Drafting a joint venture agreement: what belongs in it

Drafting a joint venture agreement involves first choosing the legal form and then specifying, section by section, who contributes what, who makes decisions, how profits are distributed, and how you will separate. The order is important: the choice of form determines which other documents you will need and how liability is structured.

The short answer

1. Choose the form: contractual (cooperation agreement or general partnership) or a joint limited liability company.
2. Record the contribution: capital, knowledge, customers, personnel, and resources per party.
3. Regulate the governance: decision-making, reinforced decisions, and a deadlock mechanism.
4. Determine profit distribution and financing: dividend policy and capital contribution obligations.
5. Draft an exit arrangement: obligation to offer, options, valuation, and non-compete clause.

Drafting a joint venture agreement begins with the choice of form

Before you start drafting a joint venture agreement, determine the structure. If you are collaborating without a separate legal entity, you record everything in a partnership agreement. If you present yourselves jointly and share profits, a General Partnership (VOF) is quickly established, with joint and several liability of the partners (Article 18 of the Commercial Code). If you opt for a joint Private Limited Company (BV), you incorporate it with a notary (Article 2:175 of the Dutch Civil Code) and each holds shares, with limited liability in principle.

With a joint BV, you receive two documents that must align: the Articles of Association and the Shareholders' Agreement. The Articles of Association contain the formal structure and the blocking provision (Art. 2:195 BW). The Shareholders' Agreement contains the mutual agreements and is not subject to any formal requirements (Art. 6:213 BW). Ensure that the two do not contradict each other.

Contribution and ownership structure

Specify for each party what is being contributed and the value assigned to it. Contributions can consist of money, but also a customer base, intellectual property, machinery, or labor. The proportion of the contributions often determines the share distribution and, consequently, control. Be specific here: a vague description such as “both parties contribute knowledge” will later lead to disputes regarding each party’s contribution.

Also regulate what happens if additional capital is needed. A contribution obligation or an agreement on additional financing prevents one of the parties from suddenly having to make an additional contribution in the face of headwinds without this having been agreed.

Governance, decision-making and deadlock

The heart of the agreement is decision-making. Determine who is a director, which decisions the board may take independently, and which decisions require the consent of both parties. These reserved matters usually concern major investments, loans, hiring or dismissing key personnel, and changes to the strategy.

In a fifty-fifty division, an impasse looms because neither party has the deciding factor. Therefore, include a deadlock clause. Common solutions are escalation to the ultimate owners, mediation by an independent third party, or a buy-sell mechanism whereby one party can buy out the other. Without this arrangement, a persistent dispute can often only be resolved through the courts, which is slow and expensive.

Profit distribution and financing

Specify how profits are distributed and whether a minimum dividend policy applies. Parties sometimes have differing wishes: one wants to distribute as much as possible, while the other wants to reinvest. Make this explicit. Also regulate how losses are borne and whether a current account relationship arises. A clear agreement regarding cash flows prevents the collaboration from becoming financially unbalanced.

Exit, termination and competition

The exit arrangement determines how the parties separate. Include an obligation to make an offer upon departure, put and call options, and tag-along and drag-along provisions in case a party wishes to sell to a third party. Establish a valuation method for the shares so that the price upon exit is not open to dispute. Add a non-compete and non-solicitation clause so that a departing party does not immediately start a competing venture using acquired knowledge. If the process reaches a complete deadlock and no arrangement remains, the statutory dispute resolution procedure (Articles 2:336-2:343 of the Dutch Civil Code) remains—a burdensome process that you specifically want to avoid.

Practical example

Two installation companies wanted to set up a joint service division for heat pumps. They established a joint limited liability company (BV), holding 60 and 40 percent in proportion to their contributions. In the shareholders' agreement, they stipulated that investments exceeding 50,000 euros required the consent of both parties, that profits after deduction of a growth reserve would be distributed, and that in the event of a persistent dispute, one party could buy out the other for the average annual profit multiplied by a fixed factor. Because the valuation was fixed in advance, the subsequent buyout of the smaller party proceeded without discussion regarding the price.

Honest recommendation

For a simple, short-term collaboration with low risk and two parties who trust each other, you can easily draft a basic agreement covering contributions, distribution, and termination yourself and do not immediately need a lawyer. However, when things become more serious, involving a joint BV, employees, or external financing, customization pays off. The choice of legal form, reserved matters, the deadlock clause, and the valuation at exit are the areas where things go wrong afterwards if they are incorrect. Therefore, have these points drafted carefully and ensure that the articles of association and the shareholders' agreement align.

Want to know more? View the joint venture agreement, read what a joint venture agreement is and what it costs to have a joint venture agreement drafted .

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