Setting up a joint venture in Malaysia with a trusted partner or partners can help you to achieve your goals and elevate your business status. After all, it is not an exaggeration to say that a collaborative mindset is one of the secrets to long-term business success.
But how does a joint venture work? What are the must-knows of this advantageous cooperative arrangement? Fret not, we are here to help.
What Is A Joint Venture in Malaysia?
A joint venture refers to a partnership between two or more natural or legal persons to pool resources, skills, and experience to collaborate on a project for a predetermined amount of time. Here, the partners also consent to a shared proprietary interest, shared control, and the sharing of both profits and losses.
Even though the contributions may not be equal, the parties must contribute in the previously listed areas to advance the joint venture agreement. To eliminate misunderstandings, the parties involved should explicitly establish their respective roles and duties in executing specific business endeavours.
Regarding international partnerships, foreign investors can form a partnership through joint ventures with Malaysian partners if they are unable to establish a wholly-owned subsidiary in Malaysia.
Types of Joint Ventures
In Malaysia, there are two categories of joint ventures that you can consider for your business:
I. Incorporated Joint Ventures
For incorporated joint ventures, the parties incorporate a new legal entity known as Special Purpose Vehicle (SPV). An SPV may be structured as a limited liability partnership registered under the Limited Liability Partnership Act 2012, a partnership under the Partnership Act 1961, or a corporation formed under the Companies Act 2016.
The legal standing of the parties to the joint venture is separate and independent from that of their SPV. Its legal status helps protect the parties from various risks and issues, including project, insolvency, and financial within the SPV rather than being borne directly by the parties.
The memorandum and articles of association, shareholders agreement, and other legal instruments put in place by the parties shall regulate the incorporated SPV.
II. Unincorporated Joint Ventures
Also referred to as contractual joint ventures, parties to an unincorporated joint venture are not required to form a separate SPV. Unincorporated joint ventures are formed via agreements, such as joint venture agreements, partnerships agreements, or collaboration agreements.
Next, the parties will then perform their roles and obligations as stipulated in the specific agreement.
Key Terms of A Joint Venture Agreement
1. Objectives and Scope of the Joint Venture
A fundamental aspect of any agreement is its purpose. Setting out clear objectives helps to avoid legal disputes between the parties involved.
The agreement should disclose and outline the expectations, obligations, responsibilities, contributions, commitments, and duties of all relevant parties for this venture. Unquestionably, mutual trust and confidence between parties are essential in advancing the joint venture’s objectives.
2. Contribution of the Parties
The agreement must establish the contributions of each party. A party’s contribution does not have to be monetary. Instead, it may involve other assets, including employees or intellectual property, and resources, such as land or office space.
In a situation where one party relies on the other party’s skills or expertise, it is pertinent for the former to contribute as much as possible to ensure the venture’s objectives are achieved.
3. Sharing of Profits, Risks and Liabilities
Another important consideration is how profits, risks and liabilities will be shared with each party. Addressing this structure paves the way towards mutual understanding and, subsequently, mutual success.
4. Rights, Duties, and Obligations of the Parties
The scope of the rights, duties and obligations owed by the relevant parties to each other depends upon varied considerations. It is crucial to state the rights, duties, and obligations of the parties, so all parties are aware of their responsibilities to the joint venture. As a result, any risk of non-performance is alleviated effectively.
5. Exit Strategy and Termination
The agreement should specify the joint venture’s exit plan, which may include liquidation, put and call options, and, in the case of an incorporated joint venture, the right of first refusal.
6. Intellectual Property Rights
Joint ventures often result in the creation of intellectual property of potential value for the parties. This can range from customer lists to information about specific business opportunities, rights in software code, or new pieces of technology.
To avoid the risk of a single party taking advantage of the joint venture’s intellectual property for its own gain, the agreement should explicitly outline the ownership of any new intellectual property made by the joint venture and exactly how much it can be used outside the joint venture.
Furthermore, the agreement should also contain measures specially designed to protect any existing intellectual property. As such, valuable intellectual property developed by one party is not lost within the joint venture.
7. Dispute Resolution and Governing Law
The parties involved should agree on how any dispute will be resolved, whether through negotiation, mediation, arbitration, or the court system.
While joint ventures have the potential to make immense profits, parties should always take their time to analyse and prepare for a joint venture meticulously. Early in the negotiation process, it is extremely advantageous for all parties to seek legal counsel.
Even the smallest decision, such as choosing one of the many joint venture types and assessing the suitability of each type, must not be taken for granted. Indeed, having a legal professional provide sound advice that caters to the parties’ business goals can make the difference between success and failure.
A thorough and well-arranged joint venture agreement will undoubtedly help to reduce risks in any joint venture, regardless of the parties’ pace of negotiation. To ensure you gain the most advantages, consider hiring a professional corporate & commercial lawyer for reliable legal advice.