Joint Venture (JV) has become a legal format widely used for business expansion in Brazil, from agribusiness, to technology to metal mechanics.
It is a structure that requires business care, given that it involves issues of coexistence between partners, management, and the sharing of risks and opportunities in the long run.
The structure of the JV is generally thought of when one partner has one or more differentiators (eg technology, know-how and/or brand) and the other has complementary attractions (eg capital, operational capacity, local expertise and sales channels), and wish to explore in partnership a new product or service in a defined territory, sharing risks and opportunities in the proportion they hire.
In order to operationalize a JV, the following steps are generally followed:
1. SPE: the business partners constitute a third company (special purpose company – SPE) to operate the joint venture;
2. MOU: the negotiation process goes through a Memorandum of Understanding (MoU) (or Letter of Intent), where the parties deal with the main corporate and governance terms and conditions (eg equity participation, management, and capex), and commercial (eg line of products/services, form of pricing and sales force); and
3. Contracts: if wish to proceed, the business partners will enter into a Joint Venture Agreement, Shareholders Agreement, Commercial and Technology Contracts, among others, which will govern this corporate, governance and operational relationship in the long term.
If well structured, JVs can mean the expansion of business in unfamiliar markets and territories with the sharing of costs and risks.