Legal issues and unforeseen conditions might cause serious legal problems during the joint venture agreement. Therefore taking advice from corporate lawyers before executing the joint venture contract works for the best of your interest.
A joint venture agreement extracts the best qualities of the parties and helps the firms enjoy work experience on a larger scale. The flexibility and easier growth experienced are driving firms toward joint venture agreements. However, there could be some legal issues at the termination or while forming the contract when discussing the dissolution. Therefore the article speaks about the key pointers to consider while forming the joint venture agreement, especially related to the termination of the joint venture contract.
What is Joint Venture Termination?
The termination or dissolution of the joint venture doesn’t happen automatically; rather they are planned according to the project completion. There also could be several reasons for the termination of the joint venture which include:
- The joint venture agreement includes the predetermined decision after taking consent from all the parties, the termination details are included in the original joint venture contract. Generally, the joint venture agreements are made to meet a specific goal, that might be accomplished earlier than expected in some cases, due to the presence of a myriad of resources, in such cases, the parties dissolve the joint venture agreement.
- If the parties find that the joint venture is no longer profitable, they might decide to terminate the joint venture agreement. The parties also consider the practicality of the joint venture business. Since the parties agree to make a joint venture agreement due to the flexibility, lack of which might hinder the other business operations. In such situations, the parties might try to dissolve the joint venture agreement.
- If the member of a joint venture is deceased or deprived of the power to function according to the terms mentioned in the joint venture agreement, the other parties would be able to carry out their terms and therefore decide to dissolve the joint venture agreement.
What Are the Requirements to Terminate the Joint Venture Agreement?
To legalize the termination process, based on the legislation requirements, some minute changes vary by jurisdiction. However, the typical requirements are mentioned below:
The definite intentions of the parties must have been mentioned in the agreement and the dissolution must be carried out be carried only on that occasion.
The intention of these parties must have been communicated to all the parties through the agreement or words. However, the courts don’t demand the parties to meet any requirement concerned with communicating the notice of termination to the parties.
The attorneys demand the parties include the “cancellation clauses” in the joint venture agreement to avoid any legal issues later. For instance, if the joint venture agreement is formed related to real estate and the parties agree to construct any office building, on delaying the parties are disappointed with the duration required to meet their common goals. In such cases, the attorneys revise the agreement and look for any cancellation clauses mentioned in the agreement related to the delays.
Therefore it is recommended to consult a legal adviser before executing the joint venture document, he might help you in adding additional cancellation clauses that might occur in the future.
Termination of the joint venture agreement must be served as a notice to all the members of the joint venture agreement prior.
Judicial Dissolution of a Joint Venture Agreement
Termination for joint venture agreement arrives as a court order under some circumstances. The judicial dissolution may be against the decision of the members regarding the dissolution of the joint venture. The judicial dissolution will occur based on various grounds that include:
- The disharmony amongst the parties of the joint venture agreement
- If a member of the joint venture agreement is undergoing mental treatment or is of unsound mind.
- There is no way to increase the profit of the joint venture and the businesses are operated at a loss of profit
- If any of the parties become incapable of pursuing their obligations, based on the terms of the contract.
- If any of the parties has willfully breached their obligations or terms
- If any of the parties are found to be guilty of their conduct
- Any circumstance that occurred during the agreement is considered, based on the discretion of the court.
- If there is mutual consent among the parties, the joint venture is terminated at any time, even before the determined date.
- If the parties foresee the impracticability, they might end up deciding to terminate the joint venture. The joint ventures are made to reach a common goal, when attaining that becomes impractical, the parties agree to dissolution, rather than wasting money and effort on the goal.
Therefore the parties must be well-informed about the termination laws and must agree to co-operate with the termination policies.
Property Matters After Dissolution
The joint venture agreement is dissolved when it had not met the common goal, there could be properties earned during the process of the agreement. The surviving joint venture can entitle to possess the joint venture property and thereby gain the authorization to wind up the business related to the property.
The sale will be conducted after analyzing the authority status of the venture post-termination. In some cases, the court orders liquidation of the business processes.
In certain circumstances, the business operations had to bear the loss or be obligated to pay the loan taken during the process, and therefore the joint venture continues to exist post-termination. The members of the joint venture hold the liability to the third parties who had offered loans during the agreement.
The possibility of the members getting sued individually is also higher if they are found to breach their obligations related to the loans or damages caused by the joint venture. In such situations, these members are bound to pay back the amount caused by the damage.
Since the joint venture agreement allows flexible terms, a particular party can be terminated from the joint venture agreement rather than dissolving the entire agreement. If the party has confessed that he is unable to pay the obligations that he had agreed upon at the beginning. The notice of termination is served to that party to avoid any legal issues.
Why Do You Need a Lawyer to Handle a Joint Venture Termination?
Generally, joint venture businesses are intricate and involve several legal policies and contract conditions. The joint venture agreement is written involving different party members and therefore requires the assistance of an experienced corporate lawyer.
Moreover taking the agreement according to the legal laws imposed by the jurisdiction is essential to make it in your best interest. The attorneys review the joint venture agreement and appear to represent you in the court proceedings at the time of any legal issues.
The attorneys are experienced and might bring up ideas that are best of your interest and recommend adding any legal actions or statements to the agreement/ contract. Such advice might be very helpful at the time of termination.
The joint venture agreements are made by experienced market players. You might have gained experience in your business sector; however, the experience attorneys offer great help during the process or at the termination of the joint venture agreement. Seeking experienced corporate lawyers, like the ones from Vakilsearch, before executing the joint venture agreement, help you manage the risks and rewards in the best of your interest. They help you understand corporate affairs, geographic advantage, diversified culture, and significant other factors before forming a joint venture agreement.
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