, intellectual property protection, and exit strategies, you can protect your business and ensure long-term success.

If you’re planning to enter into a joint venture and need expert legal advice, contact Corporate Counsels. Our team of experienced lawyers can help you navigate the complexities of joint venture agreements, ensuring your interests are protected at every step.