Joint Venture Agreement Structure

The author of a joint venture agreement must think about how the joint venture is managed. For example, is control of a joint venture transferred or is a board of directors created? In the latter case, it is necessary to define the modalities for the appointment of the members of the board of directors/directors and the way in which they may be dismissed. The second challenge is to establish a governance system that promotes joint decision-making and supervision between the two parent companies. Even though a joint venture is not necessarily a life marriage, governance issues can quickly trigger the termination of the agreement. Weak controls can cost parent companies money and expose them to unexpected risks. The secret to effective governance is balance: sufficient oversight to protect important assets without stifling entrepreneurship. This type of structure is useful when several people are involved in the project. This form of legal structure is often used by individuals in professional services such as accounting and law, as it offers the tax system of a traditional partnership while limiting the liability of its members. However, one of the factors to consider is that, in a partnership, profits go directly to the partners, while in a company, the parties can receive dividends – this distinction can have tax consequences for a party and this is one of the reasons why it is important to get tax advice before choosing a legal structure. Therefore, the parties to the joint venture should be aware of the responsibilities of the directors and what is expected from a governance point of view before setting up a company. The creation and maintenance of a company can be a great obligation and, therefore, this type of structure is more appropriate for high-quality projects or projects that are coming to an end, or those that require another form of significant investment on the part of the parts of the joint venture. . .


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