Joint Venture Checklist (Z145)

This free document goes in detail through the matters you need to consider when entering into a Joint Venture.

It is designed to work with our documents such as the Heads of Agreement  or the more comprehensive Joint Venture Agreement template but it can be useful for any JV arrangement in the UK or elsewhere.

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CHECKLIST FOR A JOINT VENTURE

There is no legal definition of a joint venture as such in English law but essentially it is a relationship between two or more parties sharing risks and rewards in a particular business enterprise.   The joint venture is usually undertaken through the medium of a joint venture agreement or through a limited liability company; it is to be distinguished from the relationship of employer and employee and from a relationship where one party provides services to another.

The checklist that follows covers some of the usual matters that parties wishing to venture together in a business enterprise must consider.  Two-party and multi-party ventures will have different considerations in relation to certain matters, e.g. voting majorities and deadlock.   The parties are advised to take independent professional advice on partnership or limited liability company formation aspects and procedures for tax and liability purposes, and there may well be questions of law regarding mandatory equity holdings of nationals in certain overseas jurisdictions.

The likely documents that will be necessary are a shareholders’ (or joint venture) agreement and the statutes of the joint venture vehicle.

 Note: Document No. Z142 consists of a check list for matters to include in a Shareholders’ Agreement.

 INITIAL MATTERS

 1. The Parties

Who are the parties and how will they contract, e.g. via themselves (as individuals or existing companies), through a new company, or through a partnership?

2. Confidentiality

Do the Parties wish to maintain the confidentiality of their proposal to joint venture and any confidential information that they may exchange?   If so, then a confidentiality agreement should be entered into between them.

 Note:  Document No. A105 and A119 are among the confidentiality agreements on our website.

3. The Joint Venture Vehicle

Is this to be a partnership or a limited liability company?

4.  Nature of the Business

What business is it that the Parties propose to undertake, and are any particular licences, consents or professional qualifications required to undertake it?  In what territory will the business operate?

5.  Capital

5.1       What is the capital of the joint venture to be and how and when will it be contributed?   See paragraph B.4 below for further more detailed funding issues.

5.2       In what percentages will the Parties hold equity in the joint venture?

6. The Name

The name of the venture is often of significance and is also often available only subject to compliance with local business laws and regulations.

MORE DETAILED ISSUES

 1.  Competition

Is competition by one or more of the Parties with the new joint venture to be restricted and if so, for how long after termination of the joint venture arrangements should the anti-compete provisions endure and in what location?

 2. Duration and Termination

2.1       When will the joint venture terminate?   Is the joint venture to be for a limited or open ended period?

2.2       Should it be open to a Party to bring the joint venture to an earlier conclusion?

2.3       Should the joint venture terminate on the insolvency of a Party?

2.4       What are the consequences of termination to be?   Should the Joint Venture be wound up or should the Parties have the right to buy the others’ shares?

3.  Law and Disputes

3.1       What law is to govern the joint venture relationship?

3.2       In the event of a dispute would the Parties prefer to arbitrate the issue or simply proceed in the Courts?

3.3       In what jurisdiction would the Parties wish disputes to be dealt with?

 4.  Funding

4.1       How is the joint venture to be funded?   Will it be by way of cash injections from the Parties in proportion to their respective equity participation?

4.2       Are there to be any shareholder or third party (e.g. bank) loans and if so, is any security to be provided?

4.3       If security is to be given what form will it take?   Will it be by way of a charge over the assets of the joint venture, or will the Parties be required to provide personal guarantees?

 5. Business Plans, Budgets and Feasibility Studies

Are these to be prepared, and if so by whom?

 6. Contributions other than in cash

6.1       Is any particular contribution to the joint venture, e.g. specialist expertise or intellectual property, to be made by any one or more of the Parties?

6.2       If contributions are to be made other than in cash, how will they be valued?

 7. Premises

From where will the business operate and will the premises be leased or purchased?

8.  Management

8.1       In the case of a limited company will there be a board of directors?   How many will there be?   How will decisions be made?   Will the chairman have a casting vote?   What should the quorum for meetings be?   How will they be appointed?

8.2       In the case of a limited company what issues should specifically be reserved for a decision by the shareholders (rather than by the directors)?

8.3       In the case of a limited company should any shareholder have weighted voting rights and what percentages are required for the passing of ordinary and special resolutions?

8.4       What will be the quorum and notice period for shareholders’/members’ meetings?

9.  Profits and losses

9.1       How should these be shared?   Directly in proportion to equity participation or in some other ratio?

9.2       Is there to be a minimum annual distribution of profits?

 10.  Transfers of shares in the Joint Venture

10.1     Are there to be pre-emption rights which oblige the Parties to offer their respective shares to the others before a disposal to third parties?

10.2     How is the value of a Party’s share in the joint venture to be ascertained; by agreement of the Parties, or by the auditors, and is a precise formula to be used?

 11.  Auditors/Accountants

Who are to be the auditors or accountants?

 12. Pre-commencement expenditure

How is this to be borne – by the Parties in their proposed equity shares, or by the Party incurring the expenditure?

 13.  Employees

Are the Parties to second to the joint venture any of their own employees?

 14.  Matters reserved to shareholders

The Parties venturing through a limited liability company with a board of directors or managers may wish certain matters to be determined not by the directors or managers but by the shareholders themselves in General Meetings.  These matters might include:

• a change in the nature of the business or its territory of operation;
• the issue of new shares and new shareholders;
• the obtaining of loans and the grant of security;
• the employment or dismissal of senior employees;
• the entry into other joint ventures.

 Note that the relevant applicable law of many jurisdictions imposes mandatory obligations, e.g. as to the majority of affirmative votes required to increase capital or to amend the Company’s name.