Prompt Pack Joint Venture Agreement

Joint Venture Agreement

When to use this

Use this skill when two or more parties want to collaborate on a defined commercial project or ongoing business activity through a jointly controlled structure. The JV may be:

• Contractual (no new entity — parties act under a partnership or contractual arrangement)
• Corporate (parties establish a new company — LLC, JSC, or SPV)

Triggers:

• "We want to set up a 50/50 company in the UAE with a local partner."
• "Draft a JV agreement for a construction consortium in Saudi Arabia."
• "We need a contractual JV for a real estate development project in Lebanon."

Required inputs

Optional inputs

• Sharia-compliance requirement (profit-sharing structure under mudaraba or musharaka principles)
• Deadlock mechanism preference (casting vote, Russian roulette, buy-sell, mediation)
• Dispute resolution preference (court or arbitration; institutional rules)
• Non-compete scope and duration
• IP ownership and licensing-back arrangements for contributed technology

Document structure

1. Recitals — describe the parties, the intended JV, and the purpose for entering the agreement.

2. Definitions — define key terms: "Affiliate," "Business," "JV Company," "Confidential Information," "Net Profit," "Deadlock."

3. Establishment of the JV — if corporate: obligation to incorporate the JV Company, jurisdiction of incorporation, timeline; if contractual: declare the contractual JV and its scope.

4. Ownership and shareholding — ownership percentages; any preference rights, anti-dilution provisions, or reserved matters requiring supermajority.

5. Capital contributions — initial contributions by each party; obligation to make further capital calls; consequences of default on a call (dilution or compulsory transfer).

6. Governance and management

   • Board composition and appointment rights (proportional to shareholding)
   • Reserved matters requiring unanimous or supermajority board approval (e.g., major capex, new debt, material contracts, budget approval, change of business)
   • Day-to-day management: appointing a General Manager or CEO; reporting obligations

7. Profit and loss allocation — pro-rata to ownership unless Sharia-compliant structure requires agreed profit ratios independent of capital ratio (note: in musharaka, profit ratio can differ from ownership but loss must mirror capital contribution).

8. Transfer restrictions

   • Lock-up period (typical: 2–3 years from incorporation)
   • Right of first refusal (ROFR) in favor of the non-transferring party
   • Tag-along and drag-along rights
   • Change-of-control provisions (deemed transfer if parent company changes)

9. Deadlock resolution

   • Definition of deadlock (typically: board resolution fails to pass on a reserved matter twice within [30/60] days)
   • Steps: escalation to senior management, then mediation, then buy-sell mechanism
   • Buy-sell (shotgun): either party may offer to buy the other's interest at a stated price; the other party must elect to sell or to buy the offering party's interest at the same price

10. Exit mechanisms

    • Voluntary exit: notice period and buy-out pricing (fair market value or agreed formula)
    • Dissolution triggers: insolvency, regulatory prohibition, material breach
    • Liquidation waterfall: priority of distributions on wind-up

11. Non-compete and non-solicitation

    • Scope: activities competing with the JV's defined business
    • Territory: jurisdictions where the JV operates
    • Duration: typically 2 years post-exit (note enforceability varies — see below)

12. IP — each party's background IP remains its property; any IP created by or for the JV vests in the JV entity (or is jointly owned per agreed ratio); licence-back arrangements if background IP is used.

13. Confidentiality — mutual; survives termination for 3–5 years.

14. Governing law, dispute resolution, language — critical for MENA cross-border JVs.

Jurisdictional notes

Non-compete enforceability note: In civil-law jurisdictions (LB, EG, FR), courts apply a reasonableness standard to non-competes; overly broad restrictions will be reduced or struck down. In UAE, non-compete clauses are enforceable if limited in time, geography, and scope (Labour Law for employees; Commercial Code for commercial parties). In KSA, courts may assess non-competes under principles of harm prevention.

Deadlock / dissolution note: DIFC and ADGM law provide reliable judicial dissolution remedies. In UAE onshore, Ministry of Economy winding-up procedures are more bureaucratic; contractual deadlock mechanisms and exit routes are especially important.

Common mistakes

• Missing reserved matters list: Without a defined list, majority party can make unilateral decisions that minority considers fundamental.
• Vague profit distribution formula: "Pro-rata" is unclear if parties contribute capital at different times or in different forms; specify the accounting basis and distribution frequency.
• No buy-out pricing mechanism: If parties cannot agree fair market value at exit, the JV can become deadlocked indefinitely; include an expert determination fallback.
• Ignoring local foreign ownership rules: Agreeing to a 60/40 structure that violates a sectoral restriction can render the JV registration impossible.
• No governing law clause: In MENA cross-border JVs, choice of law is often disputed. An express clause choosing a neutral forum (e.g., DIFC, ADGM, English law) avoids costly jurisdictional disputes.

Related skills

• [[prompt-pack-memorandum-of-understanding]]
• [[prompt-pack-letter-of-intent]]
• [[prompt-pack-merger-agreement]]
• [[prompt-pack-non-compete-agreement]]
• [[prompt-pack-master-services-agreement]]