Joint venture
In a joint venture (“JV”) two or more parties, usually investors or existing businesses, join hands for purposes of carrying a business for mutual benefit. A joint venture can be entered into to access markets, pool resources together to achieve economies of scale, access financing, spread and share risks where a project could be too big.
Though the term is used widely and at times loosely in everyday life it may refer to arrangements such as those below:
- Where two or more investors come together and form another entity such as an incorporated company through which they carry out the common business
- Where two or more investors do not form a separate legal entity but simply engage in a joint operation and share profits and losses.
- The more common one where a new or small entrepreneur has a business opportunity but lacks facilities, order finance or working capital. He / she approaches a financier or bigger or established entrepreneur for funding in exchange for share of profits from the order or supply contract.
Key aspects to include in a joint venture agreement
A joint venture agreement should cover the following aspects:
- The parties to the JV. This is not obvious and can be interesting at times.
- The nature of the business to be carried out
- What each party will bring into the JV
- Rights and obligations of each party
- If a separate entity is to be incorporated, the nature of the entity, its name, and cover issues normally covered in a shareholders’ agreement or even draw up and sign a separate shareholders agreement. This may include appointment and removal of directors, management structure, etc.
- Duration of the JV
- Dissolution of the JV and what happens on dissolution.
- Non-compete or restrictive conditions during the subsistence of the JV
- Access to JV information
- Accounting and reporting
- Taxation
- Legal and compliance issues
- Dispute resolution.
If the above issues are not addressed adequately or are omitted erroneously this may provide a fertile breeding ground for commercial disputes or failure of the JV. Parties are therefore advised to engage their business, financial and legal advisors in order to cover all key aspects adequately.
Godknows Hofisi is a lawyer, chartered accountant and business rescue practitioner. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
