Brown Rudnick LLP

04/16/2024 | News release | Distributed by Public on 04/16/2024 15:08

Are You Based in LatAm and Would like to Enter into an International Joint Venture? Clara Krivoy long arrow

An international joint venture is a business arrangement where two or more companies from different countries come together to undertake a business activity, such as entering into new markets, accessing local resources, sharing expertise or using economies of scale, allowing each party to benefit from the other's strengths.

Here are some key legal considerations that the parties should address when forming an international joint venture:

  1. Structure: Deciding whether the joint venture will be structured as a corporation, a partnership, or a limited liability company (LLC) is important, as each vehicle has different implications for liability, tax and governance. To learn about the different types of corporate entities that are available in the U.S., you can read Brown Rudnick's article on that topic by clicking here.
  2. Joint Venture Agreement: A thorough joint venture agreement detailing the purpose of the joint venture, contributions of each party (such as capital, resources, and expertise) and how decisions will be made, including management roles, voting rights, and the appointment of directors and officers, is essential.
  3. Intellectual Property (IP): It is important to clearly outline the ownership, use, and management of any intellectual property that is brought into the joint venture or developed during its course, including whether IP developed during the joint venture belongs to the joint venture entity or to the individual parties.
  4. Profit Sharing and Losses: The joint venture agreement should clearly define how profits and losses will be distributed among the parties, including setting up financial contributions and addressing how resources will be allocated.
  5. Duration and Termination: Specifying the duration of the joint venture is essential, whether it is for a limited time or until a specific goal is achieved. This would include detailing the circumstances under which termination of the joint venture is permissible, and procedures for winding down.
  6. Dispute Resolution: It is critical for a joint venture agreement to contemplate upfront mechanisms for resolving disputes between the parties. Mediation and arbitration clauses are common to avoid litigation.
  7. Regulatory Compliance: Ensuring that the joint venture complies with applicable local and international laws, including antitrust and competition laws, securities regulations, licensing requirements and foreign exchange controls, is also key. To learn about the advantages of having a compliance manual that conforms to U.S. Law, you can read Brown Rudnick's article on that topic by clicking here.
  1. Exit Strategy: Planning for the eventual end of the joint venture, whether through the achievement of its goals, mutual agreement to terminate or a buy-out by one of the parties, is critical. This includes how assets will be divided, handling of shared intellectual property and responsibilities for ongoing liabilities.
  2. Management and Control: Joint venture agreements typically contemplate how the joint venture will be managed. This can include forming a joint venture board, appointing managers, and defining each party's role in day-to-day operations.To learn about best practices in corporate governance, you can read Brown Rudnick's article on that topic by clicking here.
  3. Confidentiality: Because joint ventures often involve sharing proprietary information between parties, it is critical to have confidentiality agreements in place to protect sensitive information.

Some advantages of international joint ventures include:

  • Market Entry: Companies can enter foreign markets that might be difficult to access due to regulatory barriers, high entry costs or complex market dynamics. Local partners are able to provide insights and established networks in their home countries.
  • Resources: Partners can access each other's resources, including technology, manufacturing capabilities, and local employees.
  • Risk Sharing: By partnering with a foreign entity, each participant can share the financial and operational risks associated with the joint venture.
  • Regulatory Compliance: A local partner can navigate the regulatory landscape more effectively, facilitating compliance with local laws and regulations.

Some challenges that international joint ventures may present include:

  • Cultural Differences: Differences in corporate culture and business practices can lead to misunderstandings and conflicts.
  • Communication Barriers: Language differences, geographical distance and time differences can complicate communication.
  • Management and Control: Aligning management styles and agreeing on control mechanisms can be challenging.
  • Legal Compliance: The joint venture must comply with the legal systems of all countries involved, which can be complex.

International joint ventures are a strategic way for companies to expand globally by combining strengths and mitigating the risks of entering into new markets. However, they require careful planning, clear agreements, and effective communication to succeed.

If you need help with designing an optimal structure for an international joint venture, ensuring that relevant legal issues are properly addressed, and having a joint venture agreement that is tailored to meet the specific needs of the parties involved, let us know. Our team of international lawyers, many of whom are admitted to practice law in Latin American countries can assist you.