By A.N.Sabri
Joint Venture is business entity formed by
two or more parties to achieve specified objectives without losing their independent
identity. Joint Venture is a temporary arrangement which ends upon completion
of the specified project/activity. It is
a special vehicle for doing the business activities. In a Joint Venture two or
more business entities agreed to participate in a specified project/ activity on profit and Loss
sharing basis in accordance to their share of participation.
Joint Ventures are of two types, one is
incorporated Joint Venture other is unincorporated Joint Venture. Incorporated
joint venture is formed in accordance to the provisions of the companies Act
and unincorporated Joint Venture is formed by legally binding agreements
between the parties.
In construction Industry Joint Venture a
common form of business. Whenever two companies wish to bid for a big constriction
project but none of them is eligible /capable to qualify and execute the
project on its own, although they have expertise in their respective area, they
form a joint Venture so that they can execute the project jointly.
Incorporate Joint Venture is a lengthy process
so most of the companies opt for the unincorporated joint venture, which is
created just by a simple Joint Venture Agreement.
While
drafting a joint venture agreement following points should be taken into
consideration.
Recitals :
Recitals of an agreement contain the brief
introduction of the parties, project and the objective of the Joint Venture. The
first Para of joint Venture agreement should mention the date of agreement ( place
of execution may be mentioned ) followed by the name of the parties and their
authorised signatory and addresses of the parties.
After the name and addresses of the
companies a brief description of the companies and their business activities
can be mentioned. The name of project/ activities for which parties are forming
the joint venture should be specified.
Agreed Terms and
Conditions
After the recitals the terms and conditions
agreed between the parties should be recorded. It can be started with the following
words:
“NOW, THEREFORE,
and in consideration of the foregoing premises and other considerations and
covenants hereinafter set forth, the Parties hereby agree as follows:”
Following clauses
can be incorporated in the joint Venture agreement
1.
Purpose and object of agreement
The purpose of the agreement should be
mentioned clearly to avoid any confusion or ambiguity at later stage. If the
parties are forming a Joint Venture for obtaining a construction project the
following conditions may be incorporated.
“The Parties shall jointly prepare and
submit the tender documents for the Project and if the tender shall be accepted
by the client, the Joint Venture shall perform the Project in accordance with
the terms and conditions of the Contract. The Joint Venture shall be jointly
and severally bound to the client by such acceptance in accordance with the
terms of this agreement”.
Similarly
the relationship of the parties can be defined in the following words:
“The
relationship between the Parties shall be limited to performance of the Contract(s)
in accordance with the terms of the Agreement, and nothing in the Agreement
shall limit either of the Parties from other activities. Further nothing in
this agreement shall be considered/construed as creating any permanent Joint
Venture between the parties or establishing an agency, incorporated or
unincorporated company or partnership between the parties or limiting the
powers or rights of the respective Party to carry on its separate business for
its sole benefit and further their common interest in relation to the Project
under the terms of this Agreement”.
2. Joint Venture
Name, office and participating interest
Joint
Venture Name and address, name of the lead member and the participating interest
of the parties should be specified unambiguously.
3. Obligations of
the Parties
The obligations of the respective parties
should be clearly spelt out. It should be clarified who will bear the cost and
other expense of Joint Venture, how the tender will be prepared and submitted, who
will lead the negotiations with the client, who will submit the bond and
insurances required by the client etc. The responsibility matrix would help to
clarify the works to be executed by the respective parties and it would avoid
confusion and conflict during the execution of the works.
4. Organization and management
How the Joint Venture will be administered
should be clearly mentioned. Normally a management board is constituted for administration
purpose. This Board consist members from the Joint Venture Partners. It should
be specified that how members of board and its chairman will be appointed and
how they will take decision.
Similarly
the provision for opening of Bank Account and its operation should be made clearly.
5. Liabilities
Normally
the Parties are jointly and severally liable to the Client for all the obligations
arising from and in connection with the performance of the Project.
However,
the parties can make their inter- se arrangement in case of default of the
other party. The defaulting party should indemnify the non-deflating party.
6. Exclusivity
and Confidentiality
Exclusivity
and confidentiality clause can be incorporated to protect the data and
information.
7. Governing Law
Governing
Law of the Joint Venture Agreement should be specified to avoid any complication
in case of disputes.
Similarly
the provision for dispute settlement mechanism should also be incorporated.
Parties can opt for Arbitration under ICC Rules or any domestic Arbitration
rules.
8. Miscellaneous
Some
more Legal clauses regarding Assignment, Publicity, Notices and Validity can
also be incorporated.
At
last do not forget to write witness clause which can be written as under:
“IN WITNESS WHEREOF, the authorized representatives of
the Parties hereto have executed this Agreement on the day, month and year
first above written”.
At
the end mention name of parties and their authorised signatories and witnesses.
( Contact author at azeez_nazar@rediffmail.com )
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