Key Clauses In A Joint Venture Agreement

The difference between a consortium and a joint venture is that a consortium cannot be created as a legal entity. This has two practical effects: most agreements provide that all stakeholders must be properly informed of all matters before the Board of Directors and that at least one representative of minority stakeholders must be present at each meeting. If the problem cannot be resolved, the standard procedure usually involves the mandatory transfer of a party`s shares into the joint venture. The simplest mandatory transfer procedures that can be used are the sale and call options. A put option allows the outgoing shareholder to require the other party or parties to acquire the entirety of its interest and an appeal option authorizes the holder to require the other party or parties to sell their entire interest to the other party or parties. Although the selling and calling options work well in a joint venture involving only two parties, the process becomes complex as the company is involved by shareholders or partners. However, it is very risky to enter into unwritten cooperation with another party, without a written agreement, to protect your business interests and minimize the risk of litigation if you fail with the other parties to the agreement. The management of intellectual property rights is highly desirable in a joint enterprise agreement. If two parties join forces to form a joint venture, each party will want to give the other party access to its resources, including intellectual property. The agreement should therefore provide the exact details of the licences granted. A. The parties recognize that their own interests and the best interests of the joint venture are best served by all appropriate measures to ensure the expansion of the joint venture`s production facilities as quickly as market conditions and, to that end, agree to retain sufficient profits in the common company before distributing profits to shareholders. , as is reasonably necessary, in the present circumstances, to guarantee such an expansion and other requirements relating to the implementation of the affairs of the joint venture in according sound business practices.

What is “reasonable” depends on the facts and circumstances of the joint venture`s activity. In general, a clause preventing a party from engaged in a competing activity for a period of five years from the end of the joint venture would generally be considered inappropriate and therefore unenforceable. However, a clause preventing competing activities for two years after the end of the activity is considered more appropriate and therefore applicable. (d) The profit and loss clause: this clause confers that all profits are distributed on the basis of the percentage of shares of the joint venture.