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WHAT IS A JOINT VENTURE CONTRACT?

Wednesday, September 6, 2023, By Jessica Hernández  (Real estate advisor & marketing analyst in SILMÉXICO) ft. Karla Soto (lawyer in SILMÉXICO)

This contract, as well as others, is an agreement of wills of two or more persons who have an object in common, its main characteristic is that the parties that participate in it look for a strategic ally for a business or an economic activity they want to carry out since this or these allies can make a significant contribution for economic growth or a social impact, being this main purpose of a joint venture contract. 

In simple words, it is a temporary agreement in which the parties are reunited to achieve a business goal, and that is why it can be short, medium, or long-term. The persons who participate in it can keep their individuality and legal independence, so that each of the parties can contribute with knowledge, Know-How, and even monetary, material, and human resources, being that, the intervention of each is under the regulations and rules stipulated in the contract.

Likewise, it is necessary to emphasize that a joint venture contract is not expressly regulated by Mexican legislation, so in legal terms, it is an “atypical contract”, in which clauses are established that contain the rights, obligations, responsibilities, contributions, and possible risks, as well as the extent to which the parties will assume them in the event that the main business can not be carried out. 

Once the above has been specified, it is said that there are 3 main types of joint venture contracts: 

1. Joint Venture: strategic alliances

In this type of Joint Venture, it is not carried out for an economic contribution, but for the sum of characteristics of each of the parties in the business or main objective of the business.

2. Joint venture: co-inversion

In this type of Joint Venture, the main characteristic is the monetary or asset contribution made by the parties, generating the same direction, whose purpose is to obtain greater profits than those that could be achieved individually through the incorporation of new markets and economies of scale.

3. Joint venture: contractual

In this type of Joint Venture, the parties involved carry out a common activity, establishing collaboration agreements that stipulate clauses that govern the activities that each party will carry out, the way of distributing profits and risks, and the use of auxiliary agreements and contracts. satellites. It is worth saying that there is strict regulation of entrepreneurship.

Are there risks and benefits?

The answer is yes, its main advantage is that being a legal link where everything is shared, all the parties involved assume the same level of responsibility, likewise, by sharing costs these are considerably reduced, in the same way, due to their union becomes a stronger and more efficient competition.

However, in terms of risks, the most outstanding is a possible conflict of interest by any of the partners, as well as the dependence between them for making important decisions.

The answer is yes, its main advantage is that being a legal link where everything is shared, all the parties involved assume the same level of responsibility, likewise, by sharing costs these are considerably reduced, in the same way, due to their union become a stronger and more efficient competition.

However, in terms of risks, the most outstanding is a possible conflict of interest by any of the partners, as well as the dependence between them for making important decisions.

For a joint venture contract to be successful, possible measures must be considered, always implement effective and efficient communication between the parties and the way in which their agreements and decisions should be made.

And, finally, a correct integration process, since if the Joint Venture occurs between people from different countries, it could generate conflicts due to differences between cultures, markets, legislation, and the planning of resolution strategies.

Final comment.

Joint Venture contracts, as well as their satellite contracts, will always be a good tool for legal or physical persons who have business activities, since they can help them increase their business alliances with other businessmen with the same interests or objectives, always giving support and legal protection for any eventuality.

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