Pitfalls in an International Joint Venture Contracts

According to a recent study: "Many organizations that are looking to establish global Joint Venture contracts and agreements with foreign partners mistakenly believe that the terms and conditions are about the same as domestic contracts with in-country partners. Joint Venture contracts structured with in-country partners will not work as templates for Global Joint Venture without significant modification."

The most important areas to protect through an international Joint Venture agreement are security and confidentiality, legal compliance, fees and payment terms, proprietary rights, auditing rights and dispute resolution process.

The greatest risks for International Joint Venture come from some emerging countries that are early entrants into Joint Venture, or those that have limited governmental support, ineffective legal enforcement, immature infrastructure, limited or nonexistent intellectual property protection or lack an understanding of foreign laws.

The most important areas to protect through an international Joint Venture agreement are security and confidentiality, legal compliance, fees and payment terms, proprietary rights, auditing rights and dispute resolution process. The legal systems in some countries might claim jurisdiction over any agreement regardless of which system the agreement specifies, and that other legal systems might have little respect for intellectual property rights.

How to Draft Joint Venture Agreements and Contracts?

Generally a Memorandum of Understanding or a Letter of Intent is signed by the parties highlighting the basis of the future joint venture agreement.

A good Joint Venture agreement is one which provides a comprehensive road map of the duties and obligations of both the parties. It minimizes complications when a dispute arise. However, many a times people neglect to pay attention while drafting an Joint Venture agreement

Before finalizing an Joint Venture Agreement, the terms should be thoroughly discussed and negotiated to avoid any misunderstanding at a later stage. Negotiations require an understanding of the cultural and legal background of the parties.

A Memorandum of Understanding and a Joint Venture Agreement must be signed after consulting lawyers well versed in international laws and multi-jurisdictional laws and procedures.

Before signing an Joint Venture Agreement the following must be properly addressed:

Applicable law.

Force Majeure

Holding shares

Transfer of shares

Board of Directors

General meeting.

CEO/MD

Management Committee

Important decisions with consent of partners

Dividend policy

Funding

Access.

Change of control

Non-Compete

Confidentiality

Indemnity

Assignment.

Break of deadlock

Termination

Security and confidentiality

Legal compliance

Fees and payment terms

Proprietary rights

Auditing rights

Events of Defaults and Addressing

Dispute Resolution Mechanism

Time limits

Location of Arbitration

Number of Arbitrators

Interim measures/Provisional Remedies

Privacy Agreement

Non-compete Agreement

Confidentiality Agreement

Rules Applicable

Appeal & Enforcement

Be aware of local peculiarities

Survival terms after the termination of the Joint Venture agreement.

The Joint Venture agreement should be subject to obtaining all necessary governmental approvals and licenses within specified period.

Every Joint Venture agreement should be modified as applicable under different circumstances. One brush should not paint all the painting. International Joint Venture could be is a legal minefield and many companies are not aware of the problems it causes.