In cases where the volume of the commercial activity planned to be realized exceeds the capabilities of a single person or organization due to its size or technical characteristics, a cooperation requirement arises in order to realize the commercial activity.
At this point, Joint Venture type partnerships are frequently encountered, especially in infrastructure projects, transportation, energy, and construction sectors. In particular, companies want to participate in large-scale investments by joining forces under a Joint Venture structure and to take part in projects more powerfully by using their expertise and financing opportunities together.
In the Joint Venture doctrine, “Joint Venture is a contractual agreement to realize a certain business or a continuous activity of more than one legally and economically independent real or legal person, with or without a commercial partnership, and to gain profit. Come together and assume the risks of that activity by taking the responsibility of each of them severally.” is defined as.
Types of Joint Venture Agreements
As it can be understood from the definition above, two basic types of Joint Venture contracts are encountered in practice: “Contractual Joint Venture” and “Capital Joint Joint Venture.” In the Joint Venture model based solely on the Contract, the relationship only consists of a law of obligations contract concluded between the parties; In order to achieve the common purpose, the participation shares of the partners are sufficient, and there is no need to establish a commercial company with legal personality.
In the Joint Venture model with Participation in the Capital, the parties participating in the relationship first conclude a Joint Venture agreement between them and form a partnership relationship that is an ordinary partnership; then, they establish a trading company with legal personality or join such an already existing partnership.
Contract-Only Joint Venture
On the other hand, in the separation of Joint Ventures in terms of subject, the Joint Venture based on a contract only serves for the execution of a single business or activity of a temporary nature, while the Joint Venture with capital participation is created to carry out long-term commercial activities jointly. The formation of the Joint Venture, regardless of its type, is based on a contract concluded between the participants in the relationship. In the following, the only contractual Joint Venture type is discussed.
Contractual Joint Venture
It is also referred to as a relationship that occurs when more than one real or legal person, independent of each other economically and legally, comes together within the framework of a contract in order to undertake the performance of a particular job, to be responsible for each job, to the employer.
In a contract-only Joint Venture, the life of the Joint Venture is mostly limited to the project being executed. In this sense, temporality cannot be measured within a certain time; because the only contractual Joint Venture; It is finally found when the project ends, in other words, when the Contract’s purpose is realized.
In parallel with these explanations, in practice, a purely contractual Joint Venture is a contractual agreement between several companies that are legally and economically independent from each other in order to carry out a certain business without separating the parts related to their area of expertise, to carry out the whole business and to jointly share the risk of the company—formed by their coming together. The fact that the Joint Venture based on a contract is a risky partnership requires the undertakings to pursue an economic purpose while establishing this partnership.
The characteristic feature of a Joint Venture and the aspect that distinguishes it from consortia is that the partners undertake to be responsible for the whole business, not for certain parts of the business. Even if the business as a whole does not entirely fall within a partner’s area of expertise and activity, and the work is shared in the internal relationship, the partners have joint and several responsibilities towards the business owner. In the Joint Venture contract, it can be clearly stipulated that each of the partners will be jointly and severally responsible for the fulfillment of the works and commitments that will fall within the subject and scope of the Contract to be concluded with the employer and the obligations arising from the Contract to the partnership.
A contractual Joint Venture is a contractual partnership, and the Contract must be concluded subject to a certain condition. As a rule, Joint Venture has no legal personality as it is a contract. Although each of the partners alone is authorized to represent the other in the said joint purpose, it is possible to include special provisions regarding the representation of the Joint Venture in the Contract.
Another feature of a contract-only Joint Venture is that no private capital is usually allocated to the partnership. Achieving the joint purpose is thanks to the participation shares brought by the partners. One of the advantages of the Contractual Joint Venture is that the assets brought by the partners in accordance with the participation shares they undertake do not allocate to each other’s common property. Ownership needs to be established or liquidated, which allows partners to save time and money on meetings and separation.
One of the essential elements of a contractual Joint Venture is that the partners participate in the profit and loss of the Joint Venture. As a rule, in the Joint Venture contract, the participation rates of the partners in profit and loss are determined. If there is no special provision in the Contract on profit and loss sharing, the principle of equality will prevail.
How to Make Your Own Joint Venture Agreement Template
Since there is no form required for the Contract of joint venture-type partnerships, it is accepted that a joint venture relationship is established in the presence of conditions, even if there is no written contract. However, in such a case, it is difficult to prove the existence of the joint venture in case of dispute, and many legal disputes arise between the partners due to uncertainties. For this reason, the joint venture must be established by concluding a written contract between the parties, the details of which are well thought out.
In this bulletin, we have explained how this Contract, which is the basis of joint venture-type partnerships, should be arranged.
The number of parties in a joint venture contract can be more than two. Addresses, titles, and registration numbers of each entrepreneur suitable for notification must be written in the “Parties” clause of the Contract.
This section explains the meanings attributed to the concepts that will be used and frequently repeated in the Contract. Thus, there will be no problem in determining the responsibilities and authorities to be determined according to these concepts in the continuation of the Contract.
For example, It may be helpful to explain what the concepts of “project,” “works,” “pilot partner,” and “joint venture” represent in the Contract.
