A joint venture (JV) is a special form of business organization created by investors from various industries, countries or different business verticals. The bottom line is that each of the participants attracts assets to the creation of the business, has the right to profit distribution, but is also responsible for possible risks. Thus, a joint venture allows you not just to be partners for income distribution, but to set much more significant goals.
If investors want to create a joint venture, then it is necessary to take into account two legal forms for registration of the case – contractual and corporate. The first, in fact, is a partnership, when companies are united by a separate agreement without creating a single legal entity. A corporate joint venture involves the formation of a separate legal entity, as a rule, it is a Limited Liability Company (LLC) or a Joint Stock company (JSC). The interests of investors are fixed in the corporate contract.
Since corporate joint ventures are the most common in practice, we will take a closer look at this type in our article.
Between whom can a joint venture be formed?
The legislation of the Russian Federation does not establish clear requirements for the participants of the joint venture. However, in practice, several types of joint ventures have been formed, which can be created by the following entities:
- Between foreign investors. Such joint ventures are formed by attracting foreign capital. As a rule, the activities of such joint ventures are regulated by Law 160-FZ “On Foreign Investments”. Article 20 of this law states that joint ventures with foreign financing are registered and operate on the general grounds provided for by the Civil Code of the Russian Federation. Thus, the activities of such firms do not differ from the work of a classic LLC. The consolidation of finances in such an enterprise can be implemented in the form of mutual contributions.
- Between a public and a private company. Such joint ventures become part of a campaign to support small businesses and the development of a particular sector of the economy. Work within the framework of such a joint venture is built in such a way that the state makes an order from such an enterprise within the framework of 44-FZ, and the company’s employees transfer all the experience and knowledge on the production of the product. The income received is usually distributed through dividends.
- Between competitors in the same industry. Such joint ventures are rare. But if they are created, then in order to benefit from a merger or acquisition of a smaller company. In general, the creation of such enterprises is legal, but their activities become interesting to the Federal Antimonopoly Service within the framework of the implementation of the norms of the federal law “On Protection of Competition”. An example is the merger of one large retail chain with another.
- Between companies that depend on each other. In this case, a joint venture is formed not between direct competitors, but between joint ventures between subjects of related industries. An example of such a joint venture is the conclusion of a single agreement between a wholesale warehouse and a logistics company. In this case, the warehouse will provide the transport company with orders, which in turn will deliver goods directly to retail outlets. In this case, it is advantageous for the two entities to have joint arrangements to ensure the smooth operation of the supply system.
Corporate agreement for a joint venture
The agreement is necessary to consolidate all the legal nuances of the functioning of the future business. This applies both to the distribution of shares in the authorized capital, and the appointment of the general director and the managing director.
As a rule, the formation of a joint venture consists in joining a third-party investor to the existing list of founders. In this case, the investor expects to receive a profit and part of the corporate rights that existing participants will lose. In order to maintain a balance of interests, a well-drafted corporate contract is necessary.
The task of an experienced lawyer in drawing up such an agreement is that he must take into account all possible risks of starting a corporate conflict, minimize them and prepare the ground for the resolution of disputes that have arisen. VALEN’s lawyers have many years of experience in corporate law. We will help you draw up a corporate contract with full consideration of the client’s interests.