As companies look to expand their reach globally to enter new markets or find savings, a common strategy is to find a local partner in another country and form an international joint venture. When done well, international joint ventures can dramatically shorten the timeline and expense in developing an international market or supplier base. However, if not correctly executed, an international joint venture can be an expensive misadventure that can potentially damage the home company’s operations and brand.
International Joint Venture Agreement
The international joint venture agreement represents the understanding of each partner’s respective rights, obligations and role within the venture. In addition, the agreement should address the ownership of intellectual property – especially if new intellectual property will be created by the joint venture. As such, the international joint venture agreement requires careful review and drafting by experienced international joint venture agreement attorneys.
Types Of Joint Venture
Regardless of whether they are domestic or international, from a legal perspective, joint ventures are either contractual or equitable in nature. A contractual joint venture is merely a general partnership whereby the terms of the relationship are exclusively defined by a joint venture agreement. As such, the joint venture agreement must be clear in language and comprehensive in scope so as to minimize risk and prevent disputes among the venture partners.
Equitable joint ventures involve forming a legal entity, such as a US corporation or LLC, or perhaps a foreign entity in the venture partner’s country. The venture partners become co-owners of the new entity and conduct all venture activities through the new entity. For these types of international joint ventures, the entity’s formation documents, shareholder agreements, management team and other governing documents must be carefully negotiated.
Choosing one of the types of joint ventures over the other should be made after careful review of all circumstances and goals for the partnership. Because both types of joint ventures involve their own distinct advantages and risks, companies should work closely with experienced legal counsel to identify and manage all potential risks and liabilities.
Our firm’s international joint venture attorneys have expertise in forming international joint ventures and negotiating international joint venture agreements.
Risk Of Joint Venture
Equity joint ventures pose both opportunities and challenges for the companies involved. First and foremost is the challenge of finding the right partner—not just in terms of business focus but also in terms of compatible cultural perspectives and management practices.
Second, the local partner may gain the know-how to produce its own competitive product or service to rival the multinational firm. This is what’s currently happening in China. To manufacture cars in China, non-Chinese companies must set up joint ventures with Chinese automakers and share technology with them. Once the contract ends, however, the local company may take the knowledge it gained from the joint venture to compete with its former partner. For example, Shanghai Automotive Industry (Group) Corporation, which worked with General Motors (GM) to build Chevrolets, has pursued plans to increase sales of its own vehicles tenfold to 300,000 in five years and to compete directly with its former partner.
Select Trade Compliance Representative Matters
- Advised US wireless Internet company in Mexican joint venture.
- Advised US defense contractor and managed foreign legal counsel in formation of Turkish joint venture subsidiary.
- Facilitated the establishment of Chilean/U.S. joint venture to import and sell flowers in the U.S.
- Directed foreign counsel on formation and start-up of Italian joint venture subsidiary of U.S. semiconductor company.
- Negotiated and drafted joint development agreements for software company.
- Drafted joint development and manufacturing agreement for solar energy company.
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