On the surface, crafting a joint venture agreement with another business may seem quite appealing. You will share the work, the time, the expense…and ultimately, if successful, the reward.

But, as they say: if it seems too good to be true—it probably is. So, what’s the catch?

When it comes to teaming up with another company, businesspeople are often too focused on the potential outcome to consider the most important piece of the puzzle: if the joint venture is successful, how will these separate businesses work together? Problems and complexities are bound to arise when two very different companies are working side by side.

To avoid a disaster, my first piece of advice is to develop a written agreement with your teammates BEFORE pursuing your joint venture—particularly if you’re a small company. This should nail down each partner’s share of the workload and cost of the potential job at hand. Without a signed contract in place, the larger company could swallow your small business whole with empty promises of what work you will receive—and your potential profit.

But more than just dividing up the assignment, your written contract should address additional –and potentially destructive—complications that may come up when dealing with another company. What if one partner lags behind in their assigned tasks? It is imperative to plan for the teammate who doesn’t carry his or her weight. Another concern: how will each company share control? Bigger companies might mask their own agreement as a joint venture, when in actuality it is a subcontract. Signing it means your company must fulfill all the obligations outlined by the other company’s contract, leaving your small business with limited rights to the project. The bigger company, or the prime contractor, will have considerable, if not complete control. 

The moral of the story? When it comes to joint ventures, there will be situations and difficulties that you will have to face. To solve these problems and more, create an agreement that accounts for any and all potential concerns that could arise—and use this as your contract for all of your future joint ventures.

Read my Legal Edge column in this month’s edition of SmartCEO for a checklist of essential issues to address when crafting an effective joint venture agreement. 

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My Legal Edge Column in SmartCEO