For business owners and legal professionals, negotiating commercial partnerships and joint ventures is more than a procedural task—it’s a strategic move that can define the trajectory of a venture. Establishing a clear understanding of the nature of the relationship is essential in aligning expectations and responsibilities from the onset. By accurately defining whether the collaboration constitutes a partnership, joint venture, or another structure, stakeholders can ensure compliance with relevant legal frameworks and safeguard their interests. This foundational step not only minimizes risks but also sets the stage for a mutually beneficial and thriving collaboration.
Commercial transactions are part of our day-to-day life activities. Joint venture involves companies or individuals coming together to share resources, risks, profits, and expertise to achieve a common goal. The arrangement is often temporary, and once the task or project is completed, the JV may dissolve, or the parties involved may decide to continue collaborating in some other way[1]. One of the other ways parties and companies can collaborate is by forming a Partnership. Partnership is the coming together of two or more individuals and companies to achieve a common goal for the purpose of making profit[2]. Partnership is governed by the Companies and Allied Matters Act 2020 (as amended) and the Partnership Law of each State of the Federation.
Negotiating commercial partnerships and joint ventures (JVs) is a key process for businesses seeking to expand their operations, share resources, or tap into new markets[3]. It is important to note that legal considerations play significant role in ensuring that the relationship is well structured to meet the goals of the parties involved and protect their interests.
Here are legal essentials you should consider when negotiating commercial partnerships and joint ventures:
- Define the nature of the Relationship
It is highly important to clearly define and clarify whether the arrangement is a partnership, joint venture, or another form of collaboration as this will affect the legal structure and obligations of the parties.
- Objective and Scope
There is a need to expressly specify the purpose, goals, and scope of the partnership or JV as a clear definition of parties’ objectives will help prevent any form of misunderstanding.
- Choose the Right Legal Structure
After defining the nature of relationship between parties, it is essential that parties choose the right legal structure to represent the intention of the parties. Choosing the right legal structure aids in defining the legal obligations and responsibilities of the parties in such agreement[4].
For instance;
- Partnership: Typically a partnership arrangement involves sharing profits, losses, and management responsibilities. Each partner is personally liable for the partnership’s debts unless the structure is a limited partnership or limited liability partnership (LLP).[5]
- Joint Venture (JV): A JV can be a separate legal entity or a contractual arrangement between two or more businesses. A JV can be either equity-based (where parties contribute capital) or contractual (based on specific agreements without forming a separate entity).[6]
- Limited Liability Companies (LLC): An LLC provides flexibility in terms of management while protecting the members from personal liability.[7]
- Ownership Interests and Capital Contributions
Parties must ensure to clearly state the interests, gains and contributions of all parties[8]. This is necessary to protect the interest of parties. Stating the capital contributions clearly outline each party’s financial contribution which could either be in cash, assets, intellectual property, or other resources.[9]
- Equity Ownership
It is essential that parties spell out in their agreement the percentage of ownership each party will hold, as this will determine their share of profits, losses, and voting rights.
- Governance and Management
Parties should jointly agree and also ensure to put in writing how decisions will be made. This includes voting rights, type of decision-making processes (unanimous or majority), and the involvement of key management[10]. Under governance, the parties should also decide whether a board will be created, who will sit on it, and the rights of the parties in choosing directors or managers.
- Day-to-Day Management of the Business or Venture
It is important that parties consider and decide the roles and responsibilities of each partner or joint venture partner in the management and operations.
- Profit Sharing and Financial Arrangements
Parties should establish how profits and losses will be allocated, based on ownership percentages or other agreed-upon criteria. Parties should also consider the tax treatment of the partnership or JV. Joint ventures may have different tax responsibilities compared to other structures, such as corporations or LLCs.[11]
- Intellectual Property Rights
Another major thing that needs to be addressed and well negotiated is how intellectual property will be handled—whether existing IP will be contributed by the parties, who will own any new IP generated, and how licensing or usage rights will be allocated. Parties should ensure that there are provisions to protect each party’s IP rights during the course of the venture. This can include confidentiality clauses, non-compete clauses, and restrictions on the use of proprietary information.
- Duration and Termination Clauses
- Duration of the Agreement: Specify whether the partnership or joint venture is for a fixed term or ongoing. If there is a set duration, include provisions for renewal.
- Exit Mechanism: Clearly outline exit strategies for each party, including buyout clauses, mechanisms for selling interests, or conditions under which the venture can be dissolved.
