Incorporated joint ventures

An incorporated joint venture takes the form of a new legal entity (occasionally several entities), organized as a corporation or any other business organization provided by company law.

Once the corporation is formed, the joint venture agreement may be replaced by the corporate instruments. In some cases, the agreement nevertheless survives, for instance, if the new corporation is traded publicly and the joint venture parties wish to preserve an instrument for their privileged relationship.

Contractual joint ventures

In a contractual joint venture, cooperation between joint venture parties does not necessarily lead to the creation of a new corporation with a specific form imposed by national law.

The parties to a joint venture simply organize their cooperation on a contractual basis, without forming a new corporate body. This type of cooperation is described as a contractual joint venture. A contractual joint venture is generally characterized by two important features: greater flexibility and greater exposure of the parties to liability.

Flexibility: in most legal systems, contract law allows considerable freedom for the parties to regulate contractual relationships, including contractual joint venture relationships, which are not governed by the more stringent company law regulations. Contractual joint ventures can thus be structured and adapted to the particular needs of the parties.

Liability: since a contractual joint venture does not lead to the creation of a new legal entity, it cannot shield the parties to the joint venture contract from being directly liable for the debts and losses of the joint venture.
Generally, parties to a contractual joint venture are jointly and severally liable.

The ITC Contractual Joint Venture Model Agreements

The ITC Contractual Joint Venture Model Agreements were drawn up in response to high demand from the trade sector, especially small and medium-sized enterprises, for reliable, balanced and universally applicable international model contracts.

In 1998, the International Trade Centre (ITC) conducted a worldwide survey on trade contracts. Over 245 trade promotion organizations from 125 countries responded. One of the main purposes of the survey was to identify the type of contracts needed most by companies. Joint venture contracts came in second place (78.1%) just behind demand for sales and purchase contracts (88.3%).

This prompted ITC to draft a model contract for the international commercial sale of perishable goods (1999) and, in answer to industry specific requests, a series of model contracts for the publishing and printing industry (2001).

Since the mid-1980s, ITC has been involved in various international South-South trade promotion programmes that encourage intra– and inter-regional trade transactions, for example between Asia and Africa or among companies in South America. While thousands of international contracts were entered into in the course of buyers–sellers meetings held in these programmes in various sectors (including textiles, fishing industry, pharmaceuticals, leather, and services), there were constant comments on the need for an international model for strategic alliances between two or more companies. Further studies by ITC legal staff confirmed the absence of a universal model for joint venture contracts.

In 2001, a Pro-bono Committee composed of lawyers and legal specialists from the private sector with experience in joint venture agreements from some 40 countries was set up; several international and regional organizations, were also represented. A drafting team was constituted and drafts were circulated for comments. Two plenary sessions of the Committee were held in Geneva, in September 2002 and January 2003. Organizational steps were taken to ensure that views from emerging economies were fully taken into account throughout the drafting process and that the result would reflect a consensus from specialists representing a wide range of professional, cultural and legal backgrounds.