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A Joint Venture (JV) is a commercial agreement between two or more parties. It is common to enter into a JV as a way to share risk, partner with particular skills, raise finance and enter into new markets (alliances such as this are often helped by a partner's expertise or resources).
There is no specific JV law and the legal form will be determined by the nature and size of the enterprise, the identity and location of the parties as well as the commercial and financial objectives.
This article sets out a summary of the process of joining a joint venture and what your key considerations should be for this kind of business arrangement.
Take a step back.
JV discussions often start informally and, before getting too far down the line, it is always worth taking a step back to check that certain points have been considered. These include:Does a feasibility study need to be carried out to check the viability of the JV? This will largely depend on what each party will be bringing to the arrangement and the nature of the business to be carried out.What level of due diligence needs to be carried out on the parties to the JV?Have conflicts of interest issues been considered? Although the parties will be acting together with a view to create a successful JV conflicts will inevitably arise between the parties to the arrangement and separate legal representation needs to be considered.Should there be an agreement in place to cover exclusivity of negotiations and confidentiality of any information shared between the parties?Is any party subject to any particular legal or regulatory constraints (this may include licences required for the business or businesses, merger controls, financial assistance, the Takeover Code, State Aid etc.)?Will the parties enter into a letter of intent or heads of terms to cover the initial detail of the arrangement? If so, will this be binding (in whole or in part) on the parties?
Understand who is involved.
It is essential to understand which parties will be involved in the JV you are entering into. Things to consider are:Where are the parties incorporated and what is their legal form (for example, individuals, companies, partnerships)?Will the JV parties hold the interest in the JV directly or via a newly created vehicle?Who ultimately 'controls' each of the JV parties and who has the power to negotiate and make representations on behalf of each party?Will the JV vehicle itself be a party to the JV agreement?Where there is any cross-border element, consider the which laws will govern the trade of the JV. For example, tax and foreign currency exchange issues.
The structure used will depend on various factors including:Whether the joint venture vehicle already exists.Where the parties are based.Split in shareholding (50:50 or other split).Tax, regulation, further financingConfidentiality.Length of agreement.Involvement of certain individuals.
Common structures for a JV include:Limited liability companies.Partnerships (limited partnerships or limited liability partnerships).Contractual relationships (for example, service contracts or supply contracts).
Find out more here on how to select the right structure for your JV.
Before entering into a JV agreement or shareholders' agreement the parties should set out in a memorandum of understanding, or a heads of terms that outlines the key parameters of the relationship.
The heads of terms should be as comprehensive as possible. The contents will depend on the type of business of the JV but issues that are typically dealt with in the heads of terms include answers to the following questions:
Intellectual Property (IP). Parties should consider the following specific questions:
Employment. Parties should consider the following specific questions:
The above is only an indicative guide to some of the considerations around entering into a JV.
Please get in touch if you would like to discuss any of the above or your particular JV arrangements in more detail. Our legal experts are happy to talk you through all the details relevant to your requirements, services, costs and more.
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