A joint venture is a business entity/ agreement entered into or created by two or more parties to accomplish a specific task or business goal while retaining their separate identities. There are varying reasons why companies create a joint venture, it could be for the purpose of accessing a new emerging market; to gain profits margins by combining their assets and operations; accessing skills and capabilities, or to share the risk for major investments or projects. This concept makes it similar to a partnership where every risk, finance, profits are shared. The difference between a partnership and a Joint venture contract is the duration. A partnership exists as long as possible while a Joint Venture is terminated once the purpose it was created for has been realized or extinguished.
In a joint venture there is usually shared ownership, shared governance, shared profit returns and risk. For individuals, where two or more persons come together to form a temporary partnership or joint undertaking for the purpose of performing a particular project that partnership can be called a Joint venture Contract.
In the ordinary parlance there are steps to a Joint Venture Contract in Nigeria, which includes having to define the business strategy to be undertaking; selecting the partners after due diligence in checking their credentials; develop a joint venture deal that negotiates all terms and conditions; planning; and execution of the Joint Venture Contract. A distinct characteristic of a Joint Venture is that it is for a specific period of time, for example, in oil and gas supply business, once the purpose is achieved, liabilities are discharged and profit is shared; and then the venture is extinguished.
The purpose of a Joint Venture is that every business or person has the strength, resources and advantage to deliver what is required for the effective delivery of a product or service to the market to foster economic relationships. Joint venture contract in Nigeria can be created in these instances:
Relevant Clauses or Terms in Joint Venture Contract/Agreement
A contract is duly required when a joint venture has been agreed upon. This is important for the smooth running of the venture. It guarantees the clarity on the purpose of the joint venture, the parties, the rights of the parties and the duties expected of each party. Below is the list of terms to be found in Joint Venture contract.
A joint venture is a common form of foreign investment in Nigeria. Parties to a joint venture can be individuals or incorporated bodies. It is very important that the various aspects listed above are carefully documented. A Joint venture agreement is entered into before the company is incorporated. It outlines the terms of the Joint Venture which forms the basis of the memorandum and Article of association of the proposed company.
Parties should ensure that the important clauses of the Joint Venture agreement such as sharing formula, management structure, obligations of the parties, termination, governing laws are entrenched into the joint venture contracts to make it legally binding on parties.
By Corporate & Commercial Law Department at Resolution Law Firm, Nigeria