JOINT VENTURE AGREEMENT

Joint ventures (JV) may take a number of forms, but the basic on which they are formed is always
a commercial collaboration in which two or more unrelated parties pool, exchange, or integrate
some of their resources with a view to mutual gain to achieve a particular goal. The risks and rewards
of the enterprise are also shared while at the same time remaining independent.
Reasons for JV:
1. Business expansion
2. Development of new products or
3. Moving into new markets, particularly overseas
4. Your business may have strong potential for growth and you may have innovative ideas and
products
5. Strengthen long-term relationships or to collaborate on short-term projects.
6. Both businesses may have complementary products
JV provides:
1. More resources
2. Greater capacity
3. Increased technical expertise
4. Access to established markets and distribution channels

Benefits Vs. Risks for JV
Benefits Risks
1 Access to new markets and distribution
networks
The objectives of the venture are not totally
clear and communicated to everyone involved

2 Increased capacity The partners have different objectives for the
JV
3 Sharing of risks and costs with a partner There is an imbalance in levels of expertise,
investment or assets brought into the venture
by the different partners
4 Access to greater resources, including
specialized staff, technology and finance
Different cultures and management styles
result in poor integration and co-operation
5 Very flexible i.e., a JV can have a limited life
span and only cover part of what you do, thus
limiting the commitment for both parties &the
business' exposure
The partners don't provide sufficient leadership
and support in the early stages

IS El Awal prepared for a JV? You should:
1. Research other business' activities in this area
2. Carry out a SWOT (strengths, weaknesses, opportunities and threats) analysis of the business
3. Compare working methods with those of potential partners
4. Consult your employees to find out their feelings about a joint venture
5. Some questions that you need to consider are:
a. What am I getting out of the joint venture?
b. What am I giving up to be in the joint venture?
c. How does this joint venture position me for the future?
d. Are the terms fair or does one business has the upper hand?
e. Are my business and my business intellectual property protected during and after the
joint venture?

Choosing the right joint venture partner depends on assessing the following:
1. Are they financially secured?
2. Do they have any credit problems?
3. Do they already have joint venture partnerships with other businesses?
4. What kind of management team do they have in place?
5. How are they performing in terms of production, marketing and workforce?
6. What do their customers and suppliers say about their trustworthiness and reputation?
7. Consider existing customers and suppliers, competitors and professional associates as
partners
8. Is the culture of a proposed partner fits with that of your organization
9. Potential for overseas sales or activities
Finance
The following documents Should be prepared for a JV:
1. Business plan
2. Marketing plan
3. Cash flow projection
Each partner should agree who is investing what, and in what form e.g. cash or other assets.
If external funding is needed, the partners should agree:
a. Sources of funding, e.g. a share issue
b. Who will borrow the funds
c. How the borrowing will be guaranteed
Arrangements for profit and loss should be agreed, e.g.:
a. How any profits or losses should be divided
b. How capital gains or losses should be divided
c. If one partner will be paid for providing services, other than through a share of profits

Bank account arrangements will depend on the legal model chosen, although a new account
can be set up for a single project. You should also agree:
a. In whose name account(s) are set up
b. Arrangements for depositing or withdrawing funds, including co-signatories
JV Agreement
A written agreement set out the terms and conditions which will help prevent any misunderstandings
once the joint venture is up and running it should cover:
1. The structure of the joint venture, e.g. whether it will be a separate business in its own right
2. A clear business objectives of the joint venture
3. The financial arrangements & the contributions you will each make
4. whether you will transfer any assets or employees to the joint venture
5. Ownership of intellectual property created by the joint venture
6. Management and control, e.g.
a. Respective responsibilities and processes to be followed
b. Communication arrangements between organizations /teams
c. Day-to-day and strategic decision making
7. Sourcing business together ,You should agree in advance which organization has
responsibility for:
a. Sales activities
b. Marketing activities
c. New business generation
Such arrangements should be specified in the joint venture business and marketing plans.
8. Protection of your interests, e.g. trade secrets
9. How liabilities, profits and losses are shared
10. Whether either party can pursue other business during the joint venture
11. How any disputes between the partners will be resolved ,clear procedure
12. An exit strategy include:
a. Termination procedure
b. Ownership of assets in the JV
c. Allocation of any liabilities resulting from the joint venture
d. how shared intellectual property will be unbundled
e.
f. who will be entitled to any future income arising from the joint venture's activities
g. .g. debts and guarantees given
to customers
The below detailed checklist explain the above main points which should be covered in the
agreement as it provides a base on which to consider the issues surrounding the formation of the JV
and the ongoing legal rights and obligations between the parties.
1 Planning Identify Scope/Purpose of the (JV) consider implications of such scope
in connection with:
1. What activities does the JV expressly intend to do or refrain from doing?
2. Corporate opportunity issues (i.e., what are the existing and potential future conflicts with
each partys non-JV businesses) ,This will lead to a conclusion on the scope of the non-
compete covenants and the confidentiality obligations of each party
3. Is there any core technology or other intellectual property (IP) either to be transferred to
the JV or to be granted by the parties to the JV
4. Are there other inter corporate arrangements that either will be required for the JV to
operate or that are required to make the investment in the JV meet the business case
5. what due diligence must be completed before the JV is actually effectivein this case the
level of due diligence is generally no less than that required for an acquisition
N.B.: The arrangement needs to be fair to both parties. Any deal should:
1. Recognize what you each contribute
2. Ensure that you both understand what the agreement is expected to achieve
3. Set realistic expectations and allow success to be measured
4. The objectives you agree should be turned into a working relationship that encourages
teamwork and trust.

