Drafting a Joint Operating Agreement

Note: Links to our free templates are at the bottom of this long guide.
Also note: This is not legal advice

Introduction

When it comes to running a successful business partnership, having a joint operating agreement (JOA) in place is an absolute must. This document outlines the roles and responsibilities of each partner, as well as their respective rights and obligations, helping to ensure that all parties’ interests are respected. But crafting a JOA isn’t always easy; there’s no one-size-fits-all approach. That’s why the Genie AI team provide free JOA templates that can be tailored to suit your unique situation and needs – allowing you to create a comprehensive and legally-binding agreement without the hassle of engaging an expensive lawyer.

A JOA provides a great range of benefits for those involved in any venture – not least the peace of mind that comes with knowing your interests are appropriately represented within any agreement. It also helps keep all participants honest by providing crystal clear parameters for their roles and responsibilities within the business, while also protecting partners from costly litigation should disputes arise down the line. And importantly, it also helps protect your business by making sure every partner’s rights are firmly enshrined in legal terms from day one – something which could save you time, money and stress in the future.

At Genie AI we believe everyone should have access to high quality legal documents whenever they need them – which is why we offer our step-by-step guide on how best to draft your own Joint Operating Agreement as well as access to our expansive template library, completely free of charge! So if you’re looking for reliable guidance on creating or customizing high quality legal documents without paying over the odds for expert help then don’t hesitate - read on below!

Definitions

Parties: People, businesses, or other entities that are involved in an agreement.
Roles and Responsibilities: The tasks each party is responsible for, any deadlines associated with their tasks, and any resources they will need to complete the tasks.
Business Purpose: The goals of a venture and how each party will contribute to achieve them.
Management Structure: Who will be responsible for making decisions, how those decisions will be made, and how each party will be held accountable for their actions.
Financial Contributions: The amount of money each party will contribute to the venture.
Length of the Agreement: The start and end date, as well as any other milestones or deadlines that may be applicable.
Dispute Resolution Procedures: How disputes will be addressed, who is responsible for initiating dispute resolution, and how conflicts will be resolved.
Insurance Requirements: The type of insurance, the amount of coverage, and who is responsible for obtaining it.
Tax Implications: The types of taxes that will apply, any tax exemptions available, and who is responsible for filing the taxes.
Ownership Rights: Any restrictions or requirements relating to ownership, as well as any additional rights or privileges associated with ownership.
Final Contract: A document that outlines all the details discussed in an agreement.

Contents

1. Defining the Parties Involved
2. Identifying the parties that will be a part of the joint operating agreement
3. Outlining the roles and responsibilities of each party
4. Establishing the Business Purpose
5. Outlining the purpose of the joint venture and how each party will contribute
6. Defining the goals and objectives of the venture
7. Identifying the Management Structure
8. Establishing the roles of the parties involved in the joint venture and how decisions will be made
9. Setting up a communication plan for the venture
10. Establishing Financial Contributions
11. Determining the amount of money each party will contribute
12. Establishing how the profits will be divided
13. Defining the Length of the Agreement
14. Setting the date or duration of the agreement
15. Determining how the agreement can be extended or terminated
16. Outlining Dispute Resolution Procedures
17. Establishing the procedure for resolving disputes between the parties
18. Developing a conflict resolution process
19. Identifying Insurance Requirements
20. Determining the type of insurance required for the venture
21. Deciding who will be responsible for obtaining it
22. Determining Tax Implications
23. Establishing the tax implications for the venture
24. Deciding how taxes will be paid
25. Establishing Ownership Rights
26. Defining the ownership rights of each party
27. Establishing how ownership rights can be transferred
28. Drafting the Final Contract
29. Crafting the final contract with all the details discussed above
30. Reviewing the contract for accuracy and completeness

Get started

Defining the Parties Involved

• Identify the parties that will be involved in the joint operating agreement
• Take into account different factors such as the types of businesses involved, the size of the businesses, the goals of the agreement, etc.
• Make sure that all parties involved have the necessary authority to enter into the agreement
• Determine the roles, responsibilities, and liabilities of each party
• Establish how the agreement will be amended or terminated
• When all parties involved have been identified and their roles and responsibilities have been established, this step can be checked off and you can move on to the next step.

