Contractual joint ventures - overviewConfidentiality

A prospective contractual joint venture may require the disclosure of contractual information not only during the course of the joint venture, but during preliminary negotiations. The parties may need to evaluate market data or technical information that is secret and valuable. UK law does not give a specific legal protection to information that a person may wish to keep secret or confidential. The joint venture agreement itself should contain confidentiality obligations, but the disclosure of confidential information before the joint venture agreement is signed should also be protected by a confidentiality agreement or non-disclosure agreement (NDA).

Different types of contractual joint venture

There is no definitive form for a contractual joint venture. The expression 'joint venture' merely reflects the intention of the parties, which can be achieved in any of several different ways. The parties may achieve the desired result informally, without any written contract, but legal obligations can arise unwittingly by this method. It is usually advisable to commit at least the framework of the arrangement to a written agreement.

There are common scenarios in which joint ventures are used, such as:

Although the impetus for the collaboration (eg sharing different risk/expertise/market experience) and the intended result may differ, some issues will be common to any joint venture agreement, particularly those relating to control, input of resources and sharing of benefits.

Financing contractual joint ventures

Methods of funding a contractual joint venture vary more than in the case of a corporate joint venture, which uses equity or loans. The arrangement will need regulating to protect the investment and ensure recovery on exit. The funding arrangement may be a part of the main agreement, but more commonly it will be set out in a separate document. It may require the involvement of a third-party funder.

Not all joint venture arrangements will involve simple cash funding. In some cases the financing will be a part of the allocation of assets between the parties as to what they are to bring to the joint venture. Practical, as well as tax and accounting, issues will require consideration.

Ownership of assets in contractual joint ventures

The assets or resources brought into any joint venture and the assets taken out may include employees, expertise, premises and intellectual property rights. It is important to be clear from the outset what each party is to bring into the joint venture, how it is to be tracked through the joint venture, and what each party expects to take out of the joint venture.

Contractual joint venture agreements and subsidiary agreements

Documenting a joint venture arrangement will generally need prior planning and thought as to the overall structure of the relationship, and how many of the different factors can be sensibly contained in one document, or should be broken out into a main framework document with subsidiary agreements. For example, there may be a need for separate intellectual property licences, funding documents, security documents, property leases or licences.

Termination of contractual joint ventures

An essential part of the joint venture will be the exit from the arrangement. Ideally this will only happen when the end result is reached and in that case there needs to be an agreed strategy for the shareout of assets and orderly winding up of the venture. However, the arrangement can terminate in less agreeable circumstances. New joint venturers are often reluctant to discuss a possible parting of the ways should they fall out with each other. They must be persuaded to give some consideration to a possible scenario. There is also a need to consider the effect of unexpected events which may impede the joint venture or change the commercial case for the joint venture.

Joint ventures and competition law

Competition law issues must be taken into account when planning and executing a contractual joint venture, particularly relating to anti-competitive practices. Different jurisdictions have different regimes, although there is significant overlap for example between EU and UK regulation. Joint ventures that are non-structural or otherwise do not fall within the merger regulations will need self-assessment to determine whether they comply with the competition rules on collaborative arrangements and anti-competitive practices. Drafting and negotiating the joint venture arrangement should be done with a view to achieving block exemption compliance where possible.