JV - International Joint Ventures

At long last, specialists have agreed upon two model contracts for international joint ventures. Legal experts from a Geneva law firm who provided the initial drafts describe their features.
For several decades, companies’ legal departments secretly developed their own tailor-made joint venture contracts. They couldn’t do otherwise: no international model existed and no one dared to propose one in view of the diversity of legal cultures and practices.
A joint venture is a classic type of strategic alliance between two or more companies. It can be long or short term, and used for various activities: engineering, production and distribution, among others. It seemed that no model could suit all these needs and reconcile lawyers from diverse backgrounds. Yet the demand for international models was pressing.
In 1998, ITC conducted a worldwide survey on trade contracts. Over 245 trade promotion organizations (TPOs) from 125 countries responded. The survey showed that joint venture model contracts were requested and considered a priority by 77% of TPOs. Surprisingly, in less than two years a group of some 55 specialists from 45 countries, representing all legal cultures (see related article on ITC’s Pro-bono Committee on Model Joint Venture Contracts), have agreed on two models.
Help for small firms
Joint venture model contracts provide the international business community with models for two forms of joint venture agreements. The contracts are especially designed for small and medium-sized enterprises (SMEs) in emerging economies and developing markets. These model contracts take into account the particularities of specific business fields, as well as the requirements of civil and common law legal systems. Both the guidelines and the texts of the model contracts have been reviewed by international trade law experts from various professional, cultural and legal backgrounds.
Two options
A joint venture may be about the joint performance of a single-activity contract, or about the organization of long-term cooperation between parties. Model contracts are already available for short-term single-activity joint ventures, such as a construction contract. See, for example, the International Federation of Consulting Engineers’ (FIDIC) construction, plant and design build, and engineering. The joint venture model contracts vary with respect to both the objective of the joint venture and its joint implementation. As a result, two types of joint venture model contracts have been prepared: the first in view of creating a company; the second in view of cooperation without creating a company. These are applicable to different situations:
• Incorporated joint venture contract. This is a model to create one or more joint venture companies, which are legal entities established to carry out a common activity. In this case, the joint venture agreement helps to prepare the creation of a company in a specific country. In addition to the joint venture agreement, the cooperation of the parties requires further legal instruments, usually articles of incorporation of the company, by-laws and a shareholders’ agreement.
• Contractual joint venture contract. This model regulates cooperation between parties. A legal entity is not created, but a collaborative group exists. Only one legal instrument is usually necessary: the contractual joint venture agreement. Model agreements are suitable for most commercial and industrial activities for which joint ventures are used, including transportation, prospecting for and developing natural resources, and the hotel and tourism industry.
Topics
The model agreements address: initial and additional contributions of the parties; management and representation of the joint venture and/or the joint venture company; external and internal liability of the parties; sharing of profits and losses; deadlock resolution; acquisition; loss and transfer of partnership status; exclusion of a partner, end of the joint venture; and dispute resolution.