draft-joint-venture
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name: draft-joint-venture
description: Use when drafting a joint venture agreement for two or more parties pursuing a shared business purpose, whether as a contractual cooperation or a newly incorporated entity (NewCo). Covers governance, contributions, profit sharing, reserved matters, deadlock resolution, exit mechanisms, and critical MENA-specific issues such as foreign-ownership restrictions and commercial agency law in UAE, KSA, and Lebanon. Triggers on "joint venture", "jv agreement", "joint company", or "shared enterprise" requests.
license: MIT
metadata:
id: draft.joint-venture
category: draft
practice_area: corporate
jurisdictions: [UAE, DIFC, ADGM, KSA, LB, EG, GCC]
priority: P0
intent: [joint venture, jv agreement, corporate partnership, shared entity, NewCo]
related: [draft-shareholders-agreement, draft-distribution-agreement, draft-msa, draft-nda-mutual]
source: Louis — HAQQ Legal AI (github.com/sboghossian/mini-claude-for-legal)
version: "1.0"
Joint Venture Agreement
When to use this
Use this skill when two or more parties wish to combine resources — capital, IP, market access, or technical expertise — to pursue a defined business purpose while maintaining separate legal identities outside the JV. Common triggers:
- A foreign company and a local partner in KSA, UAE, or Lebanon combining to pursue a contract that requires local presence
- Two companies co-investing to build and operate a shared plant, facility, or platform
- A tech company and a regional distributor forming a local entity to market and support software
- Two firms pooling R&D resources for a defined innovation project without merging
If the agreement is primarily about governance of an existing company (rather than forming a new one), use [[draft-shareholders-agreement]] instead.
Two fundamental structures
1. Contractual JV
No separate entity is created. Parties contract for cooperation: scope, contributions, cost and revenue sharing, governance. Faster to form, easier to unwind, but weaker on liability segregation.
Best for: short-term project collaboration, smaller-scale commercial cooperations, or situations where regulatory approval for a new entity is impractical.
2. Corporate JV
A new entity (NewCo) is incorporated. Parties hold shares per agreed ratio. The JV agreement governs the relationship between shareholders; the NewCo's corporate documents (articles/constitution) implement it.
Best for: long-term ventures, ventures requiring separate contracts with third parties, ventures involving shared assets, or situations where liability isolation matters.
In MENA corporate JVs, the instrument stack typically comprises:
- JV Agreement (master relationship document)
- Shareholders' Agreement / Subscription Agreement (NewCo governance)
- Articles of Association / Constitutional Document (NewCo's organic rules)
- IP License or Service Agreements between each parent and the NewCo
Required inputs
| Input | Why it matters | Default |
|---|---|---|
| Parties — names, types, roles (operator / financial / technical) | Determines governance design | — must supply |
| JV purpose — precisely defined | Defines the venture's scope and what's excluded; limits liability | — must supply |
| Structure — contractual or corporate; if corporate, jurisdiction of NewCo | Determines entire legal framework | Corporate NewCo unless deal is transient |
| Contributions — cash / IP / services / market access per party | Drives valuation, equity split, and future capital calls | — must supply |
| Ownership — % equity, voting rights, preferential rights | Core governance | Pro rata to contribution |
| Governance — board composition, management, reserved matters, deadlock resolution | Prevents operational paralysis | See governance section below |
| Profit/loss allocation — pro rata or separate formula | Cash flows determine partner incentives | Pro rata to equity |
| Exit mechanisms — buy-sell, drag/tag, IPO, dissolution | Allows the JV to end or restructure cleanly | See exit section below |
Document structure
- Recitals — Each party's background, the rationale for the JV, the mutual intent.
- Definitions — JV Business, Parties, NewCo (if applicable), Contributions, Reserved Matters, Deadlock.
- Formation / structure — Contractual vs corporate; if corporate, NewCo jurisdiction, capital structure, share classes.
- Contributions — Tabular schedule per party: cash (amount, timing), IP (describe with ownership), services (scope, valuation), market access (customer relationships, licenses). Contribution failure provisions.
- Governance
- Board / management committee composition — e.g., 2 seats per party for a 50/50 JV; tie-breaking mechanism
- Day-to-day management — who is CEO/MD? How appointed? Dismissal
- Reserved matters (see below) — requiring supermajority or unanimity
- Information rights — quarterly financials, annual audited accounts, board observer rights
- Reserved matters list — Actions requiring heightened approval (all parties or specified majority), typically:
- New capital raising / dilution of either party beyond X%
- Any acquisition or disposal above a threshold (e.g., > USD 500k)
- Change of core business
- Related-party transactions above threshold
- Taking on debt beyond approved limits
- Appointing or removing auditors
- Amendments to the JV Agreement or NewCo constitution
- Settlement of any claim above threshold
- IP arrangements
- Pre-existing ("background") IP: each party licenses to the JV for the venture's purpose only; ownership stays with the contributing party
- Foreground IP (developed in the JV): who owns? Often NewCo, but parties should agree on license-back rights if the JV dissolves
- Survival: IP licenses granted to the JV must terminate or be dealt with on dissolution
- Financial provisions
- Initial capital contributions: timing, form
- Future capital calls: process, consent thresholds, consequences of default (dilution, forced sale)
- Profit distribution: declaration policy, frequency, currency, withholding
- Loss funding: are parties obligated to fund losses beyond initial contributions?
