Joint operating agreements set forth provisions to govern specific operational partnerships between two or more organizations, whether they are private businesses, corporations or government entities such as cities and states. Joint operations differ from joint ventures, in which two or more entities combine resources to create a third entity jointly owned by both. In joint operations, two or more organizations contribute resources and manpower to a specific project, in which each entity maintains its distinct identity and parts ways at the end of the project. Understanding the purpose of joint operating agreements, and the common sections within, can shed light into how these partnerships function from a legal standpoint.
Joint operating agreements detail the parameters of the operations to be performed, setting forth the project scope and the work expected to be performed by each party. This section may list geographic constraints of operations, budgetary limitations and specific equipment or facilities to be used. An agreement between an oil drilling company and a state government, for example, may stipulate exactly which types of drilling techniques will be used while listing restrictions for hours of operation and the geographic boundaries of the drilling zone. In agreements between two businesses, the final products of the partnership can be described, as well, such as the development of a new software tool to be shared by all partners.
Advertisement Article continues below this adAgreements set forth the rights and responsibilities of each party within the scope of the joint operation. Rights can include the use of trademarks and copyrighted materials and shared access to sensitive information. Responsibilities can include carrying specific insurance policies, submitting to group decisions, adhering to non-disclosure agreements and working within specific regulatory frameworks. A joint venture between a recycling plant and a city government, for example, may stipulate that the city is entitled to a 5 percent share of company profits generated from city waste and that the plant must adhere to state regulatory standards for air pollution and waste disposal.
Since joint operations are often limited in scope, it is important to set forth the precise effective date and term of the agreement to clarify when the project will begin and end. In continuing operations, the parties may decide to renew or renegotiate their agreement, or they may decide to create a perpetual joint venture to continue the joint operation indefinitely. Project milestones and deadlines can be included in this section, if appropriate.
Advertisement Article continues below this adThe financial interests and expectations of each party can be found in their own section. Agreements should list exactly what financial and capital resources each party is expected to contribute. Profit distribution should be clearly set forth for operations that will directly earn income for the parties. Provisions should be made for distributing financial resources in the case of a dissolution of the agreement, as well, to avoid potentially costly and time-consuming litigation in the event that the joint operations fail.