Identifying the parties that will be a part of the joint operating agreement

• Identify all parties that will be involved in the joint operating agreement
• Compile contact information for each party
• Send out an invitation to sign the joint operating agreement
• Receive signed copies of the agreement from each party
• Once all parties have signed the agreement, you can move on to the next step.

Outlining the roles and responsibilities of each party

• Identify the roles and responsibilities of each party in the joint operating agreement
• Clarify the contribution each party is making to the joint operating agreement
• Outline which party is responsible for what when it comes to the joint operating agreement
• Determine the authority and control each party has in the joint operating agreement
• Make sure all parties agree on the roles and responsibilities of each one

Once you have outlined the roles and responsibilities of each party, you can move on to the next step of establishing the business purpose.

Establishing the Business Purpose

• Draft a purpose statement for the joint venture that outlines the goals, objectives, and expected outputs or outcomes of the agreement
• Include details on the duration of the agreement, any planned execution dates, and the rights and obligations of both parties
• Outline the scope of the agreement and the limits of each party’s involvement
• Describe the jurisdiction, laws, and regulations that govern the agreement
• When complete, have each party review and sign the agreement
• Once both parties have signed the agreement, you can move on to the next step.

Outlining the purpose of the joint venture and how each party will contribute

• Determine the specific purpose of the joint venture and how each party will contribute to the venture
• Identify the types of contributions each party will make, such as money, resources, and personnel
• Discuss the roles and responsibilities of each party, such as decision-making and management
• Agree upon the duration of the joint venture and how it may be terminated
• When the terms of the joint venture have been determined and agreed upon, document the terms in a Joint Operating Agreement
• Check off this step of the guide once the purpose of the joint venture and each party’s contributions have been determined and documented in the Joint Operating Agreement.

Defining the goals and objectives of the venture

• List out the common objectives of the joint venture
• Outline each party’s individual short and long-term goals
• Discuss strategies and tactics that can achieve the goals
• Establish who is responsible for achieving the goals and objectives
• Create a timeline for when each goal should be achieved
• Determine the metrics that will be used to measure success
• Assign a budget to each goal
• Once all of the goals and objectives have been laid out and agreed upon, check this item off the list and move on to the next step.

Identifying the Management Structure

• Consider the roles of each party in the venture and how those roles will be managed
• Decide who will serve as the primary decision-maker for the joint venture
• Determine who will have the authority to bind the joint venture in contracts or agreements
• Develop a framework for how decisions will be made, including voting protocols
• Discuss how disputes will be resolved and who will have the authority to make binding decisions
• Agree on how the management structure will be documented

Once the management structure has been identified, documented, and agreed upon by all parties, you can move on to the next step: Establishing the roles of the parties involved in the joint venture and how decisions will be made.

Establishing the roles of the parties involved in the joint venture and how decisions will be made

• Determine the roles and responsibilities of each party, such as who will have primary responsibility for day-to-day operations and decisions
• Discuss how the parties will make decisions and vote on matters, such as by majority or unanimous vote
• Establish a dispute resolution process in the event that the parties are not able to reach a consensus
• Agree upon a method for reviewing and updating the joint venture agreement as needed

You can check this step off your list once you have finalized and documented the roles of the parties, the decision-making process, and the dispute resolution process.

Setting up a communication plan for the venture

• Establish a method for the parties to communicate with each other (e.g., email address, phone number, etc.)
• Create a schedule of when and how often the parties will communicate (e.g., daily, weekly, etc.)
• Identify the methods of communication (e.g., email, text, phone call, etc.)
• Agree on how and when to document the communication
• Create a system for resolving any conflicts that arise

When you can check this off your list and move on to the next step:
Once all of the above steps have been completed and agreed upon by all parties involved, you can move on to the next step: Establishing Financial Contributions.

Establishing Financial Contributions

• Determine the amount of money each party will contribute to the joint venture.
• Consider the size and scope of the venture and the parties’ financial capabilities.
• Decide on a timeline for the contributions.
• Agree on a payment structure for each party’s contributions.
• Establish a method for tracking each party’s contributions.

