Project-Based Joint Venture

Project-Based Joint Venture - An Overview

One of the kinds of joint ventures established especially for corporations to agree to carry out a specific duty, such as the execution of any particular project or service, is called the project-based joint venture. This kind of cooperation is always carried out by businesses for one particular, exclusive goal, and as a result the JV ends after the targeted project is finished. Or to put it another way, these JVs have a specific objective or time frame in mind.

Benefits of Project-Based Joint Venture

• No Separate Entity

  A project-based partnership does not create a new legal entity. Instead of forming a legal corporation, local businesses collaborate on projects under a contractual arrangement.

• Fixed Tasks

  In project-based cooperation, parent corporations may not always look for an interest in controlling the ongoing business. Local businesses support the ongoing business by pooling their financial resources, manpower, and human capital to carry out tasks that are profitable for both parties, such as marketing or R&D.

• Time-Bound Projects

  These kinds of joint venture collaboration initiatives will have a specified end date and won't last forever. Partners typically follow a set schedule that helps them finish tasks on time. There is also a deadline for the partnership.

• Gain New Technology and Ideas

  The cooperation focused on certain projects have a limited reach. The focus of collaboration is on production, new product creation, sourcing, one or more R&D initiatives, or distribution.

Checklist Features of Project-Based Joint Venture

• Distribution of Profits

  The participants would have to decide how much of the profits they would each receive; some other funders would also have to agree.

• Defining Each Parties Roles and Responsibilities

  Major issues include business ownership, guarantor requirements (if any), the assets each party will contribute to the project, their value, and who will own those assets. Other important issues include who will be responsible for raising the funds, who will be the joint venture's clients and service providers, and where the business will be located.

• Change in Ownership

  What circumstances allow joint venture participants to alter their participation? The procedure and impact of any pre-emptive rights of any remaining participants shall be carefully considered by the parties.

• Governance

  What will the management and board's organisational structure be? Which party will have how many directors? How will the shareholders and participants of the corporate joint venture partnership be treated? All these have to be sorted out clearly in the agreement.

• Marketing and Branding

  Who is the owner of the intellectual property that the joint venture acquires? Establishing a trading name for the joint venture, creating (and paying for) a website, and utilising partners' existing trademarks are all practical difficulties that must be dealt with.

• Funding

  A funder would need to be able to see the purpose of the joint venture and the scope of the projects it will be implementing. Intercreditor problems should be taken into consideration in scenarios when numerous lenders are anticipated.

Prerequisites of Project-Based Joint Venture

• Set mutually beneficial joint venture objectives: The basic objective or mission of the joint venture must be summarised and documented so that it may be shared with potential partners and enlisted their support
• Look for possible partners for a joint venture: Finding the finest people or businesses to assist you in achieving the objectives of the joint venture can need some study on your part
• Meet qualified owners: Once you have met some qualified applicants and business owners, take the time to arrange casual encounters with them so that they can get to know you and your firm. Once you've selected a reputable business, consider whether it would be better for your own organisation and the goals of the joint venture
• Create a JV agreement: As the first stage in creating a legal joint venture agreement , write your letter of intent. Include the goal of your prospective joint venture as well as your intention to discuss the terms of the contract.

What Are the Requirements for Signing a Project-Based Joint Venture

• Nature of the Relationship

  The explanation of the nature of the relationship between the joint venturers, including whether the parties have financial obligations to one another or whether their relationship is merely a contractual one in which the parties maintain ‘arm's length’ is one of the vertical joint venture agreement's most crucial functions.

• Parties' Contributions

  The parties' contributions to the arrangement will be described in the vertical joint venture agreement. This is done to make sure that each party is aware of their obligations under the undertaking and that they are all bound by it.

• Sharing of Profits, Risks, and Liability

  How expenditures, earnings, and responsibility should be allocated should be taken into account, particularly in light of the venture's structure. Choosing limitless liability for both parties or dividing the gains and duties in accordance with each party's ownership stakes.

• Control Issue and Decision Making

  Agreements for vertical joint ventures should outline who will manage the company's day-to-day operations.

• Intellectual Property

  Vertical joint ventures will generate intellectual property that could be valuable to each of the joint venture partners. To reduce the chance that one party will try to use the venture's intellectual property to its own advantage, the joint venture agreement should specify who will own any new intellectual property produced by the partnership and the parameters of its use.

Other Clauses in a Project-Based Joint Venture

The contract will include a range of other requirements and clauses, such as:

• The procedure for selling venture interests
• The installation of plant and machinery, a buy-sell agreement, maintenance facilities, and restrictions on the selling of shares
• Considering taxes
• Mechanism for dispute resolution
• Plan to exit
• Terms outlining the extent to which the venturers are authorised to obtain information, such as financial information, about the venture; confidentiality and non-competition clauses.

Documents Required to Draft a Project-Based Joint Venture Agreement

• MOU - The parties engaged, the type of business that will be conducted through the joint venture, and the geographic areas that it will service. To start a joint venture, the parties agree to conduct feasibility studies
• Joint Venture Agreement -The kind of business, the amount of capital needed, the funding sources, the ownership stakes of shareholders, the contribution of intangible assets, etc. In the event that one or more parties decide to withdraw from or end the venture, it also includes details on an exit strategy
• Articles of Association (AOA) - Defines a company's goals, rules for how it operates, how tasks are carried out, and how financial records are managed.

Why Vakilsearch?

A joint venture between two businesses might allow each member to expand into a new market at a comparatively low cost. In reality, it makes perfect sense: Each firm brings their own skills, yet the venture's costs are shared among them. As you can see, it is paramount to have a JV agreement to properly conduct the business and attain the objectives without any hassles.