The term joint venture has no specific meaning in English law. It describes a commercial arrangement between two or more economically independent entities.
Parties may choose to enter into a joint venture to share costs on a significant project or as part of their strategic planning in particular industries or markets. The reasons for establishing a joint venture will vary from case to case.
The parties will need to decide whether to establish a separate legal entity as a vehicle for the joint venture. The four basic legal forms are:
· Limited liability Company.
· Limited liability partnership.
· Partnership (or limited partnership).
· A purely contractual co-operation agreement.
The corporate structure is often the most appropriate medium through which to conduct a business joint venture. As a separate legal entity, the joint venture can own and deal in assets and contract in its own right.
The main documents required to establish a corporate joint venture will be the joint venture agreement or shareholders' agreement and the company's articles of association. These documents should cover, between them, a number of constitutional aspects of the joint venture company and its day-to-day operations, including:
· The scope and purpose of the joint venture.
· How the joint venture is to be managed.
· The division of power between the parties and the extent of their influence over the management of the joint venture.
· The capitalization and financing of the company, including the respective contributions of the parties to the venture.
· The terms on which any party can transfer its shares to a third party.
· How to deal with disputes and deadlock between the parties.
· The circumstances in which the joint venture will terminate, including the mechanics and implications of termination.