How you’ll know when you can check this off your list and move on to the next step:

• When you have an agreement between all parties on the size of each contribution, the timeline of payments, and the payment structure, you can move on to the next step.

Determining the amount of money each party will contribute

• Discuss the amount of money each party can contribute to the venture
• Agree on the proportion of money each party will contribute
• Decide how the contributions will be paid (e.g. lump sum or installments)
• Put the agreement in writing
• Have both parties sign the agreement

When you have completed this step, you will have a signed agreement that outlines the amount of money each party is contributing to the venture and how they will be paying it.

Establishing how the profits will be divided

• Discuss and agree on a fair and equitable distribution of profits
• Consider factors such as the percentage of investment each party has contributed and the length of the agreement
• Draft the terms of the profit distribution in the Joint Operating Agreement
• Have each party’s legal counsel review the agreement and make any necessary changes
• Once both parties have agreed on the terms and have both signed the Joint Operating Agreement you can move on to the next step.

Defining the Length of the Agreement

• Decide on the duration of the agreement. This could be a certain number of years or an indefinite time period.
• Discuss the terms and conditions for terminating the agreement.
• Consider any automatic renewal provisions if the agreement is for a set period of time.
• Draft a provision to address any dispute resolution or mediation that may be necessary.
• Create an expiration date for the agreement, if applicable.
• Once the length of the agreement has been decided and the details have been discussed and agreed upon, you can check off this step and move on to the next.

Setting the date or duration of the agreement

• Decide on the date of the agreement and/or the duration of the agreement
• Consider the date when any parties need to take action under the agreement
• Set the date of the agreement in the Joint Operating Agreement document
• Make sure that all parties agree on the date or duration of the agreement
• When all parties have agreed, the date or duration of the agreement can be checked off the list and the next step can be completed

Determining how the agreement can be extended or terminated

• Determine how the agreement can be extended or terminated, including the length of any extensions and any factors which may trigger termination of the agreement
• Discuss how and when either party can terminate the agreement, such as by providing written notice with a predetermined amount of time before termination
• Consider any time periods or conditions that must be met before an extension or termination can take place
• Make sure to include a clause that allows either party to terminate the agreement at any time
• When complete, you will have determined how the agreement can be extended or terminated.

Outlining Dispute Resolution Procedures

• Consider which dispute resolution methods the parties wish to use (e.g. arbitration, mediation, litigation, etc.)
• Discuss the costs associated with each dispute resolution method
• Decide if the agreement should give either party the right to select the method of dispute resolution
• Agree on the forum in which any dispute resolution method will be conducted
• Establish how the parties will split the cost of dispute resolution
• Determine how the dispute resolution will be managed
• Specify which party will bear the burden of proof
• Establish how long the dispute resolution process should take
• Determine how the agreement should deal with appeals
• Outline any other relevant details related to dispute resolution

You’ll know that you can check this step off your list and move onto the next step when you have agreed upon and outlined all relevant details related to dispute resolution.

Establishing the procedure for resolving disputes between the parties

• Identify who will be involved in the dispute resolution process
• Develop the decision-making criteria that will be used in the dispute resolution process
• Establish rules governing the resolution process, such as deadlines and the types of evidence that may be presented
• Provide for an appeals process
• Specify how the agreement will be enforced and what remedies are available to the parties
• Outline the dispute resolution process in the joint operating agreement

When you have identified the parties involved in the dispute resolution process, established the decision-making criteria, set rules governing the resolution process, provided for an appeals process, specified how the agreement will be enforced and what remedies are available to the parties, and outlined the dispute resolution process in the joint operating agreement, you can check this off your list and move on to the next step.

Developing a conflict resolution process

• Establish clear and reasonable rules for resolving disputes that both parties agree to
• Specify a method for resolving conflicts if the parties cannot agree on a solution, such as mediation or arbitration
• Ensure that the chosen method is legally binding and enforceable
• Establish a timeline for the resolution process and specify which party is responsible for initiating the process
• When both parties have agreed on the resolution process, the Joint Operating Agreement can be finalized and signed
• Once the Joint Operating Agreement is signed, the conflict resolution process is in effect and any disputes that may arise can be addressed according to the agreed-upon process

You will know when you can check this off your list and move on to the next step when you have established the conflict resolution process and both parties have agreed to it and it is included in the Joint Operating Agreement.

