A joint venture agreement (“JVA”) can be described as an agreement whereby two companies (“Joint Venture Partners”) pool their skills, expertise and resources together for a common purpose or goal. The nature of the joint venture relationship entails that they share in the risks and rewards based on the service offering that they are providing for a specific client or project.
The formation of a joint venture relationship can be beneficial to the parties if it is structured in the correct way. The upside is that the mere collaboration of the Joint Venture Partners will enable the parties to have greater capacity, access to more resources and expertise at its disposal. This will allow the Joint Venture Partners to accelerate the growth strategy of the business, especially in circumstances where the Joint Venture Partners have innovative ideas or products that they wish to implement and make available to their clients.
The decision to proceed with the joint venture relationship must be considered carefully. When structuring the joint venture, it is important to know from the outset what goals and objectives the joint venture partners have in mind, as the goals will be a determining factor on the type of joint venture relationship the parties will enter.
There are two main types of joint ventures, namely:
- Unincorporated Joint Venture; and
- Incorporated Joint Venture.
An unincorporated Joint Venture is where two or more companies agree to work together in respect of a single or multiple projects or business transactions. The Joint Venture agreement under this arrangement entails that the companies who work together, retain their separate legal personality, but actively work together by sharing and pooling resources in pursuit of a common goal.
An incorporated Joint Venture is created whereby a NewCo is registered as a special purpose vehicle, and the companies behind the NewCo will take their positions as shareholders of the NewCo and nominate a representative to be the director on the board of the NewCo. The NewCo will conduct the business of the joint venture parties, but the duties, responsibilities, contributions and running of the NewCo will need to be regulated more carefully by the shareholders agreement and a bespoke memorandum of incorporation.
It is advisable that before the parties consider entering a joint venture relationship, the parties understand their respective duties, responsibilities and obligations. It is at this point where the Joint Venture Agreement will come into play, as it will flesh out in detail the terms and conditions which will regulate their relationship, such as:
- Structure of the Joint Venture;
- Contributions that are required by the respective parties;
- Objectives of the Joint Venture;
- Management and Control;
- Rights and Duties;
- Dispute Resolution Mechanisms;
- Authorized JV Representatives;
- Voting Rights;
- Ownership relating to intellectual property; and
- Exit Strategy;
If you are considering entering into a joint venture agreement and require assistance in this regard, please do not hesitate to contact BBP Law Attorneys. We will gladly arrange a meeting to provide you with more information on this topic.