Small Business Today Magazine SEP 2014 ELP ENTERPRISES | Page 42

EDITORIALFEATURE

Entrepreneurs Tool Box-

Beware of Legal Exposure with Joint Ventures
By Alvin E. Terry, MBA/Business Consultant  

T

wo business owners with a synergistic business relationship realize that if
they combine resources and skill sets
they could be able to capture a share
of two markets and add value to other
businesses and consumers as well.  “What
a great idea,” they thought amongst themselves.  “Let’s form a joint venture, fulfill a
niche in the marketplace, and attack.”They
believe that they can reap the benefits of
an untapped revenue source, add value,
and create a win-win situation for all.

Scenario:

•    One company has the expertise in
technology to reach all kinds of businesses by engaging not just through
social media but engaging in all available media avenues and already established business platforms.
•   The other company has seasoned management expertise with many years in
banking, finance, and consulting.  The
company was engaged in teaching
small businesses how to succeed and
avoid failure.

On the surface, it seems to be a perfect
match but in order to move forward they
mutually agreed to form a joint venture and
become a legal entity.  The ground rules
were drafted with clearly defined areas of
responsibility.  One company will serve as
the management and financial side of the
venture and the other company will serve
as the operations and technical side of the
daily operations.

One side brings a sales team of independent contractors ready to sell their combined products and services.  Suppliers have
been identified and service agreements are
in place.  A product catalog is printed and
the combined website has been updated

with great graphics, music in the background,
multiple purchase options, and a shopping
cart.  Delivery systems of the products and
services have been set up and they are ready
to start the marketing phase of the business.

This takes from 60-90 days to set up and
implement.  A new office location has been
found in a “Class A” office building and a one
year lease has been entered into with multiple renewal options. The new office buildout takes 3 weeks.

Anticipation of growing a successful business is the primary focus at this time.  A
business plan is written which will serve as
a road map for all to follow.  At this point
a lot of man hours, intellectual capital, and
finances have been invested. Those are investments that cannot be recouped.

All is well, so that it seems.  One of the
joint venture partners suddenly experiences a family emergency with a life-threatening outcome.  That partner decides that the
emergency should take priority and decides
to go out-of-state to focus on and give support to that situation.  The remaining partner understands and decides to have patience before launching the marketing and
sales campaign.  The key component is the
sales team which needs hands-on training
and guidance on a daily basis.  This is the responsibility of the now out-of-state partner
who assembled the sales team.  That partner seems to think that the sales team can
be successful through morning sales meetings which will include directions and email
instructions that will include inspiration and
motivation.  The other partner does not
know the sales team members and cannot
get any feedback from any of them in the
form of weekly meetings.   

40 SMALL BUSINESS TODAY MAGAZINE [ SEPTEMBER 2014 ]

This does not work for the sales team
because that partner is not physically present.  Enthusiasm dissipates, communication
feedback from the sales team evaporates,
and the sales team vanishes.  The away
partner decides to permanently move outof-state and disconnects all forms of communication. The remaining partner is stuck
with the lease and all of the outstanding bills
because of personal guarantees.

“Lessons Learned”

•      Have “K ^HX[