2 Form of Joint
Venture
Identify form of the JV:
1. Jointly owned corporation or group of corporations (partnership) either
general or limited
2. LLC
3. Contractual (Non-equity) the contractual or non-equity JV can either be
a co-ownership model or simply a contract between the parties
whereby they retain all their own assets and agree as to their separate
rights and obligations.
1. Co-operate with another business in a limited and specific way for a defined project. For
example, a small business with an exciting new product might want to sell it through a larger
company's distribution network. The two partners could agree a contract setting out the
terms and conditions of how this would work.

2. Separate joint venture business, possibly a new company, to handle a particular contract. A
joint venture company like this can be a very flexible option. The partners each own shares
in the company and agree how it should be managed,

3. In some circumstances, other options may work better than a limited company. For
example, you could form a business partnership or a limited liability partnership. You might
even decide to completely merge your two businesses

4. Issues affecting which form will be used include tax, limited liability, regulatory, banking,
labor and employment, benefits, IP(intellectual property) ownership, third party consents
and exit strategies, among others regulatory contractual co-operation for a defined project
a. artnership or unlimited partnership
b. imited liability company
c. ull merger of the two organizations
N.B:
Most partnering arrangements, strategic alliances and outsourcing services arrangements fall
into category (3). It is this category that also gives rise to structuring concerns to ensure that
even though the parties wish the JV to be structured as a contractual JV, the actions of the
parties do not result in it being, in fact, a partnership.
3 Regulatory Identify current and any anticipated changes to regulatory issues
(including industry specific regulatory issues and general foreign
ownership, antitrust, export control issues, etc.) on:
1. Ownership and control of the JV, its assets or the operation of its proposed business
2. Dilution, exit and liquidation rights
4 Implications of
JV
The effect on existing Operations & Reporting Requirements
1. Review accounting treatment of investment in JV, Will the investment be consolidated, and
the implications of the accounting treatment on financial statements. Consider impact that
particular control mechanisms proposed for JV may have on desired accounting treatment
2. Review existing contractual obligations to ascertain what third party (bank and other)
approvals will be required for the implementation and ongoing operation of the JV, including
debt covenants and other non-compete or confidentiality obligations
Consider whether any restructuring of existing operations is required before entering into JV

5 Tax
Considerations

1. Consider tax consequences of the proposed structures: i.e. Is flow-through or consolidation
required?
N.B.: This exercise should be started as soon as possible with the other party to ensure both
parties tax objectives are met
6 Internal
Preparation

1. Identify all other subsidiaries in corporate gp. as well as internal divisions and departments
that may have a material interest in any particular aspect of the JV transaction.
2.Put in place process to ensure appropriate flow of necessary information and ability to obtain
required input in a timely fashion for negotiation and implementation of JV
N.B.:
It is always preferable to agree on the business plan at the outset of the JV. Work should begin
early on the appropriate financial modeling so that the parameters of the business plan are
thought through before negotiations commence
7 Confidentiality
Agreement

Consider whether confidentiality agreement needs to be signed and if so what else it will
cover; non-solicitation? Will it remain stand-alone or be superseded by the binding letter of
intent or the JV agreement?
8 Parties
1. Consider which parties should be parties to the JVif holding companies are to be used
should parent entities be parties or simply guarantors how far up the corporate chain is it
necessary to gonot only to ensure performance of the obligations of the JV parties but to
enforce non-competition covenants, etc.
2. Consider whether the JV entity should be a party. If JV is a party, it may be able to enforce
obligations of co-ventures in a bankruptcy situation where there is a receiver or trustee in
bankruptcy. On the other hand, if it is not a party, it will be difficult to get specific
enforcement of obligations. It may only result in the possibility of a damage claim.
9 Letter of
Intent/Term
Sheet
binding or non-binding

If binding:
1.Ensure all key provisions covered; may be difficult to introduce new business points after
signing
2. Can be binding unless and until replaced by a definitive agreement agreed to by the parties
within a specified time; no material changes without further Board approval.
3. Consider use of arbitration if parties cannot agree on definitive agreement or if there is a
dispute as to interpretation of letter of intent. Risks: Matter in dispute may not be proper
subject of arbitration and risk of uncertainty of outcome
4. Consider whether to include covenant to negotiate in good faith definitive agreement. Risks:
No clear guidance as to what that meansmay already be some duty in the context of a
binding letter of intent to negotiate in good faith. Also, some risk attached because should
negotiations fail one party may assert lack of good faith negotiations in order to revoke the
binding letter of intent
5. Ensure all appropriate approvals received before signing. This will include all approvals
necessary to enter into a definitive agreement as this agreement will be binding regardless of
whether or not a definitive agreement is entered into and would include such matters as board
and stockholder approval, regulatory approval, third party contractual consents, etc. If
approvals not obtained in advance, letter of intent could provide that it becomes effective once
the necessary conditions precedent have been met.
6. Will it contain a no-shop provision? Consider whether to leave confidentiality agreement in
place or replace it with confidentiality obligations in letter of intent. If latter will need to ensure
that letter of intent is in fact binding and that confidentiality covenants survive termination of
the letter of intent.
7.Will require disclosure in context of public company
If not binding
1. Can structure so that it becomes binding upon Board approval within a specified time and/or
subject to signing a definitive agreement acceptable to both parties. In the context of the
former approach note all the requirements set out in the preceding paragraph as regards
approvals, etc.
2. Will need to draft very carefully to ensure non-binding letter of intent or term sheet cannot
subsequently be found to be binding. See ABA Model Stock Purchase Agreement or Model
Asset Purchase Agreement discussion on letters of intent.
3.Be aware of disclosure obligations in context of public company
If no separate confidentiality agreement, ensure that while most of letter of intent is non-
binding, confidentiality and non-solicitation covenants are intended to be binding