- Deadlock resolution — When a reserved-matter vote is tied or blocked:
- Stage 1: Escalation to senior management (30 days)
- Stage 2: Mediation (30 days)
- Stage 3: Deadlock-breaking mechanism — choose one:
- Texas / Russian roulette: Party A names a price; Party B must buy at that price or sell at that price. Creates fair-value discipline.
- Dutch auction / sealed bid: Both parties submit sealed bids; highest bidder buys out the other at that price.
- Put/call options: One party has the right to compel sale at a formula price after deadlock persists for X months.
- Consider which mechanism best suits the relative power balance of the parties.
- Transfer restrictions
- Lock-up period (no transfers for X years)
- Right of first refusal / offer (ROFO / ROFR) before any transfer to a third party
- Drag-along: majority can require minority to sell alongside
- Tag-along: minority can require inclusion in any majority sale
- Change-of-control (no transfer of control in a party without JV consent)
- Non-compete — Each party agrees not to compete with the JV within the defined JV Business during the JV term and typically for 12-24 months post-termination. Scope must be carefully limited to the JV purpose to be enforceable.
- Term and dissolution
- Fixed term (e.g., 10 years) or project-completion-based
- Dissolution events: expiry, party insolvency, persistent deadlock, agreed exit
- Winding-up process: pay creditors, return capital, distribute assets
- Goodwill on dissolution: expressly allocate (especially important in LB and FR civil-law contexts)
- Governing law and dispute resolution — For cross-border MENA JVs: DIAC arbitration at DIFC or ADGM seat is common; neutral seat plus English-language proceedings avoids local court complications.
- Boilerplate — see [[draft-boilerplate-clauses]].
Jurisdictional notes
| Jurisdiction | Key issues |
|---|---|
| DIFC / ADGM | Standard common-law JV norms; stack JV Agreement + SHA + Subscription Agreement; Companies Law DIFC Law No. 5 of 2018 / ADGM Companies Regulations 2015; full contractual freedom on governance |
| UAE federal (mainland) | Foreign ownership: UAE Commercial Companies Law (Federal Decree-Law 26/2021) eliminated general 51% local ownership requirement for most sectors — 100% foreign ownership now possible in most activities; but certain "strategic" sectors remain restricted. Commercial agencies: if the JV appoints one party as the exclusive promoter or distributor, UAE Commercial Agency Law (Fed Law 3/1987) may characterize the arrangement as a protected agency. Mainland LLC minimum capital AED 300k |
| KSA | Foreign-ownership rules controlled by the Foreign Investment Law (Royal Decree M/1/2000 as amended); MISA licensing required for foreign-investment vehicles. Some sectors restricted to Saudi nationals or require majority Saudi ownership (healthcare, media, etc.). Sharia: JV profit-sharing structures (mudaraba / musharaka) may be preferred for partners operating under Islamic finance principles |
| LB | Civil-law société commune (partnership) for contractual JV; offshore holding structure common for corporate JV due to Lebanese corporate law complexity. Goodwill (fonds de commerce) accrual is a significant factor: on dissolution, a party operating the JV business may claim goodwill compensation |
| GCC generally | Consider whether any GCC registered commercial agent relationship exists with any JV party — these can create unexpected entanglements on dissolution |
Critical clauses — checklist
- Reserved matters list drafted specifically for this deal (not a generic template)
- Deadlock mechanism selected with clear procedure and timing
- IP license to NewCo: scope, exclusivity, termination right on JV dissolution
- Future capital call mechanics: notice, cure, dilution formula
- Non-compete scope limited to JV Business (over-breadth will not be enforced)
- Governing law and arbitration clause with named seat and rules
- Change-of-control provision (what happens if a party is acquired by a competitor)
Common mistakes
- Using a generic 50/50 JV structure without a deadlock mechanism — the venture stalls on the first real disagreement
- Failing to document IP contributions with registration numbers; "contributing our technology" without specifics creates ownership disputes
- Setting reserved-matter thresholds too low, requiring unanimous consent for routine decisions, leading to operational paralysis
- Omitting the goodwill-on-dissolution clause in civil-law jurisdictions (LB, FR) — operational party may claim significant goodwill not reflected in equity ratio
- Not verifying that neither party's existing commercial agency relationships in the target country are inadvertently affected by the JV
Related skills
- [[draft-shareholders-agreement]]
- [[draft-distribution-agreement]]
- [[draft-msa]]
- [[draft-nda-mutual]]
- [[draft-ip-licensing]]