Neither Yours Nor Mine: A Governance Health Check for UK Joint Ventures
Most joint ventures begin in optimism and are documented in haste. A heads of terms is signed, a company or LLP is incorporated, two sets of lawyers negotiate an agreement that both sides promise to read properly later, and the venture is launched. For a year or two the personal relationship between the two chief executives carries it. Then one of them retires, a finance director changes the reporting lines, the market moves, and the arrangement is discovered to be thinner than everyone assumed.
This is not a story about bad faith. It is a story about governance designed for the mood of the signing rather than the reality of the trading years. The health of a joint venture is settled long before any dispute arises — in the clauses nobody read twice, and in the assumptions nobody wrote down.
The asymmetry that emerges quietly
Ventures rarely fail because the partners stop wanting the same outcome. They fail because the partners stop contributing the same things. One side's contribution was a customer list that has since been reorganised; the other's was a piece of technology that has been rewritten twice. One partner seconded three strong people in year one and has since sent whoever was available. Nobody has revisited the bargain because nobody wants to appear transactional.
A governance review starts by naming the contributions as they now stand, not as they were described at inception. What does each party actually put in today — capital, people, premises, intellectual property, distribution, regulatory permission? Is that still proportionate to what each takes out? The answer is often uncomfortable, which is precisely why it is worth having in writing before it becomes an argument.
Decision rights: the matrix that does the work
Ask five people on a joint-venture board which decisions require both partners to agree and you will usually get four answers. That ambiguity is the single most common defect in mid-market ventures, and it is cheap to fix.
The remedy is a reserved matters schedule that is specific enough to be usable. Not "material contracts" but a defined threshold. Not "significant capital expenditure" but a figure, indexed so it does not quietly erode. Below the reserved list, management should be able to act without convening a summit of shareholders; above it, unanimity or a defined majority should apply. Anything in between needs a delegation that names a role, not a person.
Two tests are worth applying to the existing schedule. First, could a new finance director apply it to a real decision without asking anyone? Second, does it leave any decision unowned — genuinely outside every category, falling between the board and the operating team? Unowned decisions are where ventures lose months.
The deadlock ladder
Every joint venture should contain an agreed sequence for what happens when the partners cannot agree, written while both sides still like each other. A ladder typically runs from escalation to chief executives, through a period of structured negotiation or mediation, to a defined termination or buy-sell mechanism. The specifics matter less than the existence of an ordered path — and the fact that it is time-bound.
English law does not imply a general duty of good faith into commercial contracts, so partners cannot rely on a court to supply the fairness they omitted to draft. If the agreement leans on language about acting in good faith, treat it as an aspiration rather than a mechanism, and put a mechanism alongside it.
Who speaks for the venture
In the outside world — to customers, lenders, regulators, the press — a joint venture must have one voice. In practice, two parents frequently brief the venture's own staff differently, and customers learn within a quarter which partner to call when they want a decision.
A review should confirm the authority of the venture's own leadership: what the chief executive of the venture may sign, say and commit without clearing it with either parent. It should also address the small frictions — who chairs the board, who approves the annual plan, who signs off the appointment of the venture's auditor — and set a cadence for shareholder meetings so that contact is routine rather than crisis-driven.
Money: allocation, transfer pricing and the invisible subsidy
Cost allocation is where goodwill is most efficiently consumed. Shared services provided by one parent — IT, finance, HR, premises — are typically charged on a basis that made sense at the outset and has never been revisited. The same is true of seconded staff, whose cost may be recovered at salary or at a market rate depending on which partner is doing the seconding.
Three questions are worth putting to the finance teams. Is every charge to the venture supported by a document that describes the service and the basis of allocation? Would an independent observer regard the pricing between related parties as arm's length, consistent with the transfer pricing expectations HMRC applies to connected parties? And is there any contribution — a discount, a favour, an uncharged hour — that is quietly being subsidised by one side and will one day be presented as a grievance?
Intellectual property: background, foreground, handover
The most expensive omission in a joint venture agreement is often a single schedule that separates what each partner brought (background IP) from what the venture created (foreground IP). Without it, the venture may discover that it licenses its core asset at the pleasure of a partner, or that a product it built cannot be sold outside the venture's territory.
A review should establish who owns what the venture develops, what licence each partner grants to the venture and on what terms, and — crucially — what happens to the IP on exit. A venture that ends without a documented handover of data, code, customer records and brand assets will spend its final months in negotiation rather than in orderly wind-down.
The exit you hope never to use
Deadlock and exit clauses are usually drafted in a hurry and read for the first time in adversity. They deserve a proper rehearsal. Does the agreement specify how the venture's shares or interests are valued if one party leaves — a formula, an independent expert, an agreed multiple? Is there a clear trigger list: change of control of a partner, insolvency, failure to fund, a defined period of sustained underperformance? Are restrictive covenants and non-compete provisions still realistic given how both parents' businesses have since evolved?
Where competition questions could arise — particularly if either parent has grown materially since the venture was formed — it is prudent to take advice on whether the arrangement, or a change to it, would engage UK merger control. Ventures that were comfortably below the CMA's thresholds at launch do not always stay there.
A review worth diarising
None of this requires an adversarial posture. The most useful form is a half-day session, once a year, attended by both partners' sponsor directors and the venture's leadership, working through a fixed agenda: contributions, reserved matters, live deadlocks and near-misses, cost allocation, IP, and the exit mechanics. Record the conclusions, agree any amendments, and diarise the next one.
A joint venture is an act of trust with a legal structure around it. The trust is not improved by leaving the structure unexamined. It is protected by it.
