Joint Venture Agreement

What is a Joint Venture Agreement?

A Joint Venture Agreement is a contract between two or more individuals or businesses who would like to undertake a new discrete project, start a new service, or do some other type of specific work together in order to make a profit.

Importantly, there are several different structures that joint ventures may take. One of the most common structures is for parties to simply enter a contract together, agreeing to do certain things together. However, in some other cases, parties choose to create a company or some other legal entity together for the sole purpose of undertaking the Joint Venture.

This Joint Venture Agreement does not create a company or any other legal structure. It is simply a contract between the various parties. It says what the parties will do together, and what their various rights and obligations will be.

What is the difference between a Joint Venture Agreement and a company?

The term "joint venture" gets used in a number of different contexts. It can apply to many different structures when several parties are planning to work together on a project.

This Joint Venture Agreement is just a contract between several parties. It sets out what the parties will do together, and what their various rights and obligations will be.

On the other hand, a company is a separate legal entity. In some cases, the parties may decide that it is more suitable to set up a brand new company together and to run the joint venture that way.

What is the difference between a Joint Venture Agreement and a Partnership Agreement?

A Joint Venture Agreement is more limited than a Partnership Agreement. In a joint venture, the parties are only working together for one specific activity (for example, to develop and sell one piece of real estate). A Joint Venture Agreement usually has a defined end point. For example, the joint venture will generally come to any end once the relevant project is complete.

By contrast, in a partnership, the parties may work together on an ongoing basis (for example, by continually buying, developing, and selling different pieces of real estate).

Is it mandatory to have a Joint Venture Agreement?

No, it is not mandatory to have a written Joint Venture Agreement. However, it is highly advisable to have one. Having a written Joint Venture Agreement helps protect the interests of all parties. It also helps ensure that the parties understand the terms, are able to cooperate throughout the project, and are able to enforce their rights if an issue arises.

What is not allowed in a Joint Venture Agreement?

The parties should make sure that their project does not amount to "anti competitive" or "cartel conduct" under Australian competition law. If the parties are normally competitors in their market, and the project is likely to lessen competition, then this is a risk and the parties could risk significant penalties.

The Competition and Consumer Act 2010 (Cth) ("CCA") deals with various anti competitive practices and cartel conduct in Australia. This includes such things as price fixing, output restrictions, market sharing, bid rigging, exclusive dealing and various other actions and agreements in which competing businesses may engage, in order to reduce competition in their market. The CCA prohibits much of this conduct, and imposes significant penalties on businesses that engage in it.

• "Price fixing", for example, may occur if the parties are making some kind of secret agreement to fix their prices (ie to keep them artificially high) rather than competing openly against each other.
• "Output restrictions" may occur when competitors agree to prevent, restrict or limit the volume or type of particular goods or services available to consumers. This may be intended to reduce the available supply of particular goods or services, in order to increase the price of those goods or services on the market.
• "Market sharing" may occur when competitors agree to divide or allocate customers, suppliers, or territories among themselves rather than allowing competitive market forces to work. Market sharing restricts competition, forces prices up, and reduces choice in relation to price and quality for consumers and other businesses.
• "Bid rigging", which may also be referred to as "collusive tendering" may occur when two or more competitors agree they will not compete genuinely with each other for tenders. Instead, they choose to allow one of the parties to "win" the tender. They may take turns to be the "winner" by agreeing the manner in which they submit tenders, including by some competitors agreeing not to tender. Bid rigging leads to uncompetitive tender processes that can result in organisations paying higher prices for goods or services, or receiving lower quality goods or services.
• "Exclusive dealing" refers generally to some kind of exclusive dealing between the parties, for the purpose, or with the effect or likely effect, of substantially lessening competition (whether competition between the parties, or competition more generally).

If the parties have any concerns at all about whether or not they are going to be affected by these laws, they should strongly consider obtaining legal advice. This Agreement is only designed for use among parties which are not engaging in anti competitive or cartel conduct. Further information is available on the website of the Australian Competition and Consumer Commission.

Who can enter into a Joint Venture Agreement?

This Joint Venture Agreement may be used by two or more parties. The parties can be sole traders, partnerships or companies. They may also use a trust structure if they choose to.

What can be the duration of a Joint Venture Agreement?

There is no mandatory timeframe for a Joint Venture Agreement. Usually, a Joint Venture is established in order to complete a specific project. Therefore, the joint venture usually terminates when the project is complete.

What has to be done once a Joint Venture Agreement is ready?

When this document is ready, it may be signed by all parties and dated. Each party can keep a copy for their records.

Is it necessary to have witnesses for a Joint Venture Agreement?

No, witnesses are not mandatory for a Joint Venture Agreement, but they are useful for evidentiary purposes. If there is ever a dispute over the Agreement, witnesses can help to prove that each party's signature is valid.

Witnesses should be independent adults (aged over 18), who have the mental capacity to understand what they are doing. They should not be related to one of the parties. This means the parties can not witness each other, and people closely connected to the parties (such as their respective spouses) should not act as witnesses either.

What must a Joint Venture Agreement contain?

This Joint Venture Agreement should include the following information:

• Purpose: a brief description of the purpose of the Joint Venture
• Party information: the legal names and addresses of the parties involved in the joint venture
• Capital contributions: a description of the cash initially contributed to the joint venture by each party
• Ownership interest: a description of the percent of the Joint Venture owned by each party
• Profit/Loss distribution: a description of how the profits and losses of the Joint Venture will be distributed between the parties, often based on capital contributions and/or ownership interest
• Duties: a description of the duties of each of the parties
• Termination: how or when the Joint Venture will terminate
• Meetings: optional information about the time and structure of meetings
• Transference: boundaries on how interests in the Joint Venture may be transferred

This Joint Venture Agreement will cover all the ground needed for two or more parties or entities to begin a successful new project.

Which laws are applicable to a Joint Venture Agreement?

Common law principles of contract law may apply.

In addition, many forms of Joint Venture are also affected by specific legislation in Australia. For example, property developers, companies, and businesses may all be affected by industry specific legislation at the state or commonwealth level.

In addition, in some cases the Australian Consumer Law which is set out in the Competition and Consumer Act 2010 (Commonwealth), may also apply.

The parties may risk breaching the cartel provisions of the Competition and Consumer Act 2010 (Commonwealth) if they propose to engage in any kind of anti-competitive or cartel conduct.

If in doubt, seek legal advice.

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