Free Joint Venture ChecklistWritten by Jefferson Highway, General Counsel
Oftentimes, you may have a need to set up a 'joint venture' with a third party. These collaborative businesses can be extremely profitable for all parties involved, but you must ensure on way in to such an agreement that you have done your due diligence, and that everyone understands exactly what terms and conditions of venture are.
For this reason, we here at www.lawyersbench.com have put together a quick 15 point checklist that will help you determine that you have all bases covered. This is more important than you may think - after all, mid venture is NOT time to be arguing about basic terms and conditions!
1. Identity. Confirm in writing exactly who is involved in joint venture.
2. NDA. Do you need a Non Disclosure Agreement to be signed? (typically if one party has a great idea, and other will be involved with manufacture or promotion).
3. What are responsibilities of each party? List in writing what each of you will bring to 'party'.
4. Is enterprise global, or limited in geographical scope?
5. Are there any legal considerations related to setting up business (are licenses required from Government etc)
6. Structure of joint venture. Is it a partnership or a Company, or simply a JV contract between 2 parties? If it is a company, who sits on board and how are they appointed? What classes of shares are in circulation, and under what conditions? How are minority shareholders protected?
7. Financing. Who supplies capital for venture? Is it split in some way between Joint Venture parties or does it come from an outside source, such as a Bank or venture capital firm? Is investment in cash or goods or services?
8. If a Company structure is to be used, what exit provisions are needed? For example, if one side wanted to sell their shares, what conditions apply? Will other party have first refusal to buy? Can they also demand to be bought out at same time? How is a shareholding to be valued? Will new incoming shareholders have same rights and responsibilities as existing shareholders? Is there a right of veto?
Why You Need A Business EntityWritten by Richard A. Chapo
When starting or expanding a business, many owners wonder if they should form a business entity and, if so, which one they should use. There is a wide variety of information and "pitches" being made on Internet regarding benefits of certain entities versus others. When you cut through flak, however, primary reason for forming a business entity is to create protection from personal liability arising from your business activities.
It is well established that up to eighty percent of businesses will fail in their first two years. Many of these businesses, and probably yours, carry a high level of personal risk for their owners. If you are not using correct entity for your particular business, you are going to be personally liable if business fails. Do you want to expose your home, car and other assets? How about assets owned by your spouse or their paycheck from a regular job? Selecting correct entity for your business prevents such nightmares from occurring. More importantly, you can sleep at night knowing that worst thing that can happen is losing your investment in business, not your home.
There are a number of business structure options that exist in modern corporate world. Following is a short explanation of most common business structures.
Corporations come in two basic forms, a "C" corporation and an "S" corporation. There are a variety of differences, but central one is a tax issue. Briefly put, "C" corporations are taxed on their revenues and you are then taxed separately on any money you take out of corporation. An "S" corporation “passes through” all taxes to shareholders with information being reported on your personal tax returns.
Regardless of tax classification, a corporation is considered an independent entity from a legal standpoint. This independent status acts as a shield between activities of business and your personal assets. As a practical example, Kmart recently filed bankruptcy. The individual shareholders were not required to file bankruptcy and lost nothing more than their investment in stock of company. Forming and using a corporation for your business activities will have same effect, to wit, your personal assets will not be wiped out if business fails.
Limited Liability Company
A limited liability company, or "LLC" as it is better known, was a very popular entity choice in early 1990s. LLCs are similar to corporations, but can be taxed as a partnership. In California, LLC can have either one owner or two. Regardless of number, these owners carry legal title of "member.” The LLC provides a shield for your personal assets just like a corporation.