Joint ventures

Hi!

I cannot help with a contract, but I’ve had the following software recommended, looking to buy myself at the moment: Jan Somers PIA software (look up http://www.businessmall.com.au) or the REAP software (www.inwiththenew.com).

Hope that helps, sure others will chip in too.

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Mel

petrovski,

You model would obviously depend on alot of variables. I am currently in a partnership for a buy reno and sell, so i will tell you what i am using, not sure if it will be appropriate, but anyway…

I put up the deposit, he is living in the property for cheap rent, he is doing all the labor, and paying for all materials until he has covered the value of the deposit i put up. (That was we could get in straight away, and he could pay over time). We go halves in the mortgage, and will go halves in the profit.

Not sure if i answered your question, hope it helped.

Dan.

If you want an extraordinary life you have to be prepared to do things that ordinary people aren’t prepared to do.

Hey Petrovski,

Unfortunately, this is not something that you can simply get a quick and easy answer on an internet forum.

If you don’t personally have experience with this, and don’t know anyone else who does, I recommend that you go see a business advisor. Many smaller and medium-sized accounting firms usually provide such a service. It’ll cost you money, but isn’t it better to get it right up front, than wing it and lose your source of funding if you hit a hitch?

For starters, here are some of the things you will need to work out:

Vehicle – company, unit trust, unincorporated joint venture/partnership, or a combination.

Entry terms – what share of the project does each party get? For example – what share do YOU get? If you’re not putting in money, but only your time and effort, how is that quantified? ie do you get any equity at all, or merely a right to share in the profits? eg one way is for you to charge the venture a consultancy fee, rather than sharing in the profits.

Return on capital – Are you entitled to any return on capital, or merely a share of the profits? What happens if there are no profits? Do you still get anything for all the work you’ve put in?

Further contributions – Will these be debt or equity? If debt, what level of security will they get? If equity, on what basis? eg how much dilution of existing shareholders will occur?

Expenses – Will you be reimbursed for all your expenses?

Bank financing – is there a maximum gearing limit?

Control – who runs the operation? Sure, major decisions can be by consensus, but most day
to day decisions will stall if you need to get approval for every single thing.

Exit strategy – will each property be the subject of a separate venture, or will the venture be an ongoing one? What happens if things stuff-up and you’ll make a loss if you sell? Must the parties simply sell and cop the loss?

Dispute resolution – what kind of procedure needs to be followed when a dispute arises? Arbitration, mediation or expert/referee determination? Do the parties have the right to buy the other out (presumably at market valuation) if there is a deadlock that cannot be resolved?

Pre-emptive rights – Can either party sell their share in the venture to someone else? If yes, must they first offer their share to the other party? There are other variations, such as tag-along rights, drag-along rights and first rights of refusal.

You also need to think of the risk profile of your interest. For example, secured debt (ie bank debt) always gets repaid first, then unsecured (eg architects, contractors, suppliers, consultants, etc), and finally equity. Where do you sit in that range?

I think you’ll get the picture – it sounds easy until you actually sit down and try to cover the bases. It’s a bit of work, but it’s worthwhile getting some help.

Cheers
M