3. Subject of the Contract
Joint venture contracts are concluded by the parties coming together on the basis of a certain project or work. Mostly, the Contract is made to regulate this project’s performance, to determine the partnership structure and the mutual rights and obligations of the parties. If the parties of the joint venture contract come together for the realization of a certain project, then this work must be fully and accurately defined in the subject part of the Contract. If the parties come together for the performance of a permanent job, not for a fixed and temporary job, this article should be arranged accordingly.
4. Distribution of Shares
Since joint venture contracts constitute a kind of ordinary company, if no arrangement is made for the partners’ shares in the Contract, all partners will be considered to have equal shares per the provisions of the Code of Obligations regarding ordinary companies. Accordingly, the profit shares of the partners are also considered equal. If the partners want to avoid every partner who is a party to the joint venture contract having equal shares, they should clearly regulate the share ratios of the partners in the Contract. Since matters such as Participation in profit and loss and bearing costs are generally determined according to to share ratios, it is essential to regulate this article correctly.
5. Obligations of the Parties
Sample Provision: The parties agree and undertake to work together and provide all kinds of contracting services to achieve the purpose of the joint venture in proportion to their shares determined in this Contract. The responsibility of the partners continues until all relations with the employer, the Administration, and all public and private persons and institutions are terminated and all guarantees are returned.
Each of the parties is jointly and severally liable to the employer administration, third parties, contracting contractors, all personnel employed in the works, and other administrative authorities and real and legal persons regarding the works undertaken by the partnership under the Contract.
6. Guarantees and Guarantees
Example Provision: The partners are obliged to give the required guarantee in proportion to their shares. The partnership will cover all expenses and risks of the guarantees. In the event that the partnership cannot cover these costs, the partners are obliged to cover the expenses and risks in proportion to their shares.
7. Revenues of the Partnership
Example Provision: As a rule, the financing of the partnership will be financed by the advances to be received from the Administration, the remuneration, and the loans to be obtained for the partnership.
8. Contract Period
If the joint venture contract is made for fixed-term work, it can be foreseen that the Contract will remain in effect for a certain period of time. In practice, the duration of the partnership established by Contract is arranged to be slightly longer than the duration of the contractual work. Suppose the joint venture contract is made for a permanent job, instead of imposing a limited period of time. In that case, provisions regarding the procedure of this contract renewal process can be added, whereby the parties can renew the Contract if they wish, by stipulating a maximum period of time.
9. Pilot Company
Due to many parties in joint venture contracts, the difficulty of coordinating the works, and providing healthy and continuous communication, a pilot firm is determined by the parties in practice. The determined pilot firm is authorized to organize partnership and relations between the employer and partners, to make the necessary correspondence, to represent the partnership, to provide various controls, and to report. Thus, it is possible to represent the partnership through a single company, and there is no difficulty in finding a contact person by the employer and third parties on behalf of the partnership.
10. Board of Directors
Legally, all partners have management authority over the ordinary partnership established between the parties through joint venture agreements. Since this situation may cause duality and crises for the partnership, it is generally preferred that the management authority of all partners is removed and the management authority is left to a board of directors or the managing partner to be elected. The determination in question is possible with the provisions to be included in the joint venture contract. In that case, all partners will be deemed to have management authority. If the parties do not want to leave the management of the partnership to a certain partner or partners and have preferred to form a board of directors, the number of members of the Board of directors, the election method of the members, the election of the chairman, the meeting and decision quorums of the Board of directors, the meeting times, the duties and powers of the Board of directors, the decision-making process. In this article of the Contract, issues such as registration of the Board, wages, and travel rights of the members of the Board should be regulated.
11. Executive Board
Example Provision: The executive Board is formed with the Participation of ….. persons from each of the parties. The Board may recruit as many personnel as it needs. The task of the Board is to ensure that the decisions of the Board of directors are implemented.
12. Subcontractors And Satellite Contracts
One of the most essential articles in joint venture agreements is the article that determines the agreements to be made with subcontractors and the method of transferring a certain part of the work to the subcontractor. It is very common that some parts of the project, which is undertaken especially in large-scale construction works, are outsourced to subcontractors.
The partners are jointly responsible for the proper and timely execution of the committed project. Since each contracting party will be liable to the employer due to an error or defective/late production by a subcontractor, the selection and priority of the subcontractors, the consents to be obtained from the employer, and the partnership before the transfer of the work to the subcontractor, approvals, the arrangement of satellite contracts are clearly and meticulously regulated in the Contract. there is a benefit.
Example Provision: A part of the work can be transferred by concluding satellite contracts with other contracting companies for the fulfillment of the works undertaken by the partnership. All obligations arising from the Contract between the Administration and the partnership must be complied with.
13. Subcontractors and Satellite Contractsprivacy and Prohibition
A joint venture agreement brings together independent companies and aims to do joint business for a while. Since the parties acquire important information about each other’s companies during this period, it is necessary to protect the partners from the disclosure and harmful use of this information. In joint venture contracts, which are a kind of ordinary company, a prohibition of competition is envisaged for all partners.
Although it is a legal prohibition, we consider it necessary to include special provisions regarding the prohibition of competition in the Contract and to regulate the rights of other partners in case of illegal behavior.
Example Provision: During the partnership, the parties cannot disclose the information they have learned about each other to third parties. Other companies of the parties, companies under their control, and company employees are subject to this prohibition.