Two companies partner on a joint venture. They're both invested. They both have ideas about strategy. And they disagree. What happens then? If your JV agreement doesn't specify how decisions are made, you're headed for conflict. A robust governance structure prevents arguments and protects your interests.
Why governance matters in joint ventures
In a normal company, the board makes decisions. In a JV with two partners, both have a stake and both want a say. But what if they fundamentally disagree? Who gets their way?
Without clear governance rules, you end up in stalemate. The JV can't act. Growth stalls. Or worse, one partner steamrolls the other and the relationship breaks down.
A well-drafted governance structure says: "Here's how we make routine decisions, here's how we make big decisions, here's what happens if we can't agree, and here's how we resolve disputes."
Types of decisions
Most JV agreements split decisions into three categories:
Routine decisions: Day-to-day operational decisions. The management team or CEO can make these without partner approval. Examples: hiring staff, marketing campaigns, customer contracts within budget.
Major decisions: Strategic or material decisions. Both partners must approve. Examples: selling the JV, issuing new shares, entering a major contract, changing the business strategy, borrowing significant money.
Reserved matters: Decisions requiring unanimous approval. Examples: changing the JV's constitution, reducing capital, dissolving the JV, related-party transactions.
Be clear which category each decision falls into. Ambiguity leads to disputes.
Board structure and voting
How is the JV governed? Common structures:
Equal board: Each partner appoints one director. Decisions require majority vote (both directors). This means neither partner can act unilaterally—decisions need agreement.
Weighted board: If one partner has invested more, they might appoint two directors; the other appoints one. Votes are weighted accordingly.
Independent chair: Both partners appoint directors, plus an independent chair with a casting vote. If directors deadlock, the chair breaks the tie.
CEO with board oversight: The JV has a CEO (maybe appointed by one partner) who makes routine decisions. The board (with partners represented) approves major decisions. Balances operational speed with partner control.
Pick a structure that fits your relationship. If you trust your partner and want to move fast, an equal board is simple. If you need more control, weighted voting or an independent chair works better.
Deadlock resolution: what happens when you can't agree?
Sooner or later, partners will disagree. Your agreement must say what happens. Options:
Casting vote: An independent director or chair has a casting vote that breaks deadlock. Fair if the person is genuinely independent.
Escalation to senior management: If the board deadlocks, escalate to the CEOs of both parent companies. They have 10 days to decide. If they still can't agree, use the next mechanism (mediation, arbitration, etc.).
Mediation: Before litigation, both parties must try mediation with a neutral mediator. Often, a structured discussion with a neutral third party resolves disputes.
Arbitration: A private arbitrator (or panel) hears the dispute and decides. Faster than court, confidential, binding.
Buy-sell provisions: If partners fundamentally disagree, one partner can trigger a "buy-sell." One partner proposes a price; the other can buy at that price or sell at that price. This forces a decision and ensures fairness (the proposer doesn't know which side of the deal they'll be on).
Don't leave deadlock unaddressed. It will paralyze the JV.
Funding and capital calls
If the JV needs more money, how is that decided? Common approach:
"Either partner can request additional capital. Both partners must approve the amount and use of funds. If both don't approve, the JV can't borrow. Instead, the requesting partner can increase their contribution (and own a larger stake) or the other partner can opt out and their stake is diluted."
This avoids deadlock while protecting both parties. If one partner wants to invest more, they can. If the other doesn't, that's fine—they just own a smaller piece.
Restriction of partners' activities
Can partners do competing business? Can they work with the JV's competitors? Your agreement should address this:
"Each partner shall not, during the term of the JV and for [2] years after, engage in any business competing with the JV without the other partner's consent. Each partner shall ensure that employees and related entities don't either."
This is especially important if partners are competitors who created a JV to collaborate on one product or market. You don't want one partner secretly competing with the JV while hiding behind their stake in it.
Information and financial reporting
Partners need to know what's happening in the JV. Your agreement should mandate:
"The JV shall provide each partner with monthly financial statements, quarterly business reports, and annual audited accounts. Each partner has the right to inspect the JV's books and records."
Transparency prevents disputes. If a partner is surprised by financial performance or strategic direction, they lose trust.
Exit and buy-sell provisions
What if a partner wants to leave? Can they sell their stake? To whom? At what price? Address this upfront:
"If a partner wishes to exit, they must first offer their stake to the other partner at fair market value. The other partner has 30 days to accept. If they decline, the exiting partner can sell to a third party, subject to the other partner's right to approve the buyer (not to be unreasonably withheld)."
This gives the remaining partner a chance to buy out the exit partner or approve who enters the JV. Prevents unwanted partners from joining.
Key person and management continuity
If the JV relies on a specific person (the CEO, the key technologist), what happens if they leave? Address this:
"If [Key Person] ceases to be employed, the other partner has the right to terminate the JV upon [notice period], or the terminating partner can buy out the other at [valuation method]."
This protects you if the JV was dependent on someone from the other partner and that person leaves.
Next steps
If you're forming a JV, clarity on governance is essential. Agree on: decision-making authority, board structure, how deadlocks are resolved, partner restrictions, and exit provisions. Get these in writing before you start operating.
If you have an existing JV agreement, review it for governance clarity. If it's vague, amend it while you and your partner still get along. Have your agreement reviewed to ensure robust governance. Upload it to QuickLegalCheck for a detailed governance assessment.