A joint venture is an arrangement by which 2 or more independent companies agree to contribute their resources (technical, financial or in manpower) towards developing a particular strand of business.
The motivation for such a venture can be varied. It might be that the parties have different competences, which need to be brought together to make the venture work; it could also be that the scope of the commercial success of the venture is difficult to predict, and therefore neither party wants to sell its services for an agreed price, but each prefers to share the risks in order to share also in the potential profitability of the project. Or it could simply be that the parties individually do not have adequate resources to pursue the business opportunity independently.
Whatever the motivation, the parties to a joint venture must recognise that they are sacrificing an element of control and flexibility by entering into a contractual commitment rather than managing the project independently. Careful thought and strategic planning must be undertaken at the outset in order to define the objectives of the project and the inputs of the parties, as well as setting viable milestones for achievement and a clear process for decision-making en route.
We have the legal expertise to assist our clients to set themselves up for success in joint ventures, and a determination to understand the commercial and technical requirements of the business. Typically the process will involve:
- Understanding the business objectives and discussion with clients on the outline commercial agreement, which might be set out for clarification in non-binding Heads of Terms;
- Particularly in international joint ventures, advising on the appropriate corporate structure and places of incorporation of the joint venture vehicle(s);
- Drafting and assisting negotiations on the principal joint venture agreement, ensuring that appropriate decision-making and dispute resolution mechanisms are built in;
- Ensuring all parties have complied with their internal compliance processes and any external regulatory approvals prior to completion.
Ian Baker - Partner