A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.
If two previously independent companies form a new company, or if they decide that one partner will invest in the other, then a so-called "equity joint venture" is formed. Another option for cooperation is the so-called "contractual joint venture", in which two companies coordinate their business activities.
Regardless of how they coordinate business activities, it is important to define the mutual interests as clearly as possible, to create synergies and not to conceal differences. After all, it's all about trust, especially in international business dealings. At the same time, the agreement must be legally sound and secure.
That is why joint venture companies with foreign partners rarely come about at short notice. In most cases, the establishment of a joint venture company is preceded by a long phase in which the partners work together in a different capacity. A typical situation is that the foreign partner previously worked for the local company in one way or another on the foreign market. If the local entrepreneur realizes that the founding of his own company can give him greater opportunities for influence and flexibility, and sometimes also tax benefits, he will face the decision to either give up the former partner or to work together with him. For the latter — apart from the usual considerations on synergy effects, loss of know-how etc. — especially in foreign countries, it can be said that the trust that has grown in possibly years of cooperation is highly valuable, and should not be abandoned lightly.
The formation of a new company involving at least two partners is generally preceded by the negotiation of a joint venture agreement. The joint venture contract is not to be confused with the Articles of Association of the company, one of the founding documents of a limited liability company (often referred to as "bylaws"). Rather, a joint venture agreement is the private agreement of the future shareholders on the intended and stipulated structure of the company, the relationship of the shareholders to each other, fundamental questions of business policy and the rules on the formation of a common prior to the actual formation of a company. The joint venture company will, if necessary, also have obligations to be entered into, such as to the shareholders.
Typically, a joint venture contract governs the following issues:
- Legal form, name and registered office of the joint company
- Amount of the respective shareholding or their proportional relationship to each other
- Purpose of the company
- Desired start and end of business
- Fiscal year, time and place of the shareholders' meeting
- Deviating from the statutory quorums and majorities in shareholder meeting and board or other bodies
- Special resolutions
- The nomination right for positions to be filled within the new company
- Restrictions on the transfer of shares
- Rules for increasing capital
- Non-competition clauses
- Confidentiality clauses
- Corporate authorizations
- Termination provisions
- Conflict resolution mechanisms
The Joint Venture Agreement may also include other matters, such as the text of the Company's Articles of Association or a list of persons who are to take up certain positions at the beginning.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.