(i) Establishment of the JVC
Equality or majority. The ITC Model Contract is designed for 50 /50 participation by two parties. Occasionally, for psychological, tax or accounting reasons, the parties may need to establish a 49/51 or 48/52 percent participation share. The ITC Model Contract can also be used for those cases. If there are more than two parties, or if one is to have an articulated majority share, the provisions will need to be adapted.[1] In multi-party joint ventures, the dynamics of JVC management, decision making, deadlock resolution and termination differ considerably.
The JVC business and business plan. Establishing a JVC requires a match of objectives among the parties, most importantly regarding its financial and business aspects. Although mutual trust between the parties is an essential element for successful cooperation, it is crucial to align on business aims and intentions, as well. The parties should carefully determine the scope of the JVC. A few guidelines:
- identify the business: the nature of the JVC’s business, its commercial environment (e.g. internet-related, target groups), specific products or services, and production methods;
- what falls within the JVC’s scope, perhaps by clearly identifying what is outside its scope (competitive business, competitors, excluded business);
- the functionality of the JVC business and application of the joint venture production processes and products;
- the JVC’s field of activities, which can be delimited geographically as well as by sector or industry;
- how synergetic effects are expected to be realised;
- various temporal effects: how can or should the JVC develop or vary over time – relevant factors may include (i) targets reached, (ii) changes in market circumstances, (iii) discontinuance of any activities by the parties, and (iv) new technologies.
For clarity about the development of the JVC’s business, it is good practice to agree on a business plan at the outset. A business plan can take any form: from a PowerPoint presentation to a simple Excel sheet with forecasted sales projections. The business plan could be attached to (or at least identified in) the joint venture contract.
Conditions. In the context of a joint venture contract, certain ‘conditions precedent’ may need to be satisfied before the collaboration can actually be launched. Such conditions may include regulatory approvals (e.g. from competition authorities or other market supervisory bodies), the establishment of the JVC (legal) entity, or the grant of government subsidies (see the ITC Model Contract, Article 3).
Establishment of the JVC. A corporate JVC must be formed in a particular jurisdiction. Usually, this will also determine the governing law of the joint venture contract. It will be necessary to prepare articles of association, bylaws or other constitutional documents in that jurisdiction, and these documents must be consistent with the joint venture contract. It is good practice to ensure that the joint venture contract addresses key items as a matter of contract between the parties.
If there are conditions to be satisfied, or if the JVC will be established after the joint venture contract is signed, a number of actions must be postponed. To avoid a renegotiation of terms, the key aspects of such actions should be agreed and listed in the contract. While the actual establishment of a JVC is called ‘closing’ or ‘completion’, such a list is often referred to as the ‘closing agenda’ – see Article 4 of the ITC Model.
[1] Note that the ITC has developed model contracts for multi-party JVCs, which can be downloaded at: http://www.jurisint.org/doc/orig/con/en/2005/2005jiconen1/2005jiconen1.pdf.