Joint Venture Advice

December 04, 2024

by a searcher in Birmingham, UK

I have been given a proposal for a joint venture on a deal I am currently in negotiations with. I am based in the UK. Up to now I have been pursuing this deal myself, self funding. I have never considered the possibility of a JV with another individual.

Our skills sets compliment each other. We would put in equal amount of equity and have the top co 50/50. I would be in the business full time for the first 12 months with the partner spending about 1/3 of a week on the acquisition.

What are the things I should consider, any pitfalls? Any important clauses to put in the Shareholders Agreement?

Thankyou in advance for your suggestions.

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Reply by a searcher
from University of Calgary in Calgary, AB, Canada

Thanks for the tag ^redacted‌. Louise - probably some other posts from the past on this topic if you use the search function, and observations from past experiences too lenghty to post here. Cliche is "like a marriage". Based on the above, suggest there should be some strong self reflective exercises on both parts beyond complimentary skill sets at the outset and some discussion on it among the two of you; have watched mutlitple business relationships dissolve over egos, differing work ethics, visions for the future, needs for control, and erosion of trust to name a few. Maybe the current process allows for some insight into that fit going in. A 50/50 split, where you are 100% FT for the first 12 months and the othere is 1/3 of the week has an elevated probability that you may resent this about six months in when unforseen circumstances have you all in and the other individual shows up at their convenience? Hard to capture the qualitative in a shareholders agreeement, really comes down to being mindful of constructing exit provision language in the event it doesn't work out; valuation mechanism, duration of time to pay being key but there are others here that have legal backgrounds better suited to answer specifics on this one.

Reply by a searcher
from University of Texas at Austin in Dallas, TX, USA

I think the most important thing is to get to know each other as human beings asap. Not just on a surface level either. My partner and I worked together professionally and knew each other for 5-10 years before we started buying companies together. If I had to pick a new one I would probably make them meet me in a country where neither of us speak the language and see if we still enjoyed being around each other after two-three weeks of hanging out and finding our way around a foreign country together everyday before I bought and run a business with them. Being a bit dramatic but that’s how important it’s been that my partner and I know each others tendencies, enjoy each others company, and like solving problems together in uncomfortable circumstances.

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