Joint Venture Agreement
Joint Ventures are a business arrangement between two companies looking to synergize their strengths. A joint Venture allows parties to leverage the other party’s skills and resources.
A Joint Venture Agreement is a contractual document that governs the relations between Joint Venture Partners. Some key clauses of a Joint Venture Agreement are:
Incorporation Clause: This Clause would talk about the setting up of the new entity/special purpose vehicle.
Purpose: This Clause highlights the reason behind the parties entering into a joint venture agreement.
Management clauses: The clauses which relate to these may include Management, Procedure at Board Meetings, Managing Director, and Shareholders Meeting (all about the prospective entity under the JVA).
Boilerplate Clauses: Standard clauses such as termination, indemnity, jurisdiction etc. are boilerplate clauses. These are common across all Joint venture agreements.
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Documents required for a Joint Venture
Now, let’s delve right into the different documents, agreements, and other requisites of a Joint Venture. There are mainly three steps of forming a joint venture, and each step consists of its own specific paperwork. These three steps and their respective documents are as follows:
Preliminary agreements: Term Sheets, Memorandum or Understanding or Letter of Intent.
The Joint Venture Agreement (the “JVA”): The heart of the Joint Venture formation process.
Other Requirements: Smaller agreements which ensure smooth functioning of the Joint Venture.
Memorandum of understanding (“MoU”) for a Joint Venture Agreement
A MoU, forms the basis for the prospective Joint Venture Agreement. Although such MoUs are non-binding, certain clauses like confidentiality, non-compete, non-solicit, etc., are made binding.
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Term Sheet for a Joint Venture Agreement
Term Sheets are along the same lines as MoU/LoI and serve almost the same purpose. However, Term Sheets are more direct. A Term Sheet for a JVA will focus much less on formalities and straightaway list down the main deal points of the joint venture arrangement. So, you can assume that it’s more about preference whether one executes a MoU/LoI or a Term Sheet.
Requirements for the Formation of a Joint Venture
Although we’ve already gone through the major requirements, let us not forget the previously mentioned third step, i.e, the other agreements necessary for the proper functioning of a joint venture. You already know that the parties to a JVA must pool in their resources to set up the prospective entity. For this purpose, the following are required:
Business Transfer Agreement: A party to a JVA might want to contribute certain assets or technical know-how to the prospective joint venture. Or, perhaps a party may even want to transfer their whole business to this new entity. Either way, for this purpose, a Business Transfer Agreement needs to be executed to effectuate the same.
Transfer of Intellectual Property: Intellectual Property like Patents are instrumental in providing the necessary leverage to the new entity. For this purpose, the parties to the contract need to License and/or Assign their intellectual property to the new entity. Such Assignment or Licensing can either be incorporated as clauses in the JVA itself, or separate agreements with regards to these can be executed.
Joint Ventures in the Real Estate and Construction Sector
JVAs are deployed across industries whenever two parties seek to collaborate. The Real-Estate and Construction Sectors are no different. A classic example of such a venture is where one party merely provides the land for developmental purposes, whereas the other party provides all the resources, construction materials and takes the pain to build the project. And then, profits are shared between the parties.
The JVAs in the Real-Estate sector are often referred to as Joint Development Agreements (“JDA”). This terminology is prevalent in the real-estate sector. In a JDA, no new entity is created under the agreement between the parties.
A Joint Venture Agreement hence is a complex agreement and before you enter into the same, do consult a lawyer. A lawyer would counsel you on the various clauses and would also assist you in the negotiation process.