Joint Venture Agreement

In a merger, two companies combine to form a single new entity. In a Joint Venture, the original companies remain independent but collaborate on a specific project or business objective through a separate agreement.

An Equity JV involves the formation of a new, separate legal entity (like a Co. or LLP) where partners hold shares. A Contractual JV is based purely on a contract without creating a new legal body.

The primary drivers are sharing risks, pooling resources, accessing new markets (especially international ones), and gaining access to specialized technology or expertise.

A JV can be “project-based” (terminating once the goal is achieved) or “time-based” (lasting for a set number of years with renewal options).

Management is usually overseen by a Management Committee or a Board of Directors, with representatives from each participating party as defined in the agreement.

A deadlock occurs when the partners cannot agree on a critical decision. Agreements usually include a “Deadlock Resolution Clause” involving mediation, a casting vote, or a “buy-sell” provision.

The agreement specifies “Reserved Matters”—major decisions (like taking a loan or changing business lines) that require unanimous consent—while day-to-day operations may be delegated.

Voting rights are typically proportionate to the capital contribution of each partner, though “Veto Rights” can be granted to minority partners for specific protective measures.

Profits are generally distributed based on the equity stake or the percentage of contribution defined in the agreement, after accounting for operational expenses.

Contributions can include “In-kind” assets such as Intellectual Property (patents/trademarks), technical know-how, land, machinery, or existing distribution networks.

A capital call is a request for partners to provide additional funds to the venture if the initial capital is exhausted or if expansion is required.

The agreement must specify whether the new IP belongs to the JV entity, is jointly owned by the partners, or belongs to the partner who developed it.

It prevents partners from starting or investing in a competing business that would undermine the Joint Venture’s objectives during the term of the agreement.

In an incorporated JV, liability is generally limited to the entity. In a contractual JV, partners may be “jointly and severally” liable unless the agreement specifies otherwise.

Most international JVs choose “International Arbitration” (e.g., SIAC or LCIA) and a neutral governing law to ensure fair resolution outside of local courts.

If a majority partner decides to sell their stake, a “Tag-Along” right allows the minority partner to join the sale on the same terms, protecting them from being left with an unknown partner.

This allows a majority partner to force a minority partner to join in the sale of the company to a third party, ensuring a 100% transfer of the business.

Common triggers include completion of the project, expiration of the term, material breach of contract, or mutual agreement to dissolve.

A pre-planned method for a partner to leave the JV, which may involve an Initial Public Offering (IPO), a “Put Option” (selling to the other partner), or a third-party sale.

The agreement outlines a liquidation process where liabilities are paid off first, and remaining assets are distributed among partners according to their shareholding.