The international joint venture agreement as a formula to internationalise a business
Many clients come to law firms to tell us that they intend to manufacture their products abroad or to internationalise their business by selling their products or services in other markets they do not yet reach.
On many occasions, moreover, clients tell us that they want (or need) to internationalise their activity with a local partner in the country where they intend to expand their business, precisely because of the knowledge that this partner may have about the territory, local suppliers, potential clients, prices in the market, etc.
What is an international joint venture agreement?
In this post, we will try to briefly discuss what an international joint venture agreement is, as well as some of the common clauses in this type of contract.
Joint venture agreements establish the basis for a temporary collaboration between two or more companies, guaranteeing their legal independence and pooling resources to carry out one or more projects jointly. It is thus a strategic association of companies, which are also common in a wide variety of sectors.
There are different types of joint venture agreements and they may depend on, for example, whether or not it is decided to create a new legal entity with different partners in the agreed percentages, or whether such a partnership takes the form of a simple commercial collaboration defined contractually and without the creation of a new common entity.
Such a joint venture agreement may also depend on the type of strategic alliances created, the investment of financial resources or assets to be contributed for the joint development of the project or specific activity, the risks and the distribution of the project’s profits, among many other issues that will define the type of agreement and its negotiations.
What clauses should an international joint venture agreement contain?
With regard to the clauses that an international joint venture agreement should contain, it should be noted that they are linked to the type of joint venture to be developed and to the sector of activity. However, there are fundamental clauses that any joint venture agreement should regulate, which are, among others, the following:
- Purpose and object of the agreement
- Partner contributions
- Profit and loss sharing
- Governance and administration
- Majority for the adoption of resolutions
- Transfer of shares
- Duration of the agreement
- Exclusivity and non-competition
- Conflict resolution method between the partners
- Confidentiality and protection of intellectual property
As can be imagined, the development of these or other clauses will depend on the specific case and also on the local and applicable law in the place where the new entity resulting from the joint venture agreement has been created or where the joint activity is carried out.
Contrary to what we often find in practice and what clients sometimes ask us to do, it is of little use to propose the courts of one country (the Spanish courts, for example) as a method of dispute resolution, when we know beforehand that the enforcement of a favourable judgement obtained in that country (Spain) in the foreign country (where the joint venture has been set up) will be a matter that will cost the client a lot of time, costs and sometimes even real difficulties of recognition.
Therefore, the elaboration of a good joint venture agreement, especially in international collaboration agreements, is crucial for the success and viability of the collaboration between companies and the entry of our business in foreign markets with the best possible guarantees.
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