- Termination Clauses: Define the circumstances under which the partnership or JV can be terminated, such as breach of contract, insolvency, or failure to meet specific milestones or targets[12].
- Governing Law
An important area to cover while negotiating a partnership agreement is the law that will govern the relationship between parties. This will help the parties to ensure compliance with all the laws of such territory.
- Compliance with Laws and Regulations
Parties must ensure that the partnership or JV complies with local, national, and international laws, including competition laws, antitrust regulations, and any industry-specific rules. It should be researched whether any specific licenses, permits, or governmental approvals are needed for the JV or partnership to operate legally. Where such licenses and permits are required, the parties should ensure that provision on how to obtain the license is stated in their agreement.
- Dispute Resolution
It is not unusual for disputes to breakout when parties enter into an agreement, there is a need for parties to make provision for a dispute clause. Parties can decide to either adopt a court dispute resolution or an out of court settlement. It is advisable that parties first consider alternative dispute resolutions like Mediation and Arbitration before embarking on litigation. Parties can decide to choose a jurisdiction and venue for resolving disputes, especially if the parties are in different countries or regions.
- Confidentiality and Non-Compete
The inclusion of an element of Confidentiality protects sensitive business information. This could be done either by drafting a separate non-disclosure agreement (NDAs) or by including a confidentiality clause in the JV or Partnership Agreement. This ensures that proprietary information shared during the partnership/JV is kept secure. On the other hand, Non-Compete clauses may be needed to prevent one party from directly competing with the other in the same market.
- Indemnity and Liability
Address the allocation of risks and liabilities between the parties, especially in case of third-party claims or breaches of agreement. This may include indemnification provisions where one party agrees to compensate the other for certain losses.
- Insurance: Consider whether any insurance policies (e.g., general liability, business interruption) are needed to cover risks that arise from the partnership or JV.
- Regular Review and Flexibility
It is also essential for parties to include provisions for regular reviews of the agreement to ensure it continues to align with the evolving business objectives. Business conditions can change; hence parties need to include mechanisms for renegotiating or amending the agreement if necessary.
Conclusion
Successfully negotiating commercial partnerships and joint ventures requires careful consideration of both business and legal factors. By addressing key issues such as ownership, management, profit-sharing, intellectual property, process of termination, and dispute resolution upfront, the parties can minimize the risk of future conflict and ensure a mutually beneficial relationship. Working with legal and financial advisors is highly recommended to ensure that all terms are properly drafted and enforceable under the applicable laws.
[1] Marshall Agrave, Joint Venture (JV): What Is It, and Why Do Companies Form One
[2] Section 1(1) of the Partnership Law of Lagos State Cap P1 2015
[3] How to Negotiate International Joint Venture
Accessed at How to Negotiate International Joint Venture Agreements | Kabbiz
[4] Understanding Legal Principles for Agreements and Obligations
Contract Law: Understanding Agreements And Obligations – Lexinter
[5] Aviel Abante Law Practice, ‘Legal Consideration for forming joint ventures and partnership in Nigeria’ retrieved from Legal Considerations for Forming Joint Ventures and Partnerships in Nigeria
[6] M.T Wroblewski, ‘ What is a Joint Venture Agreement Between Two Companies? Chron (15th
November 2019) Retrieved from
<https://smallbusiness.chron.com/joint-venture-agreement-between-two-companies-23727.html March 27, 2020
[7] The Weaver Law Firm, Joint Venture vs Limited Liability Company. April 19, 2021. Retrieved from https://www.weaverlawyers.com/blog/2021/04/joint-venture-vs-limited-liability-company/ March 27, 2024
[8] Stan Silverman, ‘Follow this Advice When Negotiating a Joint Venture Agreement’ The Business Journal
(18th September 2018) Retrieved https://www.bizjournals.com/bizjournals/how-to/growth-strategies/2018/09/follow-this-advice-when-negotiating-a-joint.html March 27, 2025
[9] PWC Viewpoint, ‘Investments in Partnerships, joint ventures and LLCs’. 30 June 2023. Retrieved from https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/equity_method_of_accounting/Equity_method_account/chapter1/13_investments.html March 27, 2025.
[10] Aviel Abante Law Practice, ‘Legal Consideration for forming joint ventures and partnership in Nigeria’ retrieved from Legal Considerations for Forming Joint Ventures and Partnerships in Nigeria
[11] Olubunmi and Adewale, Balogun Harold.
[12] Key Clauses in Joint Venture
Key Clauses in Joint Venture Agreements – Attorney Aaron Hall