Joint Ventures
We will recommend a suitable corporate form, put together a robust set of project documents and help with any licencing requirements
A joint venture is an arrangement to allow participants to pool the efforts together toward achieving a common objective. Often the participants have distinct competences, the combination of which is necessary to secure the objective.
Joint ventures often involve the use of a corporate vehicle but they may be also implemented in a variety of other forms. An obvious choice for a joint venture is a limited company, where the participants come in as shareholders. A limited partnership may be another suitable form. A joint venture may be also structured by way of an agreement (rather than using a corporate form), for example through: a partnership agreement, a cooperation agreement, a franchise agreement, lease or a distribution agreement. Using a corporate form means that the joint venture builds on the statutory framework, including accounting and taxation rules. Using a partnership or other form of agreement (without a corporate vehicle) means that the joint venture can operate within a more bespoke framework.
The circumstances will dictate the more suitable form for the joint venture. For example, the form of joint venture will depend on the nature of the project, whether the project is asset or finance intensive, on the nature and location of the contemplated activities.
When contemplating the participants will need to consider the distribution of decision-making powers and financing requirements. But there are other important elements to a joint venture, some of which are referred to below:
- will any competition clearance be required?
- does the host jurisdiction apply any restriction on foreign ownership?
- does the host jurisdiction require that any specific licence(s) be obtained?
- does the host (or any intervening) jurisdiction(s) have suitable taxation regime(s)?
- can the joint venture be efficiently funded, for example with reference to any withholding taxes on interest or foreign exchange controls?
- will the participants be able to efficiently channel dividends or other distributions from the joint venture? Are there any bilateral investment treaties that can be relied upon to that end?
- will the participants be required to report the joint venture in their home jurisdictions (the ‘controlled foreign company’ (CFC) requirements)?
The participants may also wish to consider accounting applicable to their investment: for example, will any specific participant wish that the joint venture is consolidated in the accounts (or, to the contrary, that equity accounting applies)?
As experienced joint venturers will know, some host jurisdictions do not have friendly legal regimes and that careful structuring may be required. By way of example, developing host countries often impose at least 50% local ownership, require to have local company directors and have restrictive rules on corporate governance.
Finally, participants may need to consider termination / exit situations. Of course, joint ventures can come to end for a variety of reasons, for example upon realisation of the objective or due to lack of funds.
Another scenario is where the participants sell out of the joint venture either by way of private sale or an IPO.
