Tag: Joint Venture Agreements

Corporate Law

Joint Venture Agreements | Core Aspects

Joint Venture Parslows InternationalJoint Venture Agreements | Core Aspects

Finding the right “Joint Venture” partner can open up new markets and distribution networks, and combining distinct skills and resources of separate but complimentary businesses should make achieving common objectives easier.  As compared to going it alone, a joint venture eases the level of resource commitment (financial or otherwise) of each joint venture party.

However, it is by no means free from potentially fundamental difficulties.  The set-up and operation of a separate joint venture vehicle often means additional cost in both monetary terms and human resource.  If contributions are not purely monetary there may be disagreement as to the value each party brings to the arrangement and, in turn, expectations as to control and financial return.

Most often, joint venture parties will be separate businesses with separate leadership, used to autonomy in decision making.  That can also create tensions as to the division of control in relation to their joint enterprise.  If those originating businesses operate in the same space then competing interests can also mean frictions arise.

A joint venture agreement will not resolve such commercial issues.  It can however bring into focus the parties’ respective expectations, and identify and address potential problems at an early stage, which may create more fundamental difficulties further down the line, when less easily resolved.

Having determined that operating through a separate jointly owned company is the right model, what should the respective holders ensure that the agreement governing the venture will cover?  Unsurprisingly, such an agreement will to an extent need to be tailored to the particular circumstances of the parties and their business, but there are common aspects one would expect to be included.

Identifying the exact nature and scope of the new undertaking’s activities is fundamental.  The term of the agreement should also be set out – is the venture to be finite to achieve a specific project within a given timeframe, or endure for the longer term?  Expectations as to turnover, and any geographical limitations (e.g. excluding territories in which one shareholder already operates) should also be incorporated.

The agreement should identify the contributions to the venture which the respective parties are obliged to provide and, if the joint venture is to be financed, how that financing will be serviced.  If the parties’ contributions by their nature create associated legal relationships, such as the licensing of intellectual property rights or the secondment of employees, the terms of those relationships should be clearly set out, possibly by way of separate stand-alone agreements.

The respective shareholders’ powers and in turn the levels of control can be a key area of friction.  If the equity in the business is not to be divided equally, shareholders with smaller interests will invariably seek minority protections, giving them a veto on critical decisions, such as the issue of further shares or acquisition and disposal of major assets.

If the essential nature of the respective shareholders’ ongoing commitments, financial returns or voting rights are not to be identical, then it may well be that having separate classes of shares will deal with that most effectively.

Balance of power is not an issue confined to shareholder level.  The directors will be the company’s governing mind, so each joint venture party will often want the ability to nominate a representative to the board, and to ensure the board meeting quorum and voting rights are structured so as to achieve the agreed balance of board level decision making powers.

Unrealistic profit expectation is another common cause of discord.  The understandable desire to expedite returns on investment may need to be tempered by the need to meet financing obligations or to reinvest into the business.  Joint venture partners must therefore understand their respective financial needs, and care should be taken before deciding to record in the shareholders agreement a commitment to fixed dividends.

The agreement should also address how and when shareholders will be able to exit the joint venture, and in what circumstances the venture should terminate, as well as the consequences of termination.  Those might include forced buy-sell mechanisms aimed at achieving a speedy determination of share value if deadlock arises on exit from the venture.  The parties will also want certain provisions of the agreement to survive termination, for example, confidentiality and non-compete / non-solicitation clauses.

The above is by no means an exhaustive summary of the provisions which a joint venture agreement might cover. Issues such as tax, dispute resolution mechanisms and employment matters may well have to be catered for.  However, this provides a flavour of the type of provisions that, if included, should produce an agreement creating a solid foundation for the sound operation of a joint venture.

If you require any further information, advice or assistance please contact our head of  Corporate/ M&A,  David Hill at david.hill@parslowsinternational.com

Corporate / M&A


Main Contact|  David Hill

Head | Cross Border & International Transactions, Corporate/M&A


Please note that the information provided on this website is for general information purposes only and is designed to provide you with an outline of the legal services we offer.  Whilst we endeavour to ensure our information is correct and useful, we make no representations or warranties regarding the accuracy or completeness of the information offered.  Information on our website does not constitute legal advice and Parslows accepts no liability for any loss or damage arising out of, or in connection with, the information found in this website.  Please consult a lawyer in the event that you require professional assurance that our information, and your interpretation of the same, is correct. 

News and Deals

Parslows International advises fintech firm joint venture and deployment of technology platform

fintech joint venture

Fintech joint venture and deployment of technology platform

Parslows International have acted for  a United Kingdom / Jersey fintech joint venture on the deployment of its technology platform to support online foreign exchange transactions.  Advocate Mason Birbeck led the team which advised on several aspects including:

  • Review of Service Level Agreement terms
  • compliance with Jersey’s regulation regime for money services business

If you require any further information, advice or assistance please contact Mason Birbeck on mason.birbeck@parslowsinternational.com

Corporate / M&A


Media Contact:

Sally Chinn
Parslows International
Tel: 01534 630530
Email: sally.chinn@parslowsjersey.com
https://parslowsinternational.com


Notes to Editors

Parslows International:

Parslows International is a niche law firm headquartered in Jersey, Channel Islands. It  provides specialist legal advice in Corporate law, Commercial law, Private Client and Trust work and Commercial property.  It has particular expertise that it can call on in cross-border, Mergers & Acquisitions and international transactions.

