With any new business undertaking, the first and foremost priority is to establish that your prospective “partner” possesses the qualities to ensure a successful business relationship.
When that has been crossed off the list, the parties will determine which type of Joint Venture is best for the circumstances.
The last step to making it official, is drawing up a Joint Venture Agreement to regulate the formation and operations of the joint venture.
Take note:
A modified Shareholder’s Agreement will be used for Incorporated Joint Ventures.
What must be in the Joint Venture Agreement
Notwithstanding the differences between an Incorporated and Unincorporated Joint Venture, the agreement should at least comply with the following basic framework:
- The purpose for the formation of the Joint Venture
- Limitation to creating a partnership or agency
- The name, address etc of the Venture
- Whether the venture will exclude the participants from participating in other joint ventures with a similar purpose or not
- The duration of the venture
- The stakeholders and their participation ratios in terms of voting, profits and losses
- Contributions and obligations of the various participants
- Composition of the Exco, Management Council or Board of Directors
- The duties of the Exco, Management Council or Board of Directors
- Meetings and procedure at meetings of the exco, Management Council or Board of Directors
- Powers of the exco, Management Council or Board of Directors
- Alternative dispute resolution
- Administration and Financial Management of the Venture
- Termination of the Venture
This framework will be different for each case. The provisions of each section should be drafted with careful and skilled consideration of aspects like taxation, the type of Joint Venture, sector-specific challenges, and general compliance requirements.
Where Incorporated Joint Ventures are utilized, the Memorandum of Incorporation of the company may have to be amended or specifically drafted to accommodate the provisions of the Shareholder’s Agreement.
Joint Venture Agreements in respect of Incorporated Joint Ventures will typically contain express provisions dealing with the requirements of the Companies Act. For instance, the issuing of shares, take over regulations, etc. It will similarly not contain provisions the Companies Act have already provided for.
Experienced Professionals will also make provision for adequate structures to ensure proper corporate governance of both unincorporated and Incorporated Joint Ventures.
