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Joint Venture

Joint Venture

In general terms, if a company has a unique creative business idea and the other company is willing to work together for the implementation of the project which includes promotion or sales or gains equal profits. This concept is widely used to produce new technological developments and achieves equal profit in the global market. So for improving your business you can combine with other companies with the joint venture agreement. For example, Two car companies tie up to make new fuel efficient engines.

WHAT IS MEANT BY JOINT VENTURE?

Joint Venture is a business preparation where two or more companies, organisation jointly together to share the ownership, profits, losses, and expenses of the particular project. It is not like a partnership, the joint venture is temporary and they end their relationship after the particular work or the project is completed.

WHAT IS A JOINT VENTURE AGREEMENT ?

A joint venture agreement is a written agreement, when two or more persons or companies, organisations wish to work jointly together or for the achievement of the common goal for the particular period. 

A joint venture agreement allows the party to work jointly and ensures the safety and protection if a dispute arises between them.

Example : 

Apple and Unicom : It is one of the famous joint venture agreements between Apple and Unicom company of china. They entered the agreement in 2009.  The purpose of the agreement was to bring the apple brands into the china market. At the time China was the largest telecommunication market in the world and produced a lot of wireless mobile phones with cheap models. The joint ventures aims to bring the iphones to the china market to achieve the growth of businesses. And China unicom obtained the exclusive rights to the iPhone carrier.

WHY JOINT VENTURE AGREEMENT ?

  1. The joint venture agreement which allows the company, organisations to achieve the new target, project for the particular time. There are many benefits there to enter into the joint venture.

    • Innovations of new products : It involves that the two companies have a common goal to achieve new productions or innovations.
    • Low production costs : It helps to reduce the cost of productions when the companies are binded by joint ventures.
    • Market Growth : It increases the foreign market growth and expands their business into multiple countries.
    • Legal support : It provides the legal support to the companies and helps to reduce the legal risks.

WHO CAN ENTER JOINT VENTURE AGREEMENT

Any individual company or the business persons can enter into the joint venture agreement. The person or the company does not need to be in the same business or same in size. There is no limit for the maximum number of the participants in the joint venture agreement. But it increases the high risks of disputes and other problems.

KEY ELEMENTS FOR THE JOINT VENTURE AGREEMENT :

While drafting joint venture agreement, it is important to mention certain clauses for the validity of the joint venture agreement. Those are,

1. Name and address of the parties

The joint venture agreement which mainly contains the general information of both legal entities, company or an organisations who are entered into joint venture for contributing their asserts, capital and other resources for the project which essentially their names, address and the organisation should be mentioned clearly in the agreement.

2. Business details of both parties

Generally the joint venture agreement is the agreement between the two companies or organisations who entered for the specific business purposes for the particular time. The agreement should clearly prescribed the business details of the both companies and mentions all the relevant details that the company entered business for this joint venture.

3. Type of joint venture

The joint ventures exist for many different purposes. It is important to know what the agreement should contain, what kind of joint venture the companies are going to enter for the specific work or the project by the company.

  • Project based : These are the temporary partnerships that are usually valid for the particular time period or the accomplishment of the certain goal or the project.
    Eg : a group of retailers jointly involved to bring new products and designed clothes to the market.
  • Vertical Joint venture : These are the agreements between the buyer and the supplier. This kind of agreement is prepared when bilateral trading is not beneficial. It creates economies of scale and reduces the costs for both parties involved in the businesses. 
  • Horizontal joint venture : These are the agreements between the two companies who are selling the same products in the market and want to collectively tie up to grow the business in the market. This allows both parties or the companies to gain competitive advantages in the market. 
  • Functional joint venture : The agreement between two or more parties sharing their resources and supporting each other’s operations to get the equal profit amounts.
    Eg :  If you are owning a small bakery, in order to increase the business growth, we tie up with the local coffee shops to sell the bakery items like bun, biscuits, cakes in the coffee shop, which helps to grow two businesses equally.

These are the types of joint venture agreement. The agreement should mainly disclose what type of the joint venture agreement that the companies or the organisation should jointly enter.

4. Purpose of the agreement

Every joint venture agreement should clearly mention the purpose of the two companies or the organisation entered into the Joint venture agreement. The purposes should clearly specify the exact reason for the company for tie ups. The purpose which includes both companies should jointly work together for the common goals and share their earnings equally.

5. Obligation and the rights of the parties

The Joint venture agreement which basically creates various rights and obligations for the parties or the companies who entered into the agreement. Essentially the agreement which contains the duties, responsibilities and liabilities of the both parties. And also the necessary steps to achieve the goals should be mentioned. 

The obligations and rights are specified by the resource members of the companies or the organisation should clearly disclose all the prior information in the agreement.

6. Decision makings

The decision making is one of the main things while coming into the joint venture agreement. The business partners should allow the decision making system between them. It can be voting rights or other methods to adopt the obligations and decisions. This helps to improve the common goals between them. In every agreement the voting rights are chosen for the best way to make decisions clearly by the board members of the company. It basically clears all the doubts and confusions. The meetings should be conducted every six months and make the perfect decision  for the growth of the businesses.

7. Confidentiality and non compete clauses

In this clause, It helps to protect the company intellectual property and the business interests. The confidentiality clause which helps to protect the business entity while the companies work together. The company should not misuse the reputations and intellectual assets of the other company. This clause mainly prevents those kinds of problems between them in the agreement. As well as the non compete clauses which helps to avoid the non compete clauses. This would prevent the company from involving any profit separately other than the agreement. These two clauses give the protection to the parties company disclosures.

8. Distribution of the profits and losses

There should be a lot of profits and the losses may happen in every business.So the parties himself responsible for these outcomes from the business, this clause which helps them to fairly or equally separate the profit by them equally. The agreement should be a clear overview of the distributions of the profits and losses among them. It is essentially mentioned and the party should consider the clauses before entering into the agreement.

