Introduction
Joint ventures (JVs) are an increasingly popular business structure that allows two or more parties to combine their resources and expertise to pursue a common goal. JVs can take many different forms, from simple contractual arrangements to more complex corporate structures, and can be used in a wide range of industries and contexts. A JV is an arrangement in which two or more parties come together to carry out a specific business project or venture, for a limited duration. However, the formation and management of a JV can be complicated and require careful consideration of legal and business issues, as well as regulatory requirements. In this paper, we will discuss the legal aspects of a JV, including its formation, management, and termination, as well as examine recent real-world examples of joint ventures.
Formation of a Joint Venture
The formation of a JV is usually made through a written agreement between the parties, which sets out the terms and conditions governing it.
The agreement outlines the purpose of the JV, the parties' respective contributions, the sharing of profits and losses, the management structure, and the termination of the JV.
One essential element of a JV agreement is the identification of the parties' respective contributions, which can include financial contributions, intellectual property rights, equipment, and human resources. The agreement must also outline the rights and obligations of each party, including their decision-making power, liability for debts and obligations, and the ability to transfer or sell their shares in the JV.
Management of a Joint Venture
The management of a JV is crucial to its success, and the agreement must specify the management structure, including the roles and responsibilities of each party, the decision-making process, and the appointment of key personnel. The parties can appoint a board of directors or management committee to oversee the JV's operations, or one party can assume the management role, subject to the agreement's provisions.
The agreement must also specify the accounting and financial reporting requirements, the distribution of profits and losses and the treatment of taxes and other expenses. The parties must ensure that proper records are kept, and the financial statements are audited regularly to prevent disputes and ensure compliance with legal and regulatory requirements.
Termination of a Joint Venture
The termination of a JV can occur in several ways, including expiration of the agreed term, mutual agreement of the parties, breach of the agreement, or by operation of law. The agreement must specify the circumstances under which the JV can be terminated, the consequences of cessation, and the procedures for winding up its affairs.
If the JV is terminated due to a breach of the agreement, the non-breaching party may seek damages or specific performance to enforce the agreement's terms. The agreement may also include provisions for dispute resolution, such as arbitration, mediation, or litigation, to resolve any disputes that may arise between the parties.
Legal treatment
The legal treatment of joint ventures depends on the jurisdiction in which they are established and the nature of the joint venture itself.
In general, they can be treated as either a partnership or a corporation, depending on how they are structured and operated. In a partnership, the joint venture is not a separate legal entity and is instead considered a partnership between the parties involved. In this case, the parties are jointly liable for any debts or legal obligations of the joint venture.
Alternatively, joint ventures can be structured as corporations, which are separate legal entities with their own rights and liabilities. In this case, the joint venture is treated as a business entity and is subject to corporate laws and regulations.
The legal treatment of joint ventures also depends on the specific agreement between the parties involved. Joint venture agreements typically outline the rights and obligations of each party, as well as the terms of the joint venture itself, such as the duration of the venture, the distribution of profits and losses, and the roles and responsibilities of each party.
It is important to note that joint ventures may be subject to antitrust regulations and competition laws, which may require approval from regulatory authorities in some jurisdictions. In addition, joint ventures may also be subject to tax laws, which can vary depending on the jurisdiction and the structure of the joint venture.
Overall, the legal treatment of joint ventures depends on a variety of factors, including the jurisdiction, the structure of the joint venture, and the specific agreement between the parties involved.
Joint ventures in Italy
Joint ventures in Italy are not specifically regulated by the Italian Civil Code. Instead, they are subject to general corporate law provisions and regulations set forth by the Italian Antitrust Authority (ACGM).
In Italy, incorporated joint ventures can be structured as various legal entities, including limited liability companies (SRL), joint-stock companies (SPA), or partnerships. The choice of legal form will depend on various factors, such as the size of the venture, the number of participants, and the degree of liability that each participant is willing to assume.
Differently, contractual joint ventures are atypical associative agreements between companies, of a purely contractual nature. They are usually used to achieve well-defined objectives and, most of the time, intended to last only for the time necessary to achieve such business targets. This allows the entities involved in the joint venture to avoid the predetermined rules that apply to common partnerships, namely general partnerships (s.a.s or s.n.c.).
When forming a joint venture in Italy, the parties must comply with the rules set forth by the Italian Antitrust Authority, which has the power to review the venture and assess its impact on competition. If the joint venture meets certain thresholds in terms of turnover or market share, it must be notified to the Authority for approval.
Types of Joint Ventures
There are four main types of joint ventures.
Project Joint Venture, which is formed for a specific project or a set of projects. It is a temporary partnership between two or more companies that combine their resources and expertise to complete a specific task or project. Once the project is completed, the joint venture is dissolved.
