Such an agreement is legally binding and clearly lays down the areas of cooperation and divergence, and makes provisions for profit-sharing and operations.
WHAT IS A JOINT VENTURE AGREEMENT?
A joint venture (JV) agreement is entered into by a group of persons or companies to do business together or to collaborate on a particular project without losing their individual legal identities. Such an agreement is legally binding and clearly lays down the areas of cooperation and divergence, and makes provisions for profit-sharing and operations. Usually, before entering into such a formal agreement, the parties sign a Memorandum of Understanding (MoU).
ADVANTAGE
- Low Risk A JV agreement allows you to do business with another party, while continuing to operate with your individual legal identity. Thus it is considered a low-risk option for sectors in which 100% FDI is allowed. JV agreements have been behind some of the biggest success stories in Indian business, such as Hero Honda, which was a JV between the Japanese Honda and the Indian Hero Motor Corp.
- Access New Markets A JV Agreement allows you to access newer markets and resources, and ensures the sharing of risk, without any of the disadvantages of operating as a single entity.
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FAQ
1. What is a Joint Venture?
A ‘Joint Venture’ is a structure where two or more businesses create a separate Joint Venture business to pursue a common goal. But any kind of collaboration with another company could be described as a Joint Venture.
2. What types of Joint Ventures are there?
- Setting up a separate Joint Venture company where each party has a shareholding and can appoint directors to carry out a specific project such as development of a new product. • Contractual arrangements such as entering into a distribution agreement. • Forming a partnership. • Merging two businesses.
3. How is a joint venture formed?
Joint ventures are usually formed through the legal procedures of creating a memorandum of understanding, a joint venture agreement, any ancillary agreements, and obtaining regulatory approval.
4. Who will be part of the Joint Venture?
The people contributing their assets to the Joint Venture will be the parties to the Joint Venture Agreement.
5. What is the purpose of a joint venture agreement?
It outline the project or object of the joint venture, the contributions and obligations of each member, the duration of the joint venture, the management of the joint venture, and the distribution of any revenues or expenses of the joint venture.
6. How do I start negotiating a Joint Venture?
- You can ask for a period of exclusive negotiation so you do not waste time and costs negotiating the Joint Venture if the other party pulls out. • You can agree to a Confidentiality Agreement to ensure all negotiations are kept confidential. • You can undertake a feasibility study and/or valuation first. • You can negotiate a Heads of Terms first.
7. What assets can be put into Joint Ventures?
- Any asset can be put into a Joint Venture e.g. employees, intellectual property, offices, customers and suppliers and their related contracts. • Contributions can be by outright transfer or by a lease or licence to the Joint Venture for a fixed or indefinite term. • The contributed assets will need to be valued and agreed with the Joint Venture partner.
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