Joint ventures remain one of the most widely used ways for UK businesses to expand without taking on the full financial and operational burden of an acquisition or merger. They allow companies to share risk, access new markets, and combine complementary skills. For many, a joint venture agreement provides the flexibility of collaboration without giving up complete independence. When carefully structured, it can be an effective tool for growth.
Why joint ventures often fail
Despite their appeal, joint ventures are fragile by nature. Multi-company research and individual real-world examples show that many collapse within a few years. Common causes include differences in culture, unclear goals, and weak governance frameworks. When partners approach the project with divergent strategies, trust can erode quickly. A joint venture agreement that does not address how to resolve these tensions leaves both sides exposed.
One recurring problem is decision-making deadlock. Without clear governance rules, everyday choices become battles. Disputes may escalate into joint venture disputes, consuming management time and damaging commercial performance. In industries where timing is critical, such delays can cost market opportunities.
The hidden power of minority stakeholders
Reserved matters often give minority shareholders significant influence. Although these clauses are designed to protect smaller investors, they can unintentionally hand veto power to parties holding small percentages of shares. This influence can extend beyond major corporate changes to operational issues, making it difficult for the majority to move forward.
The result is that minority partners can stall projects or block strategic moves, sometimes using this leverage to renegotiate terms. Businesses should think carefully about which matters genuinely need unanimous approval and which can be resolved by majority vote. A well-advised approach is to strike a balance: protect minority rights without paralysing the venture.
How governance and exit clauses can help
Robust governance frameworks are the foundation of successful joint ventures. A detailed joint venture agreement should outline voting rights, board structures, and mechanisms for dispute resolution. Including escalation procedures, such as independent mediation or arbitration, helps partners manage disagreements constructively before they spiral into litigation.
Exit planning is equally vital. Many businesses enter joint ventures with optimism but little thought about how to leave. Life changes: markets evolve, strategies diverge, or one partner may be sold. Exit clauses – ranging from pre-agreed buyout formulas to put and call options – ensure that if the relationship ends, it does so in an orderly manner. Though it may seem pessimistic at the outset, clear exit provisions can ultimately protect value and preserve reputations. Consider them corporate prenuptial agreements.
Lessons for businesses
Well-known joint venture disputes underline that failure often comes from structure rather than strategy. These disputes demonstrate that the rules of the partnership are just as important as the commercial opportunity itself. Businesses that plan ahead, document expectations, and agree on processes stand a far better chance of long-term success.
Contrary to the assumption that acquisitions are safer, joint ventures often distribute risks more evenly. When supported by clear governance and exit planning, they can be more adaptable and resilient than outright purchases. The key is recognising that conflicts are likely and embedding solutions in the agreement from the start.
Lawyers help businesses identify potential friction points, draft fair governance structures, and ensure legal protections align with commercial goals. With careful planning, legal guidance, and lessons learned from past failures, joint ventures can deliver lasting benefits rather than costly disputes.
Joint ventures can unlock opportunities that would be difficult for businesses to pursue alone. Yet without careful drafting, the very features that make them attractive – shared control and flexibility – can also lead to breakdowns. By learning from high-profile failures and investing in governance and exit strategies, businesses can turn potential risks into successful partnerships.
If you have questions or concerns about joint ventures, please contact Jaan Larner.