Identifying Insurance Requirements

• Identify the risks associated with the joint venture and the type of insurance that may be necessary to cover those risks.
• Consider the liability and compensation structure of the venture, as well as the physical assets and any other risks that may need to be covered.
• Research different insurance policies and decide which ones are necessary to protect the venture and its participants.
• Once you’ve identified the types of insurance that are needed, you can move on to determining the type of insurance required for the venture.

Determining the type of insurance required for the venture

• Determine the type of insurance required for the venture based on the type of activities that will take place as well as the potential risks of the venture
• Research the different types of insurance available and the benefits they provide
• Consult with an insurance professional to learn more about the types of insurance best suited to the venture and its needs
• Compare the cost and coverage of the different insurance policies available
• Decide on the type of insurance that best meets the needs of the venture
• When the type of insurance has been determined, you can move on to the next step of deciding who will be responsible for obtaining it.

Deciding who will be responsible for obtaining it

• Consult with legal counsel to determine the best party to obtain the policy
• Consider any applicable laws for who can purchase the type of insurance needed
• Draft a provision in the JOA that assigns the responsibility to procure the insurance to one of the parties
• Review the provision with all parties to ensure they agree on who will obtain the policy

Once the responsibilities are outlined and agreed upon, this step can be checked off the list and you can move on to the next step: determining tax implications.

Determining Tax Implications

• Research the tax implications specific to the joint venture you’re creating
• Consult with a tax professional to make sure your company is following the correct rules and regulations for tax purposes
• Discuss with the other party involved in the venture how to handle the taxes that come from the project
• Include the tax implications within the Joint Operating Agreement
• Once the tax implications have been discussed and agreed upon, you can check this off your list and move on to the next step of establishing the tax implications for the venture.

Establishing the tax implications for the venture

• Investigate the tax implications of the venture, including the type of entity the venture will use, to determine the tax rates and deductions available to the venture
• Consult with a tax professional to ensure that the tax implications of the venture are properly taken into consideration
• Consider the tax implications on the profits and losses of the venture, including any additional taxes that might be owed
• Include a provision in the Joint Operating Agreement regarding the tax implications of the venture, detailing the taxes required and when they must be paid
• When all tax implications are considered and addressed, the step can be checked off the list and the next step of deciding how taxes will be paid can be addressed.

Deciding how taxes will be paid

• Discuss the tax implications of the joint venture and decide how taxes will be paid (e.g. will each partner be responsible for their own taxes or will the joint venture be responsible for the taxes).
• Make sure to document the joint venture’s tax responsibilities in the Joint Operating Agreement.
• Once you have discussed and documented the tax responsibilities within the Joint Operating Agreement, you can move on to the next step of establishing ownership rights.

Establishing Ownership Rights

• Review the legal structure of the business as outlined in the agreement.
• Determine the percentage of ownership for each party.
• Specify whether the owners are liable for debts and obligations of the business.
• Establish a plan for transferring ownership, including the possibility of selling shares and the process of doing so.
• Outline any restrictions on the sale of shares.
• Create an agreement on the use of the business’s name.
• Define the rights and responsibilities of each party when it comes to decision-making, management, and operations.
• When all the ownership rights are defined, this step is complete.

Defining the ownership rights of each party

• Identify each party’s ownership rights in the venture
• Outline the ownership rights of each party in the joint operating agreement
• Describe the percentage of ownership each party will have
• Detail any other rights associated with ownership
• Consider if any of the ownership rights may be transferable

You will know you can check this step off the list and move on to the next step when you have identified and outlined the ownership rights of each party in the joint operating agreement.

