Joint Venture Agreement

A. Purpose of the Joint Venture ("JV")

1. Purpose. 

What is the purpose of the JV? What are the commercial objectives of the parties? Is a JV the right type of relationship? Consider any alternatives arrangement:

• Co-operation agreement
• Research and development agreement
• Licence or franchise agreement
• Distribution or agency agreement
• Supply of goods or services contract
• Merger or acquisition

2. Scope. 

What is the scope of the JV? Consider implications of such scope in connection with:

• Any activities the JV expressly intends to do or refrains from doing
• Corporate opportunity and potential conflicts with each party’s non-JV business activity
• Any core technology or other intellectual property to be transferred or granted
• Other intercorporate arrangements that will be required for the JV to operate

B. Preliminary matters

• What will be the name of the JV? Are there any restrictions on the use of the name?
• How will any existing brands be valued/protected? How will any new IP be dealt with?
• Is any due diligence to be completed before the JV is effective? Are there any restrictions in existing agreements? Who will need to consent/provide their approval? Check the existing firm constitutions
• Where will the JV carry on business? Whose premises? New premises? Who will own the premises? Will landlord consent be required?
• Will confidential information be disclosed during negotiations? Has a confidentiality agreement or information exchange agreement been put in place?
• Do the parties want to have a period of exclusive negotiation? Is each party still free, pending its signature, to negotiate with third parties?
• How long is the JV likely to take?
• Will it be necessary for the JV to continue to use any facilities of the existing entities? Any contractual arrangements in place?
• Sharing of risk - will indemnities/warranties be given? Should they be capped?
• Has a feasibility study or business plan been prepared?
• Is a letter of intent or memorandum of understanding appropriate to establish points of principle?
• What material authorisations, consents, licences, or other conditions precedent will be required for the joint venture to commence?
• What governing law should apply?

C. Parties and Contributions

1. Parties.

The joint venture agreement should identify the full legal name and business address of the parties. 

• Full details of the parties
• Impact on existing business - will all members/partners/shareholders be involved? 
• Conduct searches on each party including winding up/bankruptcy/companies searches.
• In the case of a state-owned enterprise, particular attention to detail may be required on the authority to commit the enterprise clearly established.

It is important to establish in legal terms any territorial or other limitations on the intended scope of the JV's activities in order that this is commercially clear between the parties and to prevent the JV from subsequently competing (e.g. in relation to the distribution of products) with one of the parties elsewhere in the world.

2. Capital contributions.

The agreement should clearly specify any obligations of the parties to transfer to the joint venture any know-how, rights to land or buildings (or to procure the grant of land use rights), business, or equipment to the JV. Any agreed mechanism for valuing these contributions should be clearly spelt out. The timing of (and any cash limit on) the respective contributions of the parties should be clear. 

3. Capital structure.

What will be the parties' respective equity share in the JV? How will the parties decide the initial contribution and ongoing financial contributions of each company in this joint agreement? Will financing need to be secured from third parties? What will be the JV's "registered " or "charter" or "authorised" capital? How will contributions in kind be valued - and made? 

4. Guarantees.

 It is important to establish what obligation (if any) the "parent" entity will have to enter into guarantees, bonds, or indemnities to support the provision of finance to the JV. In this situation, the joint venture agreement should be careful to establish the principle of sharing any liability incurred under any such guarantees, bonds, or indemnities.

D. Structure of the Joint Venture

1. Forms of Joint Venture. 

JV comes in various forms, the following are the most common ones:

• Joint Venture Company (JVC) or series of joint venture vehicles
• Partnership
• Limited Liability Partnership (LLP)
• Contractual (non-equity), for example:
  • Unincorporated collaboration or association
  • Profit pooling or revenue-sharing arrangement

The choice of structure will depend on a variety of factors which will have different weights according to the circumstances of the particular venture. It will be important to identify the main criteria in a particular case. Some key considerations are:

• tax (business location, the jurisdiction of establishment, ongoing operations, repatriation of profits, etc);
• limitation of liability;
• competition law / regulatory issues;
• accounting treatment (subsidiary undertaking - consolidation in the parent's accounts);
• clear management or employment structure;
• formalities of formation and publicity/ administrative requirements;
• flexibility to enable transfers of interest to third parties or introduction of new investors;
• ease of unwinding.

The current agreements under the Joint Venture categories are contractual joint ventures. For other types of joint ventures such as partnership or JVC, please refer to partnership agreements and shareholders agreements.

2. Joint Venture / Consortium Agreement to Provide Service - Unincorporated Project

A joint venture/consortium agreement with a JV leader and participants to provide service to a client in a particular jurisdiction. The association is for services required for a specific project, rather than for a more permanent type of arrangement. This agreement is drafted for 2-5 parties and available in the following forms: Neutral, Full Indemnity, or No Indemnity between the Participants.

3. Joint Venture / Consortium Agreement to Supply Products - Unincorporated Project

A joint venture/consortium agreement with a JV leader and participants applies in business situations where the parties contribute to the manufacturing of products in a particular jurisdiction. The association is for products required for a specific local project, rather than for a more permanent type of business arrangement. This agreement is drafted for 2-5 parties and available in the following forms: Neutral, Full Indemnity, or No Indemnity between the Participants.