December 2, 2021
The Indian real estate sector is struggling due to the challenges posed by the COVID-19 pandemic. The verve for survival is making the construction businesses join hands and stride the path together. The pandemic has deserted many small real estate developers. Where this is one situation, if you are in the construction business, you might have got a larger-than-usual project but would lack the resources and manpower to take up the project.
The only way for small construction businesses to get out of these situations is by consolidating with a huge developer. This is called a Joint Venture. Through Joint Venture Agreement you can get countless construction opportunities to grow your business.
A joint venture is an agreement between two or more construction firms to jointly bid on and perform work through their combined efforts, property, money, skill, or knowledge. All this is done to derive a certain return on investment.
The joint venture often behaves as a separate entity, so it retains a distinct legal status from the participants and their other business interests.
There are many different types of Joint ventures and each one will have its own business structure. Project-based, Investment, Concentrative type, Co-investment, Strategic alliance, Equity Joint Venture, and Non-Equity Joint Venture are the common types of Joint Venture.
Benefits of a Joint Venture Agreement
Joint Venture agreements are common in the real estate sector as they allow companies with different specialties, experiences, and resources to come together to meet specific requirements of a construction project. Apart from this, there are also various other benefits of joint venture agreement which are listed below
Let’s you bid on huge projects
A Joint venture agreement helps small or medium-sized businesses to bid on larger construction projects that they otherwise would be unable to execute. This helps the small or medium-sized business become flexible and get familiarized with different aspects of construction that they may not be able to undertake on their own.
Break Geographical Barriers
Through a joint venture agreement, you can join hands with a larger company located in other parts of the country. This can help expand and grow your construction company from local levels into other cities or towns.
Share the Risks and Costs
In a joint venture agreement, all the risks and losses are shared equally between the companies, avoiding irreversible organizational damage. Furthermore, the sharing of risks and costs also lets you take more challenging projects that you may not be able to execute alone.
Flexibility
You can enter into a joint venture agreement for a limited period. It is a temporary strategic association that can include just a part of what each company in the Joint venture does. This limits the commitment but enhances the profit.
Before you enter into a Joint Venture Agreement (JV), you should properly consider the governing laws and regulations. We have put together a list of 5 issues that you should consider before entering into a JV.
- Background check
A partner in the joint venture agreement can make or break the project. Therefore, it becomes crucial to choose the right partner to enhance the business’s reputation. You need to evaluate the partner’s strength, knowledge, successful completion of previous projects, and safety records. You can also consider the capital they can bring into the joint venture and their role in profit distribution.
- Scope of the JV Agreement
You should know each party’s roles and commitments before entering into a joint venture agreement. You should find out answers to a few questions like what will each party in the contract do? Who forms the management? What are the obligations? How will be the profit distribution?
All the terms of the joint venture agreement should be documented in a written agreement.
- Business Structure
There are different business structures that a joint venture can take. Each party entering into the joint venture agreement can take separate legal advice to pick the right business structure. In common, joint ventures can either be incorporated or unincorporated.
Whatever the business structure is, you need to take into consideration a few important things like the finance contribution proportion, the losses and profit distribution, the sharing of liabilities and responsibilities.
- Dispute Resolution
A well-drafted joint venture agreement requires a clear process for dispute resolution. The written agreement should clearly outline what if the joint venture does not work out or if there is a dispute and how the dispute can be resolved. It should also include the time frame, facilitated negotiation, or mediation.
In case the dispute cannot be resolved, the joint venture agreement should specify the terms to terminate the joint venture or transfer it to others.
- Confidentiality
Like any other business, the joint venture should maintain organized records as per the governing laws and regulations. You can also consider having a confidentiality agreement so that any information disclosed during negotiating, setting up, and operating the joint venture is not used later against your business.
Keeping these tips in mind will help ensure your joint venture’s success.
Forming a joint venture can be demanding, but if done right, it can be worth the effort. It can move your business in a positive direction and offer opportunities through enhanced revenue and reputation.
We are open to Joint Venture. Contact us for more details!