They ensure how decisions are made and which party is in control of the decision-making. Depending on the jurisdiction of formation of the joint venture, governance structures can differ, but some general considerations apply. GovernanceĪs with any business relationship, governance plays an important role in the organization and operation of a joint venture. Which structure is most suitable will be fact-specific based on the commercial, legal, and tax issues, among others, at play in the relevant jurisdiction(s). The other is a contractual joint venture whereby the partners collaborate through contractual agreements without a separate legal entity intermediating. In the United States, a limited liability company (LLC) is often a preferred entity type due to its flexibility in terms of management and decision-making and the fact that it enjoys the benefit of pass-through taxation.
One is an equity joint venture, which involves the formation of a separate legal entity to house the joint venture business in which each joint venture partner holds an equity stake. Broadly speaking, there are two primary approaches. Once an appropriate partner is selected, the parties should understand and clearly document their respective legal rights and obligations.ĭepending on the jurisdiction and the goals of the parties, the structure of a joint venture can take various forms. In many cases, this will involve undertaking appropriate due diligence on one’s proposed joint venture partner prior to establishing the joint venture. Accordingly, choosing the correct partner-one that makes strategic business sense and with which there is a high level of trust-is fundamental. It is a relationship of trust between the parties that can last on a handshake. To state the obvious, a successful joint venture is more than just a well-drafted legal agreement. Partner SelectionĪ well-drafted legal agreement can protect parties against many issues, but it cannot prevent relationship breakdown and the irresolvable arguments that often result.
In this article, we explore some of the major considerations that joint venture partners should keep in mind when planning and establishing a joint venture, including partner selection, structure, governance, funding, investment value return, protection of goodwill, exit planning, and process management.
International joint ventures are complex strategic partnerships that involve a myriad of legal questions coupled with cultural and relationship complexities.
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