The due diligence phase of any proposed joint venture offers an invaluable opportunity to ‘look under the hood’ of the other business and to determine if there are any risks or nasty surprises before proceeding with drawing up the necessary paperwork to formalise the arrangement.
The process of carrying out due diligence for a proposed joint venture is similar to that carried out for a business acquisition.
While it is preferable to complete the due diligence phase before entering into a joint venture agreement, this is not always possible.
In this case, the final sign-off of the joint venture should be made contingent on the satisfactory completion of key parts of the due diligence process.
What should be covered during the due diligence phase for a proposed joint venture?
There is no one set scope for the due diligence of a joint venture as this will depend on the existing relationships between the parties and whether there will be a transfer of business and assets.
The following are areas that may need to be included in the due diligence process:
- The rights of the parties to enter into a joint venture
- Does the transferring party have good title to the assets being transferred?
- Are there any unstated or understated liabilities?
- What is the value of the business and assets being transferred?
- Are any third-party consents required for the transfer of the benefit of any contracts into the venture?
- IT due diligence
- Does the technology work as intended?
- Does the party granting the use of specific technology have the right to do so?
- Are there any restrictions on the use of the technology - i.e. licensing and Intellectual Property rights?
- Do the staff have the necessary skills to operate the technology?
- Warranties
- Who is giving the warranties? This may include gathering information about the status and assets of the parties to the joint venture to ensure that they have the financial standing to meet any warranty obligations in the future.
- Who owns the Intellectual Property?
- Who will benefit from the warranties?
- What will happen in the event a warranty is breached?
This list of areas to be covered during a due diligence process is by no means exhaustive. A commercial law Solicitor can advise you on all areas which require consideration based on the type and nature of the proposed joint venture.
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Joint venture arrangements can easily go wrong if there is a mismatch of expectations as to the allocation of responsibilities, risks and rewards.
Therefore, it's worth taking the trouble to work through these issues before you start and write them down in an agreed document. Our expert lawyers and solicitors can help your business to craft an agreement document that meets your needs. You can download our legal document templates as part of your free trial or book a no-commitment call with our lawyers today to get started.
