Joint Venture (JV) is a legal format widely used for business expansion in Brazil, from agribusiness, technology to metal mechanics.
It is a structure that requires careful negotiation, as it involves issues of coexistence between partners, management and sharing of risks and opportunities in the long term.
It is recommended to consider the JV format when one partner has one or more differentials (eg technology, know-how and/or brand) and the other has complementary attractions (eg capital, operational capacity, local expertise and sales channels), and they want to jointly explore a new product or service in a delimited territory, sharing risks and opportunities in the proportion that they hire.
To make it operational, future partners must pay attention to the following legal aspects:
1. Preliminary Agreement: From a contract standpoint, the JV negotiation process goes through a preliminary agreement, such as a Memorandum of Understanding (MOU) or Letter of Intent, where the partners will address the main terms and conditions of the transaction, including, initially, a financial and operational feasibility assessment of the business, moving on to corporate and governance aspects (e.g. equity participation, capital contribution, assets and management), and commercial (e.g. line of products/services, who set the product/service price and sales force);
2. Main and Ancillary Agreements: once the preliminary agreement is signed and the feasibility of the business is confirmed, the partners will negotiate and enter into the Joint Venture Agreement and the ancillary legal instruments, including the Shareholders Agreement, License Agreement/Use of Technology, Commercial Agreements, among others applicable, which will govern the life of the JV after the start of the operation;
3. Setting Up the JV Company: as soon as the Joint Venture Agreement and the ancillary instruments are signed and any precedent conditions are met, the partners will constitute a third company (Specific Purpose Company – SPE) , whose equity participation of each partner will be determined in the Joint Venture Agreement, intended to operationalize the JV’s activities.
If well structured, JVs is an interesting legal format for foreign investors to expand their business into Brazilian market, by engaging with local partner to share expertise, capital, technology, cost and profits.