Joint ventures

Our job is to fit the rewards with the risk, investment and commitment involved within the legal agreements.

Joint Venture Solicitors

Joint ventures remain popular as vehicles for collaboration and expansion. If you need solicitors for legal advice on the advantages and disadantages, legal, commercial or tax, or a joint venture agreement drafted or reviewed, please get in touch with us.

We are highly experienced in all aspects and types of joint ventures and our services are highly commercial and cost effective.

Joint venture agreement 

There are a variety of possibilities for you to consider. The structure most appropriate for any particular joint venture agreement will be dependent upon the parties, their respective objectives and roles.

The most typical joint venture structures are:

  • Special Purpose Vehicle – a company especially created for the joint venture agreement. Often known as a special purpose vehicle (“SPV”) company and the most common structure.  We find SPVs can work well for commercial transactions involving commercial property;
  • Partnership or limited liability partnership (LLP); or
  • Collaboration agreement – which generally does not involve the creation of a new vehicle.

Joint venture companies

If you are using a special purpose vehicle for the joint venture you need to consider the equity structure. The equity structure should cater for:

  • Management during the life of the joint venture; and
  • Disbanding once the purpose behind the joint venture has been served.

Joint Venture Agreement plus shareholder agreement?

If a new company is set up for the joint venture, it will be important to have a shareholder agreement as well as joint venture agreement. Typically, the shareholder agreement will need to consider:

  • How will the equity in the joint venture company be held between the parties? Is it appropriate to issue each party to the joint venture agreement with a separate class of shares so that the parties can have differing rights to voting, income and equity?
  • How much money each party will contribute and how?
  • How will capital distributions on the sale or breaking up of the joint venture be dealt with?
  • How will intellectual property created under the joint venture agreement be handled?
  • Will either party be required to licence intellectual property to the joint venture vehicle and on what terms?
  • If there is a dispute under the joint venture agreement how will this be dealt with?
  • Who has the power to appoint directors and control the board under the joint venture agreement?
  • How will the joint venture be terminated and is there a timescale?
  • Will certain parties under the joint venture agreement have the power to veto actions other shareholders propose?

Convertible shares

We often see convertible shares used in joint venture agreements whereby a loan can be converted into equity.  Convertible shares provide the benefit of a loan which is repayable.  But, with convertible shares there is the option to convert the loan into capital.

Joint ventures – setting out the management structure

The best joint venture agreements include an element of flexibility for developments in the business.

Compliance issues for the joint venture

We deal with  common compliance issues such as:

  • Where will the joint venture company be incorporated?
  • Does the joint venture proposed business require any consents, licences or approvals?
  • To what extent can shareholders in the joint venture compete with the joint venture company?
  • Will the joint venture company employ dedicated staff? If so, will there be a requirement to consult with employees under TUPE?
  • Where the joint venture involves the sharing of data have consents been obtained and who is the data controller.
  • Is there tax payable on assets transferred to or acquired by the joint venture.  How will the profits be extracted from the joint venture?  The tax issues can be complicated often involving consideration of capital gains tax, corporation tax, personal tax and stamp duty.

IP as part of a Joint Venture

Many intellectual property joint ventures are formed for the purposes of creating or developing software. You need to set out clear terms on what happens to existing software and intellectual property shared with the joint venture as part of the collaboration. Following on from that is consideration about how new software, technology and intellectual property created by the joint venture will be owned.

Unfortunately, ownership of intellectual property can be a common area of dispute. To avoid disputes, you should set out the position at the start of the joint venture.

Management and JV board of directors

A key question is the composition of the board of directors under the joint venture. The board will make the day to day decisions.

Areas for you to consider:

  • What is the composition (and balance) of the joint venture company’s board to be?
  • How will the chairman be appointed? Will he have a casting vote at board meetings?
  • Will certain matters require shareholder approval (and, if so, by what majority)?
  • Who will have the right to appoint the CEO/CFO/other senior management?
  • Will the joint venture company have its own employees, separate to those on the board?
  • What are the quorum, notice period, board papers and other requirements for joint venture company board meetings? Is there to be a minimum frequency for board meetings?

Joint venture exit terms

The exit strategy is a very important consideration in any joint venture agreement. In practice, details on how an exit will happen and how the parties will be paid needs to be reflected in the joint venture agreement and in the articles and shareholder agreement since it overlaps between the scope of the joint venture and the share capital of the joint venture.

Similar considerations are required if the joint venture vehicle is an limited liability partnership LLP or a common law partnership.

Issues to think about related to exit from the joint venture

Common issues include:

  • Who will own the technology and other intellectual property?
  • Is the joint venture to be of fixed term or indefinite duration? If fixed term, is there an overall exit strategy?
  • Can a shareholder terminate the joint venture early (e.g. on material breach, insolvency, change of control)?
  • Is a shareholder permitted to exit by transferring its shares? If so will any other person have the right to first refusal?
  • Will other shareholders have specific veto rights on transfers to third parties?
  • On a transfer, if permitted, is the transferor to be given drag along rights? Are other shareholder(s) to be given tag along rights if a major shareholder wishes to exit?

Get in touch for a discussion or quote with our expert joint venture agreement solicitors.

Joseph Davis

Having trained at a top international law firm and practised as an associate for three years at a leading West-End firm, I have experience acting for a client base which varies from sole traders to global listed companies.

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