A Joint Venture is a commercial relationship where two or more parties, a company or a partnership agree to conduct a business, allocating profit and sharing loss on pro rata basis. Joint venture (JV) can be created on various forms and structures with combination of the entities above, and can either be a domestic joint venture, comprising of Thai entities, or a multinational joint venture. In H&P opinion, it is important that foreign business people consult with a corporate lawyer in Thailand to fully understand the prerequisite before entering into a Joint Venture in Thailand. As a joint venture is not only about conducting business and obtaining financial revenue as a group of entities, we would recommend to engage a law firm such as H&P to conduct these steps as follow:
RECOGNIZING PROS AND CONS OF A JV
It is better to consider advantage and disadvantage of a joint venture relationship in details. We have summarized the pros and cons of a JV as follows:
Pros: a) Increasing financial capacity on a big project b) Risks and Expenses are shared c) Can either be a temporary engagement or long-term commitment d) Access to new expertise and resource e) Expansion to a new market
Cons: a) Disclosure of trade secret and innovation b) Difference in culture of JV’s parties c) Difficult to exit d) Incompetent partner may lead to an unequal commitment
CONDUCTING A LEGAL DUE DILIGENCE IN THAILAND
Based on the professional experience of H&P lawyers in Bangkok, as joint venture is formed for the objective of conducting business, it is advised that a comprehensive legal due diligence on the important factors are conducted, to mitigate legal risk of unexpected loss or fraudulent JV proposal, including but not limited to JV’s party company information, operational license, financial status, debt, asset, encumbrance, ongoing and potential litigation and other aspect that may be essential, depending on the JV’s business.
IMPLEMENTING A CONFIDENTIALITY AGREEMENT
The discussion between the potential JV parties may involve disclosing its idea, technology, innovation or any other trade secret. Should the joint venture fail to take place, your business idea, trade secret, financial status, list of clients and expertise shall be protected.
PREPARING JOINT VENTURE AGREEMENT
Following the positive result of the due diligence and business discussion, all the terms agreed during the discussion shall be clearly specified and processed in writing, including but not limited to:
- Structure of the Joint venture
- The amount and method of contribution
- Financial management and profit allocation
- Control and authorization
- Duty, Obligation and Liability
- Dispute resolution
- Termination of the joint venture
If you need legal advice on a Joint Venture in Thailand with a business partner, please contact our Bangkok corporate lawyers at [email protected]