Parslows International lawyers have advised and assisted on transactions in many parts of the world including Australia, China, Dubai, much of the EU, Hong Kong, India, Kazakhstan, the United Kingdom, USA, the Republic of Ireland, Russia and Singapore.

Corporate Law

Framework for Successful Joint Venture Company

Successful Joint Venture CompanyFramework for Successful Joint Venture Company

Successful Joint Venture Company – There are various statistics bandied about as to the success rate for joint ventures.  A fairly conservative consensus puts that at around 40%.  So why do many businesses still choose to embark on joint ventures?

Having the right ‘JV’ partner can open up new markets and distribution networks, and logic dictates that combining distinct skills and resources of separate but complimentary businesses should make achieving common objectives easier.  As compared to going it alone, a joint venture eases the level of resource commitment (financial or otherwise) of each joint venture party.

What then are the factors that contribute to that statistical failure rate?  Establishing and running a separate joint venture vehicle often means additional cost in both monetary terms and human resources.  If contributions are not purely monetary there may be disagreement as to the value each party brings to the arrangement and, in turn, expectations as to control and financial return. This can impact on a successful joint venture company.

Inherently, a joint venture has as its origin separate businesses with separate leadership, used to autonomy in decision making.  That can also create tensions as to the division of control in relation to their joint enterprise.  If those originating businesses operate in the same space then competing interests can also come into play.

A joint venture agreement will not be a panacea for commercial issues such as those.  It can however set the framework identifying to each of the parties the others’ expectations, and bring into focus potential problems at the establishment stage, which they may otherwise come up against further down the line, when less easily resolved.

So, if, as a prospective joint venture partner, you have concluded due diligence on your proposed confederate(s) and determined that a separate company is the right model for a successful Joint Venture Company, what exactly should the agreement governing the venture cover?  While such a shareholders agreement will to an extent be bespoke to the particular circumstances, there are common aspects one would expect to be included.

Purpose and objectives

For obvious reasons, identifying the exact nature and scope of the new undertaking’s activities is fundamental.  The term of the agreement should be set out – is the venture to be finite to achieve a specific project within a given timeframe, or endure for the longer term?  Expectations as to turnover, and any geographical limitations (e.g. excluding territories in which a shareholder already operates) should also be incorporated.

Contributions and financing

The agreement should state the parties’ initial contributions, and any future commitments they are bound to provide.  Those might include, for example, cash, assets, facilities or intellectual property.  If, by their nature, the contributions create associated legal relationships, (e.g. the licensing of intellectual property rights or the secondment of employees), the terms of those relationships should also be stated, possibly by way of separate stand-alone agreement.

If secured third party financing is to be obtained then one should anticipate recording the requirement for charges over company’s assets and, potentially, secured guarantees from the shareholders, which, to one degree or another, would undermine the effectiveness of using a limited liability company to ring-fence the risk of the venture.

Control

Identified as one of the key areas of friction, it is critical that the agreement identifies the respective shareholders’ powers.  If the equity in the business is not to be divided equally, shareholders with smaller interests will often insist on minority protections, giving them a veto on critical decisions, such as the issue of further shares or acquisition / disposal of major assets.

If the essential nature of the respective shareholders’ ongoing commitments, financial returns or voting rights are not to be identical, then it may well be that having separate classes of shares will deal with that most effectively.

Balance of power is not an issue confined to shareholder level.  The directors will be the company’s governing mind, so the joint venture parties will invariably want the ability to appoint a representative to the board, and to ensure the board meeting quorum and voting rights are structured so as to achieve the agreed balance of board level decision making powers.

Financial return

Unrealistic profit expectation is another common cause of discord.  The desire for a speedy return on investment may need to be tempered by the need to meet third party financing obligations or to reinvest into the business.  Accordingly, care should be taken before deciding to record in the shareholders agreement a commitment to fixed dividends.

Exit

The agreement should also address how a shareholder will be able to exit the joint venture, and in what circumstances the venture should terminate, as well as the consequences of termination.  Those might include forced buy-sell mechanisms aimed at achieving a speedy determination of share value if deadlock arises on exit from the venture.  The parties will also want certain provisions of the agreement to survive termination, for example confidentiality and non-compete / non-solicitation clauses.

The above is by no means an exhaustive summary of the provisions which a joint venture shareholders agreement might cover.  Among others, issues such as tax, dispute resolution mechanisms and employment matters may well have to be catered for.  However, this provides a flavour of the type of provisions that, if included, should produce an agreement providing a solid foundation for the sound operation of a joint venture.

If you require any further information, advice or assistance in relation to Successful Joint Venture Company or any other advice on corporate law please contact Mason Birbeck at mason.birbeck@parslowsinternational.com

Corporate / M&A


Main Contact|  David Hill

Head |  Corporate/M&A


Please note that the information provided on this website is for general information purposes only and is designed to provide you with an outline of the legal services we offer.  Whilst we endeavour to ensure our information is correct and useful, we make no representations or warranties regarding the accuracy or completeness of the information offered.  Information on our website does not constitute legal advice and Parslows Jersey accepts no liability for any loss or damage arising out of, or in connection with, the information found in this website.  Please consult a lawyer in the event that you require professional assurance that our information, and your interpretation of the same, is correct.