Negotiating and documenting a joint venture

In practical terms a joint venture is no more than a series of inputs and outputs and various controls that are put in place monitor and assess them.  In reality the business dynamics are much more complicated as the battle for control of the joint venture unfolds as negotiations proceed to the documentation phase.

The purpose of the joint venture

Practically it makes sense that the joint venture have an overall  purpose.  This also assists to define and measure the restraints and non-competition clauses that the parties may consider agreeing to.

Exit strategy

If the parties are in agreement as to an exit plan, this can help to ensure that the parties are in agreement so that the inputs and outputs and the transaction documents that are drawn to control the arrangement reflect the planned exit.

Industry sector

One of the first things that we usually obtain instructions on is the industry sector that the joint venture is to operate in.   A mining joint venture will be significantly different than a joint venture to design and manufacture a mechanical or electrical product.

Inputs of each party

We have found that a good place to start is to consider what each party is to the joint venture is to contribute.  Each of the parties may be able to contribute various things that the joint venture needs including but not limited to:

• novating supply contracts;
• customers or clients;
• advancing moneys for the purpose of working capital;
• contributing in-kind services;
• contributing real or intangible property;
• contributing knowledge and expertise; and
• providing services.

Outputs for each party

Whilst not a precise label to apply to the meaning of this term we consider the outputs to be what the parties want to ‘take out’ of the joint venture.  This could for example be things such as:

• a salary;
• dividends;
• equity;
• key positions in the management hierarchy; and
• right to supply.

Key obligations of each moving forward

Once the key inputs and outputs are defined, it’s a matter of documenting a series of performance standards as they relate to each of them.   For example if one party has to provide a raw material of some kind, are their any quality standards that have to be adhered to?  What about availability?  Delivery times? There numerous standards or thresholds that have to be considered.

Ideal structure

Once the purpose, sector and the planned exit strategy are documented along with the planned inputs and outputs it is then appropriate to advise on the ideal joint venture vehicle.  Without documenting these things it is hard to provide relevant advice.  There are numerous tax considerations to be taken into account in this regard.  The ideal structure will depend on a variety of factors not limited to those listed above.

Further information

If you would like to work with a law firm that works hard to protect and enhance the value of your input into a joint venture feel free to reach out and contact me for a confidential and obligation free discussion about how we can assist:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.