A Joint Venture (JV) is a strategic business alliance in which two or more companies / investors / parties having common purpose and objectives agree to pool their resources, expertise, and technology or know how for the purpose of accomplishing certain business objective based on a common business plan.
The business objective is usually in the form of a new project or activity.
In a Joint Venture & Partnership firm, each company, investor, party or participants is responsible for profits, losses, risks and costs associated with it. Nevertheless, the JV is an entity different from the business interests of the participants or investors.
Structure of a Joint Venture
Joint Venture can colloquially be referred to as partnerships but can be of different structures such as limited liability companies, partnerships, corporations, private limited companies etc.
Joint Venture can be formed for a continuing purpose or for a limited purpose and can be a combination of large and smaller companies to execute large or small, projects and deals.
No matter what the legal structure is in the Joint Venture, the most significant document governing the JV is the JV agreement that sets out all of the shareholders' rights and obligations the aims and objectives of the JV, the business plan, the initial contributions of the investors, corporate governance, dispute settlement method, profit and loss sharing mechanism etc.
Advantages of a Joint Venture
- Investors/parties to the JV can offer new products and services to their customers;
- Joint Venture can help to achieve operational efficiency and cost-saving;
- Joint Venture can help parties save time;
- Joint Venture can assist parties to acquire new customers and penetrate new geographies; and
- Joint Venture can enable parties to gain new technology and know–how.
Main components of a Joint Venture:
- Structure – whether the Joint Venture will be a separate continuing business entity or simply for a short-term project;
- Objective – the purpose and goals of the Joint Venture ;
- Confidentiality – provisions for the parties to protect technology know how to trade and commercial secrets disclosed during the venture;
- Financial Contributions – quantum of money to be invested by each party in the joint venture;
- Assets and Employees – provisions relating to the assets and employees that each party is required to contribute, supervise and manage;
- Intellectual Property Ownership – determines the ownership of any intellectual property created in the Joint Venture ;
- Management – responsibilities of each party and the procedures to be followed in day to day operations of the Joint Venture;
- Profits, Losses, and Liabilities – specifies the manner in which, the profits are to be disbursed between the parties, the losses are to be shared between the parties and liabilities assigned;
- Disputes resolution-specific dispute settlement and resolution mechanism to resolve disputes that may arise between the parties; and
- Exit Strategy – provisions on how the Joint Venture may be terminated such as call/put option, right of first refusal, etc.
How ASC Helps?
- Project Assessment and Strategy briefing: ASC will need to understand the JV criteria, including product/service offerings /capabilities, quality of human capital, business size, and other must-haves of an ideal JV partner (target), through a strategy briefing session with the client’s management team. Knowledge thus gained would serve to define an extremely detailed and focused search profile of the target.
- Research: Based on the briefing session, an in-depth economic, organizational and market-specific scrutiny will be carried out to draw up a list of potential targets (“Target List”) fitting the JV criteria set by the client. The initial long list of target companies will be discussed with the client with a view to screening the best and suitable possible targets. (A shortlist of target companies would be generated as a result of such discussions).
- Solicitation and Pursuit: Specific approach will be made to each of the shortlisted targets at top management levels to see if they are willing to discuss and negotiate the broad parameters of a possible value-chain partnership. The identity of the client will not be disclosed to any short-listed target unless they have shown willingness to discuss and have signed confidentiality agreements with ASC. Mutual presentations and any other relevant information will be shared at this stage, but carefully balancing the interests and intentions of the client.
- Target List: ASC will prepare an Ideal target profile, which will carry weights and or any other grades against each shortlisted target for the client’s management to pick up the final target(s). ASC will arrange for a visit by the client’s operational team to the selected target companies or vice - versa and also arrange management presentations from the target companies with a view to selecting the ideal target, subject of course, to the operational, financial, and legal due diligence.
- Business Plan & due diligence: ASC can assist in the preparation of the joint business plan and can facilitate and participate in the financial/operational and legal due diligence, once a non-binding Letter of Interest has been exchanged between the target and the client.
- Negotiations: ASC will also prepare, facilitate and participate in the negotiations between the client and the target company until an agreement in principle has been reached (e.g. Letter of Intent / Term-Sheet) / and until the final signature of the Joint venture agreement and the closing of the transaction.