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How do you create a Joint Venture Agreement and what are the rules for that?

How do you create a Joint Venture Agreement and what are the rules for that?

A joint venture (JV) is an agreement between two or more parties to combine their resources in order to carry out a certain objective. A new project or any other type of commercial activity can be this task. Joint ventures typically have the following traits:

  1. Partners contribute resources such as money, property, time, knowledge, skills, or other assets to the project at hand.
  2. A joint ownership stake in the project's subject matter.
  3. The right to share management or control of the business.
  4. The right to a property interest.

Types of Joint Venture Agreements:

There are two types of Joint Venture Agreement:

  • Type 1: Contractual: This kind of joint venture operates only under the terms of a written agreement.
  • Type 2: Separate legal entity: A limited liability company is used to form this kind of joint venture. To preserve their rights in the event of a future disagreement, the person must put the joint venture agreement in writing.

How Joint Ventures are created?

Joint ventures do not have a set legal framework. Your firm and the project may decide which format works best for your commercial relationship. In joint ventures,

  1. A contractual joint venture without a distinct legal structure and with agreed-upon terms.
  2. A stand-alone joint venture. A lawyer can advise you on the optimal legal structure for your company given that a joint venture can take many different forms.

Elements of a Joint Venture Agreement:

•       Joint venture types

•       Names and addresses of members

•       Voting and formal meeting requirements

•       Profit or loss allocation

•       Business address

•       Purpose of the agreement

•       Non-compete and confidentiality agreements

•       Duties and obligations

•       Assignment of percentage ownership

•       Dissolution terms

•       Joint Ventures and Taxation

Reasons to form a Joint Venture Agreement:

A corporation could seek to start a joint venture for a number of reasons. Some of the most significant causes are:

  • Your company can require or profit from resources that another business can provide.
  • To get better access to what might be a larger market; you wish to form an alliance.
  • You require the assistance of the rival business to produce new goods, services, or technologies.
  • You wish to build a bigger network in order to grow your business.
  • To reach new customers or boost sales, you must be able to capitalise on the reputation or brand image of other businesses.
  • You might be able to save back on project research and development expenses thanks to the partnership.
  • It may be advantageous for both businesses if you shared your knowledge.

Reasons for Termination of a Joint Venture Agreement:

The two businesses may decide to end their collaboration and dissolve their joint venture agreement for a variety of reasons, but some of the most frequent ones are as follows:

  • The possibility of one corporation purchasing the other company exists.
  • The collaboration might no longer be essential due to changes in the market.
  • There may be new objectives for one, both, or neither of the companies.
  • The contract's objective was not achieved.
  • It's possible that the joint venture's agreed objectives are no longer relevant.
  • The time frame specified in the contract is now past due.

Laws governing Joint Venture Agreements in India

Different laws that govern the Joint Venture Agreement in India are mentioned below

  • Companies Act, 2013 and various rules framed thereunder
  • Partnership Act, 1932
  • LLP Act, 2008
  • The Indian Contract Act, 1872
  • Foreign Exchange Management Act, 1999
  • Consolidated FDI Policy, 2020
  • RBI Policies
  • Competition Act, 2002
  • SEBI Guidelines (in case of listed company)

Rules for creating a Joint Venture Agreement:

There are certain rules that one should follow systematically so that while entering a joint venture agreement for tender, the rules are as follows:

  • Knowing the business opportunities: Knowing the company possibility can help you decide whether it is best to operate it alone or with a partner. Recognize whether the joint venture is the start of a merger or the formation of a legal partnership with a third party. Such long-term factors might have a significant impact on the joint venture's overall structure.
  • Non-disclosure Agreement: This is required so that you can be open and honest with the other party on all the details required. Make sure you ask the other party for the same thing, with all of your questions answered.
  • The mechanics: This requires a systematic understanding and clarity when establishing a joint venture with another party, particularly when it comes to the transfer of assets, intellectual property, or even personnel under a joint venture structure.
  • Joint venture contract: The related paperwork should be created after the legal and tax guidance has been obtained. Other documents, such shareholder agreements, partnership agreements, and articles of association, to name a few, must also be included.
  • Exclusivity Agreement: Creating an exclusivity agreement will ensure that neither you nor your business partner will accept a job offer from another company while the agreement is still in effect. It is also quite significant.
  • The structure of a joint venture: The joint venture's structure would outline the goals and factors to be taken into account, including any regulatory concerns or cross-border elements.

Conclusion

To ensure that the joint venture agreement for tender successfully happens, the above steps should be followed. And hence a professional attorney who has knowledge of the agreement of Joint Venture should be appointed.

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