Draft Joint Venture

Joint Venture Agreement

When to use this

Use this skill when two or more parties wish to combine resources — capital, IP, market access, or technical expertise — to pursue a defined business purpose while maintaining separate legal identities outside the JV. Common triggers:

• A foreign company and a local partner in KSA, UAE, or Lebanon combining to pursue a contract that requires local presence
• Two companies co-investing to build and operate a shared plant, facility, or platform
• A tech company and a regional distributor forming a local entity to market and support software
• Two firms pooling R&D resources for a defined innovation project without merging

If the agreement is primarily about governance of an existing company (rather than forming a new one), use [[draft-shareholders-agreement]] instead.

Two fundamental structures

1. Contractual JV

No separate entity is created. Parties contract for cooperation: scope, contributions, cost and revenue sharing, governance. Faster to form, easier to unwind, but weaker on liability segregation.

Best for: short-term project collaboration, smaller-scale commercial cooperations, or situations where regulatory approval for a new entity is impractical.

2. Corporate JV

A new entity (NewCo) is incorporated. Parties hold shares per agreed ratio. The JV agreement governs the relationship between shareholders; the NewCo's corporate documents (articles/constitution) implement it.

Best for: long-term ventures, ventures requiring separate contracts with third parties, ventures involving shared assets, or situations where liability isolation matters.

In MENA corporate JVs, the instrument stack typically comprises:

• JV Agreement (master relationship document)
• Shareholders' Agreement / Subscription Agreement (NewCo governance)
• Articles of Association / Constitutional Document (NewCo's organic rules)
• IP License or Service Agreements between each parent and the NewCo

Required inputs

Document structure

1. Recitals — Each party's background, the rationale for the JV, the mutual intent.
2. Definitions — JV Business, Parties, NewCo (if applicable), Contributions, Reserved Matters, Deadlock.
3. Formation / structure — Contractual vs corporate; if corporate, NewCo jurisdiction, capital structure, share classes.
4. Contributions — Tabular schedule per party: cash (amount, timing), IP (describe with ownership), services (scope, valuation), market access (customer relationships, licenses). Contribution failure provisions.
5. Governance
   • Board / management committee composition — e.g., 2 seats per party for a 50/50 JV; tie-breaking mechanism
   • Day-to-day management — who is CEO/MD? How appointed? Dismissal
   • Reserved matters (see below) — requiring supermajority or unanimity
   • Information rights — quarterly financials, annual audited accounts, board observer rights
6. Reserved matters list — Actions requiring heightened approval (all parties or specified majority), typically:
   • New capital raising / dilution of either party beyond X%
   • Any acquisition or disposal above a threshold (e.g., > USD 500k)
   • Change of core business
   • Related-party transactions above threshold
   • Taking on debt beyond approved limits
   • Appointing or removing auditors
   • Amendments to the JV Agreement or NewCo constitution
   • Settlement of any claim above threshold
7. IP arrangements
   • Pre-existing ("background") IP: each party licenses to the JV for the venture's purpose only; ownership stays with the contributing party
   • Foreground IP (developed in the JV): who owns? Often NewCo, but parties should agree on license-back rights if the JV dissolves
   • Survival: IP licenses granted to the JV must terminate or be dealt with on dissolution
8. Financial provisions
   • Initial capital contributions: timing, form
   • Future capital calls: process, consent thresholds, consequences of default (dilution, forced sale)
   • Profit distribution: declaration policy, frequency, currency, withholding
   • Loss funding: are parties obligated to fund losses beyond initial contributions?
9. Deadlock resolution — When a reserved-matter vote is tied or blocked:
   • Stage 1: Escalation to senior management (30 days)
   • Stage 2: Mediation (30 days)
   • Stage 3: Deadlock-breaking mechanism — choose one:
     • Texas / Russian roulette: Party A names a price; Party B must buy at that price or sell at that price. Creates fair-value discipline.
     • Dutch auction / sealed bid: Both parties submit sealed bids; highest bidder buys out the other at that price.
     • Put/call options: One party has the right to compel sale at a formula price after deadlock persists for X months.
   • Consider which mechanism best suits the relative power balance of the parties.
10. Transfer restrictions
    • Lock-up period (no transfers for X years)
    • Right of first refusal / offer (ROFO / ROFR) before any transfer to a third party
    • Drag-along: majority can require minority to sell alongside
    • Tag-along: minority can require inclusion in any majority sale
    • Change-of-control (no transfer of control in a party without JV consent)
11. Non-compete — Each party agrees not to compete with the JV within the defined JV Business during the JV term and typically for 12-24 months post-termination. Scope must be carefully limited to the JV purpose to be enforceable.
12. Term and dissolution
    • Fixed term (e.g., 10 years) or project-completion-based
    • Dissolution events: expiry, party insolvency, persistent deadlock, agreed exit
    • Winding-up process: pay creditors, return capital, distribute assets
    • Goodwill on dissolution: expressly allocate (especially important in LB and FR civil-law contexts)
13. Governing law and dispute resolution — For cross-border MENA JVs: DIAC arbitration at DIFC or ADGM seat is common; neutral seat plus English-language proceedings avoids local court complications.
14. Boilerplate — see [[draft-boilerplate-clauses]].

Jurisdictional notes

Critical clauses — checklist

• Reserved matters list drafted specifically for this deal (not a generic template)
• Deadlock mechanism selected with clear procedure and timing
• IP license to NewCo: scope, exclusivity, termination right on JV dissolution
• Future capital call mechanics: notice, cure, dilution formula
• Non-compete scope limited to JV Business (over-breadth will not be enforced)
• Governing law and arbitration clause with named seat and rules
• Change-of-control provision (what happens if a party is acquired by a competitor)

Common mistakes

• Using a generic 50/50 JV structure without a deadlock mechanism — the venture stalls on the first real disagreement
• Failing to document IP contributions with registration numbers; "contributing our technology" without specifics creates ownership disputes
• Setting reserved-matter thresholds too low, requiring unanimous consent for routine decisions, leading to operational paralysis
• Omitting the goodwill-on-dissolution clause in civil-law jurisdictions (LB, FR) — operational party may claim significant goodwill not reflected in equity ratio
• Not verifying that neither party's existing commercial agency relationships in the target country are inadvertently affected by the JV

Related skills

• [[draft-shareholders-agreement]]
• [[draft-distribution-agreement]]
• [[draft-msa]]
• [[draft-nda-mutual]]
• [[draft-ip-licensing]]