How to Marry in Business

Elena Volkova, Esq. on November 17, 2015

In our previous article, we discussed the definition of the joint venture and how it can be created by using a contract. As an example, I used American Express Small Business joint marketing campaign.

In today’s article, I want to discuss how to form a joint venture by forming a separate company with another business.

Why would someone want to create a special-purpose company with another business?

Simple answer: Leverage.

Let me illustrate with a fictional story.

Let’s say you are a business coach, and you have an established private practice, coaching business owners on how to set and achieve goals to grow their businesses. The practice may be incorporated as an LLC (always a good idea, by the way). It may even have employees. And of course, LLC owns all the client contracts and intellectual property that you created in the course of building the practice.

Then, one day, you meet a scientist who is conducting research and experiment in the area of science that is of particular interest to your clients: organizational psychology. You read the scientist’s research, and you realize that you will be the perfect person to “translate” the scientific findings into practical tools for your clients.

In fact, you are thinking of creating a certifiable, completely unique method of training that will put you ahead of the competition forever.

You discuss your idea with the scientist, and he is perfectly happy to partner up with you to basically “monetize” his scientific research. You run this by the university’s legal department, to make sure you can get legal rights in the intellectual property that the scientist created. You get the green light, and you are almost ready to make money.

Except … you also pick up the phone and call your lawyer friend. “Hey, listen, can I bend your ear for a few minutes? I have this great idea, and a great team that I am working with. We are about to make a ton of money using this program. I just wanted to make sure we are legally protected.”

And the lawyer friend is sooooo happy to give advice!

They get into a long conversation on:

  • who owns the program
  • who will be contributing money to do marketing and website
  • how will the profits be divided and
  • who will have the voting control over major decisions…

Before you know it, it becomes clear, that the new program must be a separate company, to protect the business coach’s private company and bank accounts from any liabilities that the new company may create.

Because the new company is a totally different new animal, with its own risks and business needs, it really must have its own separate bank account and a different team of employees and clients and contracts.

And this is why this joint venture, which started out as a great idea between these two people, coming with separate skills and talents and resources, needs to be a separate company.

If you are going into a business with another person, you are starting a joint venture. Talk to a lawyer to decide how to protect yourself from any disagreements or liabilities in the future.

This material may be viewed as attorney advertising and does not constitute legal advice. This information does not create an attorney-client relationship between you and the author. This article strictly represents the personal views of the author on the date it was written and such views are subject to change without notice.

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