Joint Venture Agreement Lawyer Serving Kuala Lumpur

What Should a Joint Venture Agreement Cover?

The appropriate terms depend on the structure, business model and contributions of the parties, but a well-planned joint venture normally requires more detail than a statement of ownership percentages. Contributions, control, funding, financial arrangements and exit should be considered together.

Start With What Each Party Is Actually Contributing

A joint venture contribution can take many forms. Depending on the transaction, a party might provide money, equipment, technology, intellectual property, personnel, industry knowledge or other operational resources.

Each contribution should be described with enough detail for the parties to understand what the venture will actually receive. A broad statement such as "Party A provides funding and Party B provides technology" can leave important commercial questions unanswered.

For example, providing technology might mean transferring ownership of an existing asset, licensing a right to use it or developing something specifically for the venture. Those arrangements can have different implications during the venture and when the collaboration ends.

These details help convert a broad commercial promise into an arrangement that can be assessed, documented and managed.

Separate Ownership Percentages From Decision-Making Rules

Ownership and management are related, but they are not the same thing. A 50/50 venture does not automatically explain which party controls daily operations, what one party may approve independently or which decisions require both parties' consent.

In the example above, the operating party may expect freedom to manage routine matters. The funding party may expect approval rights over significant expenditure. Unless those expectations are reconciled, ordinary business decisions can become a source of conflict.

Routine authority and reserved decisions

The parties should consider which decisions can be made through ordinary management processes and which decisions are sufficiently important to require a higher level of approval. Depending on the venture, relevant matters may include:

• operational authority and management responsibilities;
• budgets and spending authority;
• significant borrowing or financing;
• material changes to the nature or direction of the business;
• transactions involving a party or its related business;
• access to financial and management information; and
• other significant commitments appropriate to the particular venture.

The objective is not to require approval for every minor decision. A practical governance framework should give the venture sufficient ability to operate while preserving appropriate oversight over important matters.

What happens when the parties cannot agree?

Equal ownership can make deadlock particularly important, but deadlock can arise under other structures as well. The agreement may therefore need an agreed process for dealing with an unresolved material decision.

The appropriate mechanism depends on the parties and the commercial circumstances. A mechanism that may ultimately require one party to buy the other's interest, for example, needs careful consideration where the parties have materially different financial capacities.

Define Further Funding Before More Money Is Needed

Initial capital may not be the venture's final funding requirement. The parties should consider how additional funding needs will be identified and approved before the business reaches the point where funds are urgently required.

Relevant questions may include whether additional contributions are mandatory, how the amount is determined and what happens if one party is willing to contribute while another is not. The legal and commercial consequences will depend on how the additional funding is structured.

Where external or commercial financing is contemplated, our banking and finance services may also be relevant to the transaction and its documentation.

Profit Sharing Needs More Detail Than a Percentage

An agreement to divide profits equally, or in any other agreed proportion, does not by itself answer how returns will be calculated or when money may be distributed.

Depending on the structure, the parties may need to consider relevant business expenses, management charges, financial reporting, retained funds and the conditions that apply before distributions can be made. For a company-based venture, the proposed arrangements must also operate within applicable company law requirements.

Legal, accounting, tax and valuation issues can overlap in a joint venture. Where appropriate, the legal documentation should be developed alongside the necessary financial and tax advice rather than treating each issue in isolation.

Make the Exit Arrangements Workable

Saying that either party can "exit" is only the beginning of an exit framework. The documents may need to address when an exit is available, restrictions on transferring an interest, how value will be determined, how payment will be made and which responsibilities continue afterwards.

If a party contributes or permits the venture to use its own brand, technology, intellectual property, equipment or other resources, the parties should also consider what happens to those resources when the relationship ends.

From a Broad Commercial Understanding to Clearer JV Terms

Broad terms can be useful during preliminary discussions, but they may need considerably more detail before the parties commit. The appropriate level of documentation depends on the transaction and structure.

How Gow Victor & Co. Can Assist With a Joint Venture

Our mergers, acquisitions and joint venture services include joint ventures, legal due diligence, deal structure advisory, transaction negotiation support and transaction documentation.

Depending on the agreed scope and the transaction, our assistance may include:

• Reviewing the proposed structure: considering the legal arrangements and documentation needed to reflect the intended collaboration.
• Legal due diligence: reviewing agreed areas of legal information and documentation relevant to proposed rights, assets or commitments.
• Drafting or reviewing transaction documents: addressing contributions, governance, financial arrangements and exit provisions in the context of the proposed deal.
• Supporting negotiations: helping clients understand proposed provisions and negotiate terms that reflect their commercial objectives.

Our corporate and commercial practice also advises on commercial contracts, shareholder matters, corporate governance, business agreements and corporate transactions.

The appropriate scope will vary from one venture to another. Legal due diligence also serves a different purpose from a commercial assessment, financial audit or valuation, and those additional workstreams may be appropriate depending on the transaction.

What Should You Prepare for a Joint Venture Agreement Consultation?

You do not need to settle every term before speaking with a lawyer. It is more useful to provide a clear picture of the proposed business arrangement, what has already been agreed and which issues remain open.

Where available, prepare:

• a short description of the venture and its business purpose;
• the proposed parties and intended ownership or participation structure;
• the money, assets, technology, intellectual property, expertise or other resources each party expects to contribute;
• the intended management and decision-making arrangements;
• any expected initial or future funding requirements;
• any term sheet, memorandum of understanding (MOU), letter of intent or draft agreement;
• relevant corporate or transaction documents; and
• a list of commercial points that remain unresolved.

Providing this context helps us identify the legal work that may be appropriate and discuss the scope of the engagement more efficiently.

How Should You Compare Quotations for JV Legal Work?

Compare scope as well as price. A quotation for drafting or reviewing a single agreement may involve substantially different work from an engagement that includes structuring advice, legal due diligence, related corporate documents and negotiation support.

When requesting a quotation, explain whether the parties have agreed the main commercial terms, whether an existing draft is available and which matters remain under negotiation. It is also useful to clarify what documents, revisions and negotiation work are included and how work outside the agreed scope will be handled.

Frequently Asked Questions About Joint Venture Agreements

This article provides general information only and does not constitute legal advice. The appropriate structure and documentation depend on the facts, parties and circumstances of each proposed joint venture.