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Joint Venture Structures

A joint venture (JV) allows two or more independent parties to combine their financial resources, commercial expertise, market access, and management capabilities to pursue a specific commercial objective, while each party maintains its own separate identity and business outside the joint venture. JV structures can be incorporated (formed as a separate company jointly owned by the JV parties) or unincorporated (governed by a contractual JV agreement, without the creation of a separate entity). An incorporated JV is more appropriate where the JV will own substantial assets, employ staff, obtain licences, or require a separate legal identity for regulatory or commercial reasons. An unincorporated JV is more suitable for shorter-term projects or where the parties wish to avoid the overhead of maintaining a separate legal entity.

The governance of a JV structure is critical to its long term success. Key structural provisions include the composition and voting rights of the JV's board of directors or management committee, the matters that require unanimous consent of all JV parties (reserved matters), the mechanism for resolving deadlocks between the parties, the right of each party to transfer or sell their JV interest and any applicable rights of first refusal, tag along and drag along provisions, non-compete obligations of the parties, the treatment of confidential information, and the exit and dissolution provisions. Neptune Fiduciaries Group advises on the full range of JV structuring options for international clients across all industry sectors.

Incorporated vs Unincorporated JV Options

Neptune Fiduciaries Group advises on both incorporated JV structures (forming a new jointly owned company) and unincorporated contractual JV arrangements, recommending the appropriate approach based on the JV's purpose, duration, asset ownership needs, and regulatory requirements.

Governance and Deadlock Provisions

The JV agreement must clearly define board composition and voting thresholds, reserved matters requiring unanimous consent, and deadlock resolution mechanisms such as buy-sell provisions, expert determination, mediation, or arbitration to manage the risk of an impasse between equal partners.

Profit Sharing and Capital Allocation

The JV agreement sets out how the JV's profits and losses will be allocated between the parties, how capital contributions will be funded over the life of the JV, what returns each party is entitled to, and how and when distributions will be made to each partner.

Exit Mechanisms and Buy-Sell Rights

JV agreements typically include tag along and drag along rights, rights of first refusal or first offer, call and put options at pre-agreed valuations or valuation methodologies, and other exit mechanisms to ensure that the parties have clarity on how their JV interests can be transferred or the JV unwound.

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