Establishing how ownership rights can be transferred

• Identify how ownership rights can be transferred from one party to the other.
• Decide on conditions in which the transfer of ownership rights is allowed, such as in the event of the death of one of the owners, or in the case of bankruptcy.
• Include provisions for the transfer of the ownership rights to a designated third party in the event of the death of one of the owners.
• Outline any restrictions on the transfer of ownership rights, such as the requirement of a unanimous vote by the owners, or the need to notify the other parties prior to the transfer.
• You will know you can check this off your list and move on to the next step once all parties have agreed to the terms governing the transfer of ownership rights.

Drafting the Final Contract

• Prepare a draft contract to address the terms and conditions of the Joint Operating Agreement (JOA) previously discussed.
• Consult with a lawyer to ensure that all the terms and conditions of the JOA are properly drafted and legally sound.
• Make sure that all the details regarding ownership rights, costs, and other conditions that were discussed are included in the draft contract.
• Have all parties involved in the JOA review and approve the draft contract.
• Finalize the draft contract once all parties have agreed and signed it.

You’ll know that you’ve completed this step when the draft contract has been finalized, signed, and approved by all parties involved in the JOA.

Crafting the final contract with all the details discussed above

• Include all the details discussed and agreed upon in the joint operating agreement
• Use the template agreement as a starting point
• Make sure to include the purpose and intent of the joint operating agreement
• Designate the parties involved and their respective rights and responsibilities
• Clearly define the terms of the agreement, such as the duration, governing laws, and dispute resolution
• Include a signature page and make sure all parties sign the agreement
• You will know that you have completed this step when all the details discussed and agreed upon are included in the final contract and all parties have signed the agreement.

Reviewing the contract for accuracy and completeness

• Carefully read through the entire contract to ensure all details discussed are included
• Check for any typos or formatting errors
• Ensure all parties involved have the same understanding of the contract’s content
• Confirm the terms of the agreement are reasonable and conform to the laws of the state or jurisdiction
• Make sure all signatures are present and correct
• Make any necessary corrections or revisions before signing

You can check this step off your list and move on to the next step when you have verified that the contract is accurate, complete, and all parties have signed it.

FAQ

Q: Does a Joint Operating Agreement typically cover international operations?

Asked by James on April 21st 2022.
A: Yes, a Joint Operating Agreement typically covers international operations, however it is important to also consider the relevant jurisdictional laws of the countries in question when drafting the agreement. It is important to consider factors such as taxation laws, labour laws, and product regulations when operating abroad.

Q: What does a Joint Operating Agreement entail?

Asked by Emma on March 8th 2022.
A: A Joint Operating Agreement (JOA) is an agreement between two or more parties that sets out the terms and conditions of their joint venture. It is usually used when two or more companies are entering into a partnership or agreement to operate a business together. The agreement specifies how decisions will be made, how profits and losses will be shared, how disputes will be resolved, and other important business matters.

Q: How do I know if I need to draft a Joint Operating Agreement?

Asked by John on January 15th 2022.
A: You may need to draft a Joint Operating Agreement if you are entering into any kind of business relationship with another party. This could include partnerships, joint ventures, or other types of collaborations. A JOA can help ensure that all parties have an understanding of the terms and conditions of the relationship, so it is important to make sure that you are adequately protected in any business dealings.

Q: Does a Joint Operating Agreement require legal advice?

Asked by Sarah on October 3rd 2022.
A: It is strongly recommended that you seek professional legal advice before entering into any kind of business relationship or drafting a Joint Operating Agreement (JOA). A lawyer can provide invaluable guidance on legal requirements and implications of the agreement, as well as helping you avoid potential issues and disputes that may arise in the future.

Q: What should I consider when drafting my Joint Operating Agreement?

Asked by William on June 6th 2022.
A: When drafting a JOA, it is important to consider all aspects of the relationship between the parties involved. This includes how decisions will be made, how profits and losses will be shared, how disputes will be resolved, and other important business matters. You should also consider any applicable laws or regulations in your jurisdiction that may affect the agreement. Additionally, it is important to ensure that all parties fully understand the terms and conditions of the agreement before signing it.

Q: Are there any potential risks associated with drafting a Joint Operating Agreement?