9. Ownership creation

The two companies are entered into the particular business, the joint venture agreement which establishes the ownership rights. In which the particular entity, which is conducting the major part of the work or putting the high demands when compared to the other company having the ownership rights.

10. Termination clause

The agreement usually allows the termination clauses. The particular date is completed, or the agreement fulfils the project, material breach by the party or the insolvency.  In these particular cases the agreement allows the party to terminate the agreement based on the grounds.

11. Governing laws

The joint venture agreement should take place between two different countries, the rules and the regulations for the joint venture should differ from country to country. In the agreement it should be mentioned the clear jurisdiction of the law and the country who formulates the agreement. The agreement should mention the dispute resolutions system and the particular jurisdiction if incase of the dispute arises between them. Such as arbitration, other court proceedings should be  used for the dispute resolution system. 

The agreement is legally valid when both parties agree to all the mentioned clauses and should sign the legal agreement for entering and enforcing the joint venture agreement. Also the agreement should specify the date for when the agreement should be enforced.

THE DOCUMENTS REQUIRED FOR THE REGISTRATION OF THE JOINT VENTURE AGREEMENT :

Depending on the legal structure the joint venture registration in India, varies from state to state. Some of the common documents which requires for the registration of the joint venture agreement are,

  • Identity and address proof of both parties eg: PAN, Aadhar card, passport etc..)
  • Memorandum and articles of association of the companies, these documents should outline the company purposes, managements and terms and conditions. Both companies should submit the copy.
  • Certificate of Incorporation of the company, it is the company registration certificate. Both companies should submit the copy.
  • Bank account details and partners account details
  • Licence and permits which includes GST registration certificate.
  • No objection certificates
  • Photocopies of the parties who were involved in the agreement.

IMPORTANT TO NOTE

Once the joint venture agreement is registered, the party necessarily does certain procedures.

  • The joint venture partners should open a new bank account in the name of the joint venture account and must deposit all the capitals, assets of the both companies for the Tie up.
  • The joint ventures must obtain the necessary tax registrations which includes GST.
  • The joint venture should create the proposals which contain all the manuals and terms and conditions of the works.

All the procedures are completed by the joint venture so they can start the business.

ADVANTAGES OF THE JOINT VENTURE AGREEMENT

Joint venture agreements have several advantages, some of the important advantages are,

  • It increases the growth, profit and the productivity of the business.
  • It reduces the high financial risks and supports the business or the projects.
  • It gives the legal protection for the company and the capitals
  • It helps to reduce investment capital from other investors.
  • It helps to reach the goal quickly and the outcome should be shared equally themself.
  • It gives access to new markets, supports, and technology that cannot be achieved individually by the company.

RISKS OF THE JOINT VENTURE AGREEMENT

The major risks of the joint venture agreement are,

  • The risk may arise when the intellectual rights and the ownership rights over the resulting project or the new product.
  • The dispute resolution should not fix the potential problem that arises between the companies. 
  • Poor planning and lack of understanding.
  • The capital provided by the companies is not enough to achieve the goals. 
  • Before achieving the goal the mentioned time period is covered and the agreement may become void in certain situations.

DIFFERENCE BETWEEN JOINT VENTURE AND PARTNERSHIP

There are certain differences between the joint venture and the partnership, generally the joint venture agreement is determined by the terms and consciousness of the agreement and the tax should be paid separately for the revenues earned. But the partnership is two or more people jointly involved in the business. Partnership is not an entity but acts under the legislation of the contract act. Partners are personally liable for all the obligations among themself. But the joint venture extends the whole company to be liable for the specific act. These are the common differences between the partnership and the joint venture.

AGREEMENTS FROM LE INTELLIGENSIA

At Le Intelligensia, we can help you to create unique and legally valid joint venture agreements for your company. Our legal experts will draft the agreements according to your requirements. We do all types of drafting from personal to corporate.

FAQ

FAQ ON JOINT VENTURE AGREEMENT:

WHAT IS A JOINT VENTURE AGREEMENT ?

A joint venture agreement is a written agreement, when two or more persons or companies, organisations wish to work jointly together or for the achievement of the common goal for the particular period.

WHO CAN ENTER JOINT VENTURE AGREEMENT ?

Any individual company or the business persons can enter into the joint venture agreement. The person or the company does not need to be in the same business or same in size.

WHY JOINT VENTURE AGREEMENT ?

The joint venture agreement which allows the company, organisations to achieve the new target, project for the particular time. There are many benefits there to enter into the joint venture.

  • Innovations of new products 
  • Low production costs 
  • Market Growth
  • Legal support
WHAT ARE THE IMPORTANT THINGS TO NOTE AFTER THE JOINT VENTURE REGISTRATION ?

Once the joint venture agreement is registered, the party necessarily does certain procedures.

  • The joint venture partners should open a new bank account in the name of the joint venture account and must deposit all the capitals, assets of the both companies for the Tie up.
  • The joint ventures must obtain the necessary tax registrations which includes GST.
  • The joint venture should create the proposals which contain all the manuals and terms and conditions of the works.

All the procedures are completed by the joint venture so they can start the business.

WHAT ARE THE RISKS OF THE JOINT VENTURE AGREEMENT?
  • The risk may arise when the intellectual rights and the ownership rights over the resulting project or the new product.
  • The dispute resolution should not fix the potential problem that arises between the companies. 
  • Poor planning and lack of understanding.
  • The capital provided by the companies is not enough to achieve the goals. 
  • Before achieving the goal the mentioned time period is covered and the agreement may become void in certain situations.
JOINT VENTURE AGREEMENT
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