Joint Venture Agreement

What is a joint venture agreement?

A joint venture is a contract where two or more parties intend to work together on a project. The contract outlines the parties' rights and obligations as related to the joint venture.

For instance, when two companies create a joint venture to enter a new market, they combine their resources and expertise to minimise risks and share profits. A joint venture agreement provides legal protection for both parties by clearly defining the terms, which can be legally enforced if needed.

 

What is the difference between a joint venture agreement and a partnership agreement?

The major difference between a joint venture agreement and a partnership agreement is in the duration and scope of the relationship between the parties involved.

A Joint Venture is set up for the purpose of carrying out a specific project and usually has a defined end. The joint venture will generally come to an end once the project is completed.

For example, a vehicle manufacturer and a renewable energy company might form a joint venture to develop a new electric vehicle (EV) battery. This joint venture would last until the EV battery is fully developed and launched, after which the collaboration can be dissolved or extended.

On the other hand, a partnership is set up for the purpose of carrying out ongoing business operations for the sake of generating profit. There is usually no set endpoint for the partnership, as the aim is for the business to continue until it either fails or one or more of the partners terminate the partnership.

For example, a healthcare provider could enter into a partnership with an organic food producer to launch health and wellness centres. This partnership aims for longer-term operation.

 

Is it mandatory to have a joint venture agreement?

No, it is not mandatory to have a joint venture agreement. However, it is highly recommended to have one to govern the relationship between the parties. This is because the joint venture is created specifically to complete a project, and so a written agreement will help the parties accomplish this aim more smoothly.

 

Who can enter into a joint venture agreement?

The parties to a joint venture agreement can be either:

• A sole trader;
• A general partnership;
• An LLP; or
• A company (a private limited company or a public limited company).

There is also no limit to the number of parties to a joint venture agreement. However, this is dependent on the size, scale, and scope of the particular project being undertaken.

 

What can be the duration of a joint venture agreement?

There is no maximum duration required for a joint venture agreement. This is because a joint venture is set up to complete a specific project. As such, the duration of the agreement is dependent on when the parties anticipate the project will be completed.

 

What has to be done once a joint venture agreement is ready?

Once the parties are satisfied by the contents of the joint venture agreement, it should be signed and dated by all parties. All parties to the agreement should keep copies of the agreement. Where a party is a company, partnership or LLP, the agreement should be signed by a person authorised to sign the agreement on behalf of their respective organisation.

 

Is it necessary to witness a joint venture agreement?

Because a joint venture agreement may involve the exchange of property between the parties (e.g. contributing an office space or warehouse for the project), it may be necessary to have witnesses for the signing of the agreement. The witnesses must be valid witnesses. This means that the witness must be someone who is at least 18 years old and must not be related to any of the parties to the agreement.

 

Does a joint venture create a new company?

Joint ventures can be incorporated or unincorporated. Incorporated joint ventures create a new company, whereas unincorporated joint ventures, which are more common, do not. The choice between creating a new corporate entity or entering into a contractual arrangement depends on factors such as the project's complexity, duration, financial considerations, and appetite of the parties involved.

 

What must a joint venture agreement contain?

A joint venture agreement must contain:

• The details of all the parties;
• The nature and scope of the project;
• The specific contributions required of the parties;
• How the joint venture will be managed and controlled; and
• The duration and termination of the agreement.

 

Which laws are applicable to a joint venture agreement?

Partnerships Act 1890

Companies Act 2006

Corporation Tax Act 2010

 

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