Joint Venture Companies

What is a joint venture company?

A joint venture company is a company set up by 2 or more parties usually for a specific purpose.  For example, if 2 companies wanted to work together on a new business opportunity, they may wish to create a separate company to carry out that work.

What is the benefit of having a joint venture company?

It is not a requirement to have a joint venture company.  If businesses wish to come together for a specific commercial purpose, they could simply agree to do so informally.  There are however a number of benefits to having a separate joint venture company (JVC), including:

1. Limited liability. The JVC can hold assets and enter into contracts in its own right.  Any liabilities arising in the JVC would typically remain with the JVC, rather than falling to any of the joint venture parties.
2. Share of ownership. Often in joint ventures, some parties make larger contributions than others to the project, whether that be financial contributions or other resources and know-how.  It may be appropriate for those partners contributing more to have a larger share of the eventual profits of the business, and therefore they may wish to have a larger share of the ownership of the JVC.
3. Control & decision-making. The owners of the JVC can set down how it is controlled at the outset.  This is particularly useful where:

• There are only 2 members of the JVC, and therefore it is important to set out what happens in the event of a deadlock on decision-making;
• The parties want to ensure each party to the JVC is to have a director on the board or, conversely, if a majority owner is to have more influence at board-level.

A consequential benefit of having a JVC is that the parties will have thought about key issues such as ownership, where intellectual property rights should vest, and decision-making issues right at the outset.  If the parties proceed with the joint venture on a more informal basis, then it is unlikely that these key aspects will have been thought about or discussed and as a result the parties could find themselves in deadlock or a difficult dispute at a later date.

How is a joint venture company set up?

Fundamentally there is no difference between setting up a JVC and another company.  Typically, a JVC will have tailor-made articles of association specifically dealing with issues such as deadlock at decision-making level.  The owners of the JVC may also want to have a separate shareholder agreement (also called joint venture agreements) setting out any commercially-sensitive agreements between them that they do not wish to be made public.  This could include separate agreements relating to:

• Profit sharing;
• Ownership of assets – in particular intellectual property rights;
• Termination of the joint venture – in particular the circumstances in which a member of the JVC might be compelled to leave, and the terms on which they may be bought out.

If you need any advice on joint venture companies, please contact a member of our corporate and commercial law team in confidence here or on 02920 829 100 for a free initial call to see how they can help.