04.07.12

Joint Ventures: A Vehicle For Business Growth

A savvy business owner is constantly on the lookout for new advantages that will set his or her business apart. A joint venture may provide the ideal vehicle to create those advantages in Jamaica’s challenging economic climate. Generally speaking, a joint venture is an arrangement between two or more persons who, each lacking one or more of the resources necessary to carry on a new business or develop an existing business, decide to pool their resources with a view to mutual profits. The ideal partner in a joint venture is one that has resources, skills and assets that complement your own.

Businesses of all sizes may utilise joint ventures to strengthen long-term relationships or to collaborate on short-term projects. A joint venture can help your business grow faster, increase productivity and generate greater profits. It may offer access to new markets and distribution networks, increase capacity and facilitate shared risks and costs. Additionally, by engaging in a joint venture arrangement a business owner may obtain a capital injection to enable growth without having to necessarily borrow funds.

A joint venture arrangement is not confined to a single structure; there are a variety of legal forms which may be employed. The three most commonly used organizational structures for a joint venture are: 1) by way of simple contract 2) through the establishment of a partnership or 3) though the incorporation of a Joint Venture Company (JVC).

Where the joint venture is organised by way of contract, the parties usually agree to operate without setting up a separate entity as the vehicle to run it. This structure is most commonly used at the experimental or investigatory stage to establish the viability of the proposed venture before incurring costs in the creation of a JVC. In such cases, a co-operation agreement is usually prepared and executed; the parties must take particular care to clearly define their rights and obligations in relation to the joint venture as this is their sole avenue for protection. Care must also be taken to ensure that the parties do not inadvertently create a partnership by their activities, if this is not what they intend. A clause in the co-operation agreement stipulating that it does not create a partnership is persuasive but not conclusive.

Where a co-operation agreement is used, liability to third parties will be dependent upon the trading relationship of each party to the agreement with those third parties. However, the co-operation agreement may expressly provide for indemnities.

The main advantage of establishing a separate entity or forming a partnership to carry on the venture is that it readily separates the operations of the joint venture from the independent activities of the parties to the co-operation agreement. A partnership allows two or more people to share ownership of a single business. This structure enables the sharing of responsibility and increases the ability to raise funds. However, each partner is jointly and severally liable for the actions of the other partners. Usually in a partnership there is no limited liability, which means that the personal assets of each partner are fair game to be used to discharge the debts of the business. This provides the most compelling reason to establish a JVC.