How to draft a Joint Venture Agreement

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.

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