Learn the steps and risks involved in collaborating
Working with other business owners can be exciting and fulfilling and can lead to big rewards. It can also be overwhelming, especially if it’s your first time.
I’m here for the first timers. I’ve got you. Keep reading (and keep this blog post handy! I mean it, bookmark it now!) to learn what a joint venture is and how to do one safely, properly, and profitably.
What Is a Joint Venture?
A joint venture, in the informal sense of the term, is any project that two (or more, but usually two) entities agree to come together to work on. The entities, which can be entrepreneurs, solopreneurs, small business owners, companies, or corporations, agree on starting a new business activity, like an event, workshop, bundle, course, etc.
Warning: be careful not to confuse the informal joint venture (which is basically just a collab) with the formal, legal type of joint venture, which is where two entities come together to form a new entity. An informal joint venture runs the risk of becoming a more formal joint venture if the working relationship is not ironed out and explicitly stated, and that can have legal and tax implications—more on that a little later.
What’s the Point of a Joint Venture?
Businesses may decide to engage in a joint venture to:
- Gain exposure: collaborating together can open up new audiences/customers that each party might not have had access to otherwise.
- Combine skills and expertise: taking advantage of each other’s talents can enrich the content of the project.
- Establish themselves as an authority in a given area: if one business has more clout or authority, their endorsement of the joining business’s skill/expertise can help them gain trust among consumers.
1. Figure out what kind of working/legal relationship will exist between you and the other business.
Like I mentioned earlier, there’s a difference between an informal joint venture (just a collaboration between you and another business to do a project) and a formal, legal joint venture, where a new, separate entity is created.
If a formal joint venture is created, you’re going to have to figure out what kind of entity it’ll be: corporation, partnership, or LLC (limited liability company). You’ll also have to think about all of the tax implications of forming such an entity. These entities can be taxed a variety of different ways (for example, like an S-Corp or a C-Corp, more on that in this blog post), and if you classify your business relationship incorrectly, it can mean huge tax troubles down the road.
See the IRS website for more information.
2. Get everything in writing.
Once you’ve clarified what kind of relationship you want to have with the other person/business, get a contract in place. Do not wait. Do it now.
Include something in your contract like, “we are not creating a joint venture/partnership, we are separate entities, we are only collaborating on this project” to make sure your butt is covered. Forgetting this crucial step can cause you massive headaches in the future, both legally and financially.
All of the checklist items below are considerations that should be included in your contract.
3. Consider intellectual property ownership.
Intellectual property is any work that is the result of creativity that one owns in the form of copyright, trademark, or patent.
A trademark is something that identifies and distinguishes your brand from someone else’s, like a symbol, design, word, or phrase (for example, a logo). Copyright is a form of protection that “protects original works of authorship including literary, dramatic, musical, and artistic works, such as poetry, novels, movies, songs, computer software, and architecture”. In other words, a trademark protects your brand, and copyright protects your work. Patent protects ideas (like inventions). See this blog post for more information.
When you engage in a joint venture, it is essential that you think about intellectual property ownership. Who will own the project once it’s finished? If you complete a presentation together, do you have the right to tell the other person they can’t use your content anymore? Are there any limits on how each person can sell or promote the project?
These are all questions that need answers—and they must be in writing. In your contract, you could write that you are both co-owners of the final content and then just work out together what kind of limitations you put on those rights. There are no right or wrong answers to the above questions. Whatever you choose to do, put it in your contract!
4. Iron out compensation.
Figure out how each party will be paid and how much. This could be in the form of
- a one-time fee
- royalty or percentage compensation
- affiliate commission
- no compensation
If the joint venture will not be paid, ensure that in your contract you include what the non-monetary benefit is for each person (for example, gaining publicity/exposure). Write, in detail, how compensation will be handled in your contract.
5. Taxes, taxes, taxes!
Put in your contract that each party is responsible for their own taxes related to their individual incomes from the collaboration.
If you don’t address your relationship first (see the first checklist item!), your joint income could qualify as partnership income and end up being taxed differently.
6. Nail down your individual responsibilities.
What will each person be responsible for in your joint venture? What does each person need to bring to the table for your collaboration to be effective? For example, if you are creating a joint presentation, responsibilities could include:
- Contribute [number] of topics to the presentation
- Show up ready to present
- Provide a short bio to include in the presentation
- Outline promotional responsibilities
These are just a few short examples. Feel free to add as many as you need and be as detailed as possible.
7. Create a license to use promotional materials.
If you have decided to let each other use excerpts from the project as promotional materials (advertising or marketing), put this in your contract in the form of a “license to use promotional materials”. State explicitly what each person can and cannot do with any promotional materials created.
There may be other things you wish to include in your contract, such as terms regarding what happens if the other party does not fulfill their individual responsibilities or what should happen if someone violates the terms of the contract.
Artful Contracts makes it extremely easy to get a contract in place that makes sure you’re protected legally. Check out the many contract templates available.
The best reason to follow this checklist is to protect your money and keep more of it in your pocket. For other ways to protect your money and business, watch the free masterclass: How to Legally Protect & Grow Your Online Business So You Can Keep More of the Money You Make.
For other ways to protect your money and business, watch the free masterclass: How to Legally Protect & Grow Your Online Business So You Can Keep More of the Money You Make