A joint venture agreement is a document that allows two or more parties to collaborate and work under a new entity. A joint venture is a business arrangement in which two or more parties agree to join forces and invest their resources to accomplish a certain project or a task. A joint venture will have its own shareholding structure with each party holding its respective shares. The profits and losses associated with the shares of each party belongs to the respective parties itself, while the joint venture maintains its separate legal identity.
It is common for parties from another jurisdiction to enter into a joint venture with a local business person in order to allow them to enter that particular local market. This also helps the local business person to collaborate with a foreign entity and expand their market share and overall business.
What is the need to enter into a Joint Venture?
A joint venture is a special legal entity that allows two or more natural persons or corporate entities to combine their resources to enter into a new market, offer new services, or take on a specific project. A joint venture thus helps businesses grow their market share and offer a new service.
A joint venture can also lend credibility to their existing name because of involvement of a respected local business person, and it may also allow them to undertake bigger projects which an individual party would not be able to execute on its own. Parties across jurisdictions find it easier to enter a different country or jurisdiction by forming a joint venture with a local business person of that particular country or jurisdiction.
A joint venture can also be between two local companies as well. This could be to make sure that the resources available to both the local companies are combined and the output that this combination could produce can be maximised.
While a joint venture allows parties to combine their expertise and resources to take part in a new business activity or enter a new market, a unique feature of a joint venture is that it may be limited to specific work or business and allows the parties to retain their separate legal entity with respect to other work or business that they may be currently undertaking. This allows the parties to limit their exposure and liability that may exist in the joint venture entity.
What does a joint venture agreement cover?
Since a joint venture is more in the nature of collaboration between two or more parties to the agreement, it may contain any or all clauses that the parties may mutually agree upon. However, more common than not, any joint venture agreement would have the following terms:
1. Details of the parties
Description of the details of each party is an essential provision in any agreement, and the same can be said for a joint venture agreement as well. This provision usually contains personal information of the parties to the agreement such as their full names, passport number, email addresses, and registered address. There may be cases where one of the party or all the parties to the agreement is a legal entity rather than a natural person. In case a legal entity is a party to the joint venture agreement, their trade or commercial license number should be included instead of the passport number.
2. Commencement date and term
The commencement date is important to decide when the legal relationship between the parties to the joint venture agreement is deemed to start. The Agreement may also specify the term till which the joint venture would last, unless terminated before as per the terms of the Agreement.
3. Name and Purpose of the Joint Venture
The provision which specifies the name of the joint venture is of paramount importance. The parties would have to decide on a name which the joint venture entity would be known by for the purposes of conducting business. The joint venture agreement must also outline the purpose for which the parties have entered into a joint venture. This can be a brief description which is included in the joint venture agreement as a separate clause.
4. Contribution of Capital and ownership
In any joint venture, each party contributes a certain amount in the working capital for the operation of the joint venture. Therefore, any joint venture agreement must contain provisions which specify the amount of capital put in by each party to the agreement. It should also describe the proportion of ownership of each party in the joint venture.
5. Profits and Losses
Since a joint venture is a business entity, it is important to specify the profits and losses that the entity would make. Likewise, it is also important to outline how the distribution in terms of profits and proportionate liability in terms of loss will be made, if any.
6. Applicable law and Jurisdiction
This is one of the most important clauses in a joint venture agreement as it outlines the law which will govern the agreement. This clause should also include the jurisdiction as well to ensure that any cases or disputes to be filed in the future shall follow the jurisdiction specified in the joint venture agreement. In case where the agreement involves parties from different jurisdictions, the provision for jurisdiction becomes even more important.
7. Additional terms
A joint venture agreement could incorporate such other additional terms as may be mutually agreed between the parties such as confidentiality, non-disclosure, non-compete, exclusivity, etc. These additional terms help describe the legal relationship between the parties in much more details.
The objective of having different clauses apart from the usual ones is to mitigate the risk associated with any agreement. More streamlined clauses and specifically defined terms in an agreement allows the parties to have confidence that theirs rights are duly protected.
Our online form provides for a range of customisations that cater to all clients on a case-by- case basis. We provide our clients with more control and freedom in terms of what their joint venture agreement should cover. Please see our different packages to see various options available to the clients in terms of personal customisation of their investment agreement.