Functional Joint Venture, which is instead formed when two or more companies join forces to create a new business unit that performs a specific function. This type of joint venture is often used in areas such as research and development, marketing, or distribution.
A Vertical Joint Venture is created when two or more companies from different stages of the supply chain come together to create a new business unit. For example, a manufacturer might form a joint venture with a supplier to ensure a steady supply of raw materials.
Horizontal Joint Ventures are generally used by two or more companies from the same industry or market to come together to create a new business unit. This type of joint venture is often used to gain market share or to reduce competition.
Recent Examples of Joint Ventures
Joint ventures have been used in various industries, including technology, healthcare, and energy, to achieve strategic goals and access new markets.
Alphabet and Fiat Chrysler Automobiles (FCA) formed a joint venture to develop autonomous driving technology. The JV, called Waymo, leverages Alphabet's expertise in artificial intelligence and FCA's manufacturing capabilities to develop self-driving vehicles.
Johnson & Johnson and AstraZeneca formed a joint venture to develop market cancer treatments. The JV, called DREAMM, combines Johnson & Johnson's expertise in oncology research and AstraZeneca's manufacturing capabilities to bring new cancer treatments to market.
ExxonMobil and Qatar Petroleum formed a joint venture to develop liquefied natural gas (LNG) projects in North America. The JV, called Golden Pass Products LLC, leverages ExxonMobil's expertise in project management and technology with Qatar Petroleum's global LNG market reach.
Toyota and Panasonic formed a joint venture to develop electric vehicle batteries. The JV, called Prime Planet Energy & Solutions, combines Toyota's expertise in vehicle design and production with Panasonic's battery technology to develop high-performance batteries for electric vehicles.
Pfizer and BioNTech formed a joint venture to develop and market COVID-19 vaccines. The JV, called COMIRNATY, combines Pfizer's expertise in vaccine development and manufacturing with BioNTech's mRNA technology to bring a highly effective COVID-19 vaccine to market. The two companies had already collaborated in the past on the development of a flu vaccine. Under the terms of the joint venture agreement, Pfizer and BioNTech agreed to jointly conduct research and development activities, share clinical data, and share manufacturing capabilities to produce the vaccine. The companies also agreed to share the costs and profits associated with the vaccine. The vaccine developed by Pfizer and BioNTech is based on messenger RNA (mRNA) technology, which is a new approach to vaccine development. The joint venture between Pfizer and BioNTech has been hailed as a successful collaboration in the fight against COVID-19, the vaccine has been distributed globally, and it has played a significant role in reducing the spread of the virus.
Conclusion
Joint ventures can offer various advantages to parties looking to achieve strategic goals and access new markets. However, the formation and management of a JV can be complicated and require careful consideration of legal and business issues, as well as regulatory requirements. The agreement must specify the parties' respective contributions, management structure, decision-making process, financial reporting requirements, and termination procedures.
As abovementioned, recent examples of JVs have been used in various industries, including technology, healthcare, and energy, to achieve strategic goals and access new markets. These examples demonstrate the importance of careful planning and execution to ensure the success of a joint venture.
In conclusion, joint ventures can offer significant benefits to parties seeking to achieve common goals, but careful consideration of legal and business issues is essential to ensure their success.
BIBLIOGRAPHY
Pfizer and BioNTech: "Pfizer and BioNTech Announce Collaboration to Develop mRNA-based Vaccines for Prevention of COVID-19": https://www.businesswire.com/news/home/20200317005392/en/Pfizer-and-BioNTech-Announce-Collaboration-to-Develop-mRNA-based-Vaccines-for-Prevention-of-COVID-19
ExxonMobil and Qatar Petroleum: "ExxonMobil and Qatar Petroleum to go ahead with
LNG export project in Texas
"https://www.reuters.com/business/energy/exxonmobil-qatar-petroleum-go-ahead-with-lng-export-project-texas-2021-03-29/
Toyota and Panasonic: "Toyota and Panasonic to establish joint venture for automotive prismatic batteries": https://newsroom.toyota.co.jp/en/toyota/24728706.html
Cornell Law School Legal Information Institute. (n.d.). Joint Ventures. https://www.law.cornell.edu/wex/joint_venture
Investopedia. (2022, January 10). Joint Venture (JV). https://www.investopedia.com/terms/j/jointventure.asp
Osborne Clarke. (2020, February 6). Joint ventures in Italy. https://www.osborneclarke.com/insights/joint-ventures-in-italy/
"Joint Venture: La Regolamentazione Delle Società Di Capitali" https://www.acgm.it/it/joint-venture-la-regolamentazione-delle-societa-di-capitali/
"Joint venture: la disciplina civilistica" https://www.altalex.com/documents/news/2016/04/08/joint-venture-la-disciplina-civilistica
Comments