Asked by Emma on August 8th 2022.
A: Yes, there are potential risks associated with drafting a Joint Operating Agreement (JOA). If not drafted correctly, there could be issues with enforceability or interpretation leading to disputes between parties in the future. Additionally, there may be liabilities associated with certain clauses in the agreement which could lead to financial losses for one or more parties involved in the agreement. It is therefore essential to seek professional legal advice before entering into any kind of business relationship or drafting a JOA.

Q: What is the difference between an LLC and a JOA?

Asked by Michael on November 23rd 2022.
A: An LLC (Limited Liability Company) is a type of business entity which provides limited liability protection for its owners from debts and obligations incurred by the company itself. A Joint Operating Agreement (JOA) is an agreement between two or more parties that sets out the terms and conditions of their joint venture, such as how decisions will be made, how profits and losses will be shared, how disputes will be resolved, and other important business matters. Therefore while an LLC provides limited liability protection for its owners from debts and obligations incurred by the company itself, a JOA does not provide this protection but rather sets out conditions for how two or more parties operate their joint venture together.

Q: Are there any specific laws which must be considered when drafting a JOA?

Asked by Joshua on July 1st 2022.
A: Yes, when drafting a Joint Operating Agreement (JOA), it is important to consider all applicable laws or regulations in your jurisdiction which may affect the agreement. This includes tax laws, labour laws, product regulations, consumer protection laws and other relevant regulations which may affect your venture’s operations. Additionally, it is important to ensure that all parties fully understand the terms and conditions of the agreement before signing it.

Q: What kinds of businesses typically enter into Joint Operating Agreements?

Asked by Jessica on February 17th 2022.
A: Any type of business may enter into a Joint Operating Agreement (JOA). This could include partnerships, joint ventures or other types of collaborations between two or more entities such as companies, individuals or organizations. The JOA can help ensure that all parties have an understanding of the terms and conditions of their relationship so it is important for all involved parties to properly assess their needs before entering into such an agreement.

Q: Do I need to register my JOA with local authorities?

Asked by David on September 19th 2022.
A: Depending on your jurisdiction it may be necessary to register your JOA with local authorities in order for it to be legally enforceable. It is therefore important to seek professional legal advice before entering into any kind of business relationship or drafting a JOA so you can properly assess your needs and ensure that your agreement complies with applicable laws in your jurisdiction.

Q: Who should draft my Joint Operating Agreement?

Asked by Thomas on May 5th 2022.
A: It is recommended that you seek professional legal advice when drafting your Joint Operating Agreement (JOA). A lawyer can provide invaluable guidance on legal requirements and implications of your agreement as well as helping you avoid potential issues and disputes which may arise in the future due to improper drafting or misinterpretation of clauses within your agreement.

Q: How do I ensure my Joint Operating Agreement remains valid over time?

Asked by Robert on December 12th 2022.
A: It is important to periodically review your Joint Operating Agreement (JOA) as circumstances change over time so you can ensure it remains valid and up-to-date with applicable laws in your jurisdiction. Additionally, it can also help protect both parties from unforeseen circumstances which may arise in the future due to changes in legislation or other factors affecting their business operations together. Lastly, reviewing your JOA regularly can help ensure that both parties remain committed to their agreed upon terms throughout their relationship together…

Example dispute

Suing Companies Over Breach of a Joint Operating Agreement

• A plaintiff may raise a lawsuit to seek damages due to a company’s breach of a joint operating agreement.
• The agreement must have been signed between two or more parties in order for any lawsuit to be brought up.
• In order to win, the plaintiff must prove that the company breached the terms of the agreement and that the breach caused them to suffer damages.
• The plaintiff should provide evidence of the breach in order to prove their case, such as emails, contracts, or other documents related to the agreement.
• The plaintiff should also provide evidence of the damages suffered, such as financial records, medical records, or other evidence of their losses.
• If damages are proven, the court may award damages to the plaintiff in the form of a monetary award or other remedies to compensate for their losses.
• If a settlement is reached, the parties may agree to terms such as monetary compensation, changes to the agreement, or other remedies to resolve the dispute.

Templates available (free to use)

Joint Operating Agreement

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