Whilst the term ‘joint venture’ is used frequently in connection with business arrangements, there is no legal definition of a ‘joint venture’ in the UK.
Essentially, a joint venture (often referred to as a JV) is a collective term used to describe a range of different types of corporate, commercial or other arrangements between two or more persons (whether individuals and/or other legal persons, such as companies). They may take the form of business structures such as limited companies, limited liability partnerships, limited partnerships or partnerships, or may be purely contractual arrangements such as collaboration agreements, consortium agreements or strategic alliances.
The purpose, structure, duration and complexity of joint ventures can vary considerably. Depending on the circumstances, they may be local, national or international in their scope.
In general terms, any individual or other legal person (such as a company or LLP) may enter into a joint venture. In some business sectors there may be specific requirements relating to the identity of participants.
Whilst, a joint venture requires at least two parties, there is no maximum number of participants from a contractual perspective. It may be that the number of participants is limited directly or indirectly by other factors such as the business structure, business sector or practicality. If several parties are involved in the joint venture, it is likely that the overall arrangements will be more complex and that there will be an increased risk of disputes.
The specific identity of the parties to a joint venture agreement may be affected by factors such as the structure used for the joint venture, the nature of the contribution of the relevant party and the risks involved in the joint venture. By way of example, individuals (or groups of individuals) may establish a separate company to participate in a joint venture and existing companies may establish a subsidiary for that purpose.Usually all of the parties participating in the joint venture will be parties to the primary joint venture agreement relating to that joint venture (whether that takes the form of a corporate, partnership, limited liability partnership, contractual or other form of joint venture agreement). Depending on the structure, nature and complexity of the joint venture, the overall arrangements relating to the joint venture may require a significant number of additional documents relating to matters such as constitutional documents, intellectual property licences and employment contracts.
Just as there is no legal definition of a ‘joint venture’ in the UK, there are no specific legal requirements as to the form which a joint venture must take in the UK. Therefore, the parties wishing to enter into a joint venture have a number of choices of structure available to them. These are commonly divided into 2 main groups – entity joint ventures and contractual joint ventures.
Entity joint ventures in the UK include the use of a company, limited liability partnership, limited partnership or partnership structure. Each of these structures has a different degree of separation and independence from its owners.
Contractual joint ventures in the UK include arrangements such as collaboration agreements, consortium agreements and strategic alliances.
Your choice of structure for a joint venture is likely to depend on a variety of factors such as the nature, purpose, level of risk and intended duration of the joint venture, relevant business sector norms, legal issues, tax issues and the bargaining power of the relevant parties. It is important to have a clear business plan for any joint venture and to put in place a clear legal agreement relating to the establishment, management, development and exit from (or termination of) the joint venture.
In general terms, the 3 most common structures used are a corporate joint venture, a joint venture partnership and a contractual joint venture.
Joint venture agreements are contracts between the parties to the relevant joint venture. Their main purpose is to regulate the relationship between the parties to the joint venture agreement and the way in which they deal with the joint venture and, in the case of a separate entity joint venture, the way in which they deal with that separate entity (for example, a company or limited liability partnership).
They can take many different forms depending on factors such as the structure used for the joint venture (in particular, whether it is an entity joint venture or contractual joint venture), the nature and purpose of the joint venture, the reason for the joint venture, the comparative size and bargaining power of the joint venture parties and the roles of the parties in the joint venture.
There are no laws specifically relating to joint ventures and, in general terms, there is no legal requirement for the parties to a joint venture to enter into a formal written joint venture agreement in the UK.
It is usually in the interests of the parties to set out their respective rights and obligations in writing in order to provide clarity and to reduce the risk of disputes and litigation. Typically, a joint venture agreement will include provisions relating to matters such as the purpose of the joint venture, the roles of the parties; the assets, ownership, management and funding of the joint venture; the extraction of joint venture profits; the transferring of ownership; intellectual property; confidentiality; restrictive covenants; and the resolution of disputes between parties.
Where the terms of the contract between the joint venture parties have not been reduced to writing and there is disagreement, the terms of the arrangement may need to be identified from other sources (for example, communications between the parties) or laws relating to certain aspects of the joint venture (for example, company law, partnership law, LLP law, intellectual property law and employment law). Ambiguity as to the terms of the arrangements between joint venture parties can increase the risk of disputes and litigation. It may also result in any disputes becoming more protracted, complex and expensive.
Whilst there is no legal requirement for the participants in a joint venture to enter into a formal written joint venture agreement, it is good practice for the parties to put a joint venture agreement in place as early as possible and, preferably, at the outset before any meaningful steps are taken in connection with the joint venture. This applies irrespective of the structure, nature, size or business sector of the relevant joint venture.
This means that, in many cases, the parties who are involved in the joint venture at the beginning should enter into a joint venture agreement at the outset when the joint venture is created (whether the joint venture is to be established by means of a new company, LLP, limited partnership, partnership, contract or any other means). Typically, it will form part of a suite of documents agreed between the parties to the joint venture with the majority of the documents taking effect once the joint venture vehicle has been incorporated or contractual arrangements been completed.
A properly prepared joint venture agreement should provide a clear set of rules to regulate the relationship between the parties to the agreement enabling them to focus on building a successful joint venture business whilst reducing the risk of future disagreements and disputes between the joint venture parties. The process will also enable the parties to give full consideration to all relevant issues and ensure, as far as possible, that these are agreed at the beginning.
Where there is a delay in putting in place a joint venture agreement, there is an additional risk that some of the parties will not have considered all relevant issues fully at the outset or that they will change their position or expectations in relation to certain aspects of the joint venture over time (without a joint venture agreement in place) leaving greater opportunity for future disagreements and disputes between the joint venture parties. Any such problems will be enhanced where there is a lack of clear rules to regulate the relationship or any disputes between the joint venture parties (save to the extent that any such issue is dealt with by the articles of association (in the case of a joint venture company), relevant legislation or common law).
Orr Litchfield's corporate lawyers advise on a broad range of corporate and commercial joint ventures locally, nationally and internationally. Our joint ventures service includes Collaboration Agreements, Consortium Agreements, Strategic Alliances, Partnerships, Limited Partnerships, Limited Liability Partnerships, Limited Companies and European Economic Interest Groupings. These are often accompanied by other forms of commercial arrangements such as Intellectual Property licences, Management Agreements, Agency Agreements, Distribution Agreements or Franchise Agreements.
Our corporate lawyers are supported by Commercial, Competition, Employment, Intellectual Property, Commercial Property & Real Estate and Planning & Environmental legal experts, where required, to provide a full Joint Ventures service.
We work closely with pensions, tax and financial advisors to help our clients structure their joint ventures in the most efficient and effective way.
We regularly work on international joint ventures. Where required, we are able to obtain support for our clients from our international network of lawyers.