Types of Joint Ventures
By Werner van Rooyen, Director of HowToTender (Pty) Ltd which specializes in tender consulting and tender training.
The structure of the joint venture should set out the nature of your partnership. There are two main types of agreements:
- If the joint venture is a business, it will be an incorporated joint venture. This type is not recommended when one wants to respond to a competitive bid or a request for quotation.
- A co-operative arrangement between two existing parties that keep their separate identities is called a contractual joint venture. This type of joint venture is the safest option to use in responding ton tenders.
In both types mentioned above a Joint Venture Agreement (JVA) is crucial in managing the joint venture.
The joint venture agreement should include:
- Objectives: keep it simple and try to have no more than five objectives.
- Funding: both parties need to specify how much funding they will put into the venture, and for how long.
- Assets: list any assets or employees that will be transferred throughout the duration of the joint venture.
- Intellectual property: state who owns any intellectual property created during the joint venture and how any financial benefits will be distributed.
- Roles: clearly indicate who has responsibility for the processes involved during the joint venture. If you are setting up a new company, the composition of the Board – e.g. Chief Executive and Chief Financial Officer - should be identified and voting rights agreed.
- Agreement: incorporated joint venture agreements may also need to include a shareholders’ agreement, covering issues such as dividend policy and how the management accounts will be produced and made available.
- Third parties: any consents or approvals needed from third parties should be explained in the agreement.
- Finances: state how any profits or losses will be divided between parties. Liabilities must also be clearly listed.
- Disputes: specify a mechanism by which any disputes can be resolved, such as arbitration by an agreed third party.
- Duration: specify how long the joint venture would last. If it is open-ended the agreement should state the period of notice that each party should give if they want to withdraw.
- Confidentiality: you may wish to consider a confidentiality or non-disclosure agreement.
- Principles: include a statement that is not legally binding on the two parties. Instead it should be a statement of principles – enabling the parties to negotiate a final, legally definitive agreement in good faith.
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