Joint Ventures in South Africa require you to take legal consideration before starting. In the post we provide you with a general outline and checlist.
JOINT VENTURES: PRELIMINARY MATTERS
- What is the station of deliberations between the parties to date?
- Is a confidentiality undertaking required from either, both or all the parties or their affiliates?
- Do the parties want to have a period of exclusive negotiation?
PURPOSE OF THE JOINT VENTURE
- What activities will be carried on by the joint venture? Can these be expanded or developed later? What restrictions will be imposed?
- Where will the business be based?
- Will the joint venture’s operations be affected by geographical limitations?
IDENTIFYING THE STRUCTURE
What structure is the joint venture to take?3 Is the joint venture to be carried out through a separate “organisation” (for example a joint venture company) or will it merely be a contractual arrangement between the parties.
What form will the “organisation” take, for instance:
- a company; or
- a partnership?
TAX CONSIDERATIONS
- What is the optimal joint venture structure from a tax perspective?
- How will the joint venture be taxed?
- Will any tax clearances be required in connection with the formation and/or continuing operation of the joint venture?
ACCOUNTING, COMPETITION AND OTHER REGULATORY CONSIDERATIONS
Does the proposed joint venture structure meet the accounting requirements of the parties, for example will any of the parties be obliged to produce consolidated accounts incorporating the joint venture structure and is this their intention?
CONTRIBUTIONS BY THE PARTIES TO THE JOINT VENTURE
- Will any party contribute any specific tangible or intangible property to the joint venture?
- How will contributed assets be valued? How will adjustments be made for any shortfall or excess in relation to any contributor’s proportionate funding obligation?
- Do assets need to be valued under local law (for example if shares are issued in a joint venture company in consideration for the transfer of assets)? What are the timing implications and how will this valuation relate to any other independent valuation?
- Will contributions be by way of outright transfer, or a lease or licence to the joint venture for a fixed or indefinite term, or on what other terms?
- Is it possible for all contributions of assets to be made contemporaneously if regulatory approvals or consents from third parties (including lessors, licensors and lenders) are required for any transfer? If not, should the availability of all or any particular assets be a condition to the establishment of the joint venture?
- Will warranties and indemnities be given? If so, what warranties and indemnities will be given and to whom?
- Will any of the parties be responsible for providing to the joint venture offices, or other accommodation, services or facilities? If so, on what terms?
- What is the effect if one party subsequently leaves the joint venture?
EMPLOYMENT MATTERS
- Will the parties second employees or transfer their employment to the joint venture? If so, on what terms?
- Who will bear the employment-related liabilities during the employees’ employment (for example the cost of salaries, benefits and pension obligations)?
- Who will bear the liabilities that arise on the termination of employment or the secondment arrangements?
- Are secondment letters or new service contracts required?
- Are there particular individuals with key roles and do such individuals require special treatment?
- What management incentivisation arrangements will apply?
FINANCING OF THE JOINT VENTURE
- In what proportions and how, if at all, will the parties provide initial finance to the joint venture?
- How much will be provided from third party sources (for example banks)?
DECISION-MAKING AND CONTROL
- How will ownership interests in the joint venture be held?
- Precisely what rights (and obligations) do such interests confer?
- What decision-making rights will each of the parties have?
- Will decisions be by majority or unanimity?
- Will the chairman have a casting vote?
- Will the parties’ respective decision-making rights be reduced or curtailed if their respective ownership interests are reduced?
DUTIES OF PARTIES INTER SE
- What legal duties do the parties have to each other and to the joint venture by operation of law?
- Are the parties and their affiliates to be prevented from competing with the joint venture:
during the joint venture; for a period after termination?
TERMINATION
Is the joint venture for a fixed term or completion of a specific project, or is it indefinite in duration?
DISCLAIMER
The contents of this article is intended to provide a general overview to the subject matter of joint ventures and is not exhaustive. Specialist advice must be sought about your specific circumstances.
Compiled by Jaques Bloem, with the assistance of LEXISNEXIS FORMS AND PRECEDENTS – 26 February 2019.