A Joint Venture is generally understood as a collaboration in the technical and/or financial aspect, and either in the form of projects, take-overs, or alliances between existing companies. There are instances where some companies, both big or small in size, consider collaborating on projects, where they share their resources, and at the same time preserve their individual identities and interests. Such a joint venture or collaboration provides businesses with a push to grow faster, and at the same time increase their productivity, efficiency, and the ability to generate greater profits. Moreover, it also provides the company with an opportunity to gain access to the new markets and distribution networks, increased capacity. Further, having a partner company to share the risks and costs (i.e. liability), and having an access to better resources, including specialized staff, technology, and finance are some other advantages of a Joint venture. The purpose of the joint Venture Agreement is primarily to straighten out and clarify the relationship of the parties in these situations. Such an agreement is binding by law and lays down certain essential details such as details about profit sharing, operations, and the areas of cooperation and divergence. At IPLF, our team of professionals is well versed with all factual and legal scenarios that are primarily required to engage in drafting a sound Joint Venture Agreement.
1. Understanding requirement
Firstly, the most important step is to understand the requirements of the contracting parties, including companies that collect the resources and combine for projects that they intend to do.
Pursuant to this, a detailed discussion occurs amongst the companies that want to participate in the venture, in order to finalize the terms of the contract.
3. Drafting and finalization
After a detailed discussion between the parties, our experts would draft the contract and give that contract to the clients for their reviews. Once the clients approve all the details, the Joint Venture Agreement is finalized.
- Governance structure of the Joint Venture.
- Contribution of each party.
- How profits, losses, and liabilities will be shared.
- Dispute resolution provisions.
- Exit and termination procedures.
1. Can a joint venture agreement be oral?
A joint venture agreement can be either oral or written. However, for the purposes of convenience, it is recommended to go for a written agreement. This helps in avoiding confusion and disputes at a later stage.
2. What are the alternatives to Joint Venture Agreements?
Partnerships, Mergers & Acquisitions (M&A) are alternatives to a joint venture. However, these alternatives come with their own advantages and disadvantages. A joint venture is preferable as a structure for 2 companies that have a desire and willingness to collaborate only for the purposes of a single or a few projects.
3. Do you need to register a joint venture agreement? If so, what is the registration process?
In a case where the Joint Venture is merely a document that specifies the terms and conditions between the parties, registration is not mandatory per se, even though it is advisable. However, registration becomes compulsory in case the Joint Venture is formed as a Company.
4. What is the duration of a joint venture agreement?
Joint ventures are non-transferable. Consequently, they do not encompass the creation of a new entity unless the parties agree to go for LLC, whereby, that business model shall be able to last usually for 5-7 years.
5. What are the basic features of entering into Joint Venture Agreement?
- Contribution by partners of money, property, effort, knowledge, skill, or other assets to the common undertaking.
- Right of mutual control or management of the property in the enterprise.
- Right to share in the profit and loss of the property