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What is Joint Venture Agreement

The nature of any Indian joint venture company substantially shapes the agreement which must be drawn up between the concerned and executed thereafter between the venture partners.

A contractual or unincorporated agreement which stands for the initiative between parties to share some specific projects only is more flexible. It does not aim for long term collaboration and accordingly the drafting guidelines and negotiations for the draft are carried out.

An equity joint venture, on the other hand, demands more complex steps and this automatically calls for many more rounds of negotiation followed by elaborate and exhaustive agreements.

Therefore, in both these situations, the purpose behind the creation of the joint venture and the functions they are expected to perform play important factors in deciding the contents of the agreement.

What The Joint Venture Agreement Contains:

Any agreement for a joint venture must include the possibility of bringing in changes to modify the existing kind of joint venture. In other words, the structure of the agreement should be flexible enough to accommodate changes in a way that will not make the venture redundant. This degree of flexibility which is believed to be essential must be envisaged from its inception so that changing the terms of trade or partners involved in the venture can be conveniently altered to suit the situation.

In our country the responsibility for clarifying all changes brought into a joint venture agreement is left to the foreign partner. Hence, at the time of the agreement drafting, the expression of intent must be categorically stated to avoid any controversies and discrepancy in the future.

It is clear that the nature of a joint venture affects the contents of the joint venture agreement but the primary differences between the types of joint ventures are brought out through a constitutional classification of joint ventures.

  • Unincorporated Joint Venture:
  • Before drafting an agreement for this kind of a joint venture, the project which parties will be involved in must be identified at first. When parties are vague about the reason behind a joint collaboration, determining the respective duties of the participating parties becomes increasingly difficult.

Therefore, a clear identification of the rights and obligations of each party in the joint venture is absolutely imperative for a successful relationship. Such discussions must necessarily cover all pertinent issues like the level of contribution by venturers to the concerned project, how costs are to be allotted, profit and loss distribution conditions, ownership of results and warranties which parties wish to make to the third parties. The agreement must also focus on the duration of the project. The time frame must be categorically indicated right at the start including the deadlines regarding each activity or obligation by the concerned parties. These terms and provisions are valuable in cases of potential breaches of any party’s obligations as stated under this agreement.

Related Topics:

  • Joint Venture in India

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