© International Trade Centre, International Trade Forum
- Issue 4/2002
 |
Many factories are built through joint ventures. |
by Michael Schneider, Jean-Paul Vulliety and Carolyn
Olsburg
At long last, specialists have agreed upon two model contracts
for international joint ventures. Legal experts from a Geneva law
firm who provided the initial drafts describe their features.
For several decades, companies' legal departments secretly
developed their own tailor-made joint venture contracts. They
couldn't do otherwise: no international model existed and no one
dared to propose one in view of the diversity of legal cultures and
practices.
A joint venture is a classic type of strategic alliance between
two or more companies. It can be long or short term, and used for
various activities: engineering, production and distribution, among
others. It seemed that no model could suit all these needs and
reconcile lawyers from diverse backgrounds. Yet the demand for
international models was pressing.
In 1998, ITC conducted a worldwide survey on trade contracts.
Over 245 trade promotion organizations (TPOs) from 125 countries
responded. The survey showed that joint venture model contracts
were requested and considered a priority by 77% of TPOs.
Surprisingly, in less than two years a group of some 55 specialists
from 45 countries, representing all legal cultures (see related
article on ITC's Pro-bono Committee on Model Joint Venture
Contracts), have agreed on two models.
Help for small firms
Joint venture model contracts provide the international business
community with models for two forms of joint venture agreements.
The contracts are especially designed for small and medium-sized
enterprises (SMEs) in emerging economies and developing markets.
These model contracts take into account the particularities of
specific business fields, as well as the requirements of civil and
common law legal systems. Both the guidelines and the texts of the
model contracts have been reviewed by international trade law
experts from various professional, cultural and legal
backgrounds.
Two options
A joint venture may be about the joint performance of a
single-activity contract, or about the organization of long-term
cooperation between parties. Model contracts are already available
for short-term single-activity joint ventures, such as a
construction contract. See, for example, the International
Federation of Consulting Engineers' (FIDIC) construction, plant and
design build, and engineering, procurement and construction (EPC)
turnkey contracts at http://www.fidic.org So experts
agreed that the need existed mainly for long- and medium-term joint
ventures.
The joint venture model contracts vary with respect to both the
objective of the joint venture and its joint implementation. As a
result, two types of joint venture model contracts have been
prepared: the first in view of creating a company; the second in
view of cooperation without creating a company. These are
applicable to different situations:
- Incorporated joint venture contract. This is a model
to create one or more joint venture companies, which are legal
entities established to carry out a common activity. In this case,
the joint venture agreement helps to prepare the creation of a
company in a specific country. In addition to the joint venture
agreement, the cooperation of the parties requires further legal
instruments, usually articles of incorporation of the company,
by-laws and a shareholders' agreement.
- Contractual joint venture contract. This model
regulates cooperation between parties. A legal entity is not
created, but a collaborative group exists. Only one legal
instrument is usually necessary: the contractual joint venture
agreement. Model agreements are suitable for most commercial and
industrial activities for which joint ventures are used, including
transportation, prospecting for and developing natural resources,
and the hotel and tourism industry.
Topics
The model agreements address: initial and additional
contributions of the parties; management and representation of the
joint venture and/or the joint venture company; external and
internal liability of the parties; sharing of profits and losses;
deadlock resolution; acquisition; loss and transfer of partnership
status; exclusion of a partner, end of the joint venture; and
dispute resolution.
For more information
An ITC book featuring these model agreements will be available
in English and French in 2003. Legal terms and concepts are
provided in each language, and an attempt is made to reflect
characteristics of both the civil and the common law systems.
Options to deal with various situations are also provided. A
commentary, in the form of a "user's guide", is included. It also
draws the parties' attention to legislative provisions that are
compulsory in certain states, in particular concerning tax law,
inheritance law and company law. The agreements will also be online
at http://www.jurisint.org
Michael Schneider, Jean-Paul Vulliety and Carolyn Olsburg,
lawyers at Lalive and Partners, Geneva, Switzerland, developed the
model contract drafts for international joint ventures. They can be
contacted at info@lalive.ch
For more information, check the Juris International web site
(http://www.jurisint.org) or
contact ITC at bourque@intracen.org