A Joint Venture Agreement takes place when two or more individuals or entities plan to undertake a project instead of a long-term continuing business and decide to mutually share the profit or loss at the end of such project.
Types of Joint Venture
Joint Venture Agreements can be of three types:
(a) Contractual Joint Venture: In this type of arrangement, the terms, obligations, and liabilities of the parties are set forth in a written instrument signed by both the parties;
(b) Corporate Joint Venture: Here, the obligations, terms and liabilities are also set forth in a written agreement, however, this Agreement is much more extensive and it intends to make the incorporation of Joint Venture as a separate legal entity; and
(c) Unit Trust Joint Venture: In this type of arrangement, a Unit Trust is established to combine some of the features of a Contractual Joint Venture with those of a corporate one.
Essentials of a Joint Venture Agreement
A standard Joint Venture Agreement should contain:
(a) The Introductory Clause: This Clause contains the name of the parties, the name of a Joint Venture Agreement, the principal place of business, terms of the Agreement and the purpose of the Joint Venture.
(b) The Definition or Interpretation Clause: The various key terms that are being used in the agreement are described in this Clause.
(c) The Capital Contribution Clause: This Clause contains capital contributed by each venturer to enable the Joint Venture to carry out the purpose as mutually agreed upon.
(d) The Profit and Loss Clause: This Clause confers that all profits shall be distributed based on the percentage interest in the Joint Venture. All losses and disbursement in acquiring the business interest shall be paid by the co-venturers in the ratio of their contributions.
(e) The Rights and Obligations Clause: This Clause pertains to the roles, responsibilities and obligations of the Joint Venture parties. Their power to:
(i) borrow money in the name of Joint Venture;
(ii) to make loan in any amount, to guarantee obligations;
(iii) to purchase property; and
(iv) to sell, encumber or mortgage in any of the Joint Venture property.
(f) The Deadlock Clause: As per this Clause, in the event of disagreement on the conduct and affairs of the Joint Venture, then any one of the parties may elect to purchase the interest of other co-venturer.
(g) The Interests Clause: This Clause ensures that no venturer can transfer, sell, assign or encumber its interest without the consent of the other venturer.
(h) The Termination Clause: This Clause describes the rights and responsibilities of the parties upon withdrawal and termination.
(i) The Dispute Resolution: As per this Clause, a venturer shall have the right to refer to arbitration, any dispute arising out of the Agreement which otherwise, cannot be resolved through negotiation or mediation.
(j) The Governing Law Clause: This includes the Agreement terms to be governed by and enforced as per the relevant State or Territorial law.
This article is designed to give some insight into the complexities of a Joint Venture, and the resulting liability of the co-venturers.
A comprehensive, well-crafted formal Joint Venture Agreement would help to minimise the liability of the co-venturers. For assistance, feel free to contact our team of experts at Owen Hodge Lawyers.
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