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A joint venture is a partnership between two companies, which may or may not result in the creation of a new legal entity. The goal of this partnership is to combine the resources of both companies to achieve a common strategic objective, such as expanding operations or entering new market segments. Typically, these partnerships are formed for a specific period until the common objective is achieved, after which the joint venture is dissolved. Importantly, a partnership between these two companies does not imply a loss of identity for either company, nor does it result in a merger.
There are different types of joint ventures. In a contractual joint venture, the parties collaborate on a specific business project through a contract that outlines the terms of the partnership. In this type of joint venture, a separate legal entity is not created; instead, each company maintains its legal status, accounting, assets, and taxation separately.1 The companies involved sign a contract detailing the terms and conditions of the partnership, including objectives, responsibilities, and the division of profits and losses. Each company retains its autonomy and continues to operate independently. This type of joint venture is usually established to achieve a specific goal, such as developing a new product, entering a new market, or undertaking a large-scale project.
An example of a contractual joint venture would be two construction companies joining forces to build a large housing complex. They sign a contract detailing their responsibilities, division of costs and profits, as well as deadlines for project completion, while each maintains its independent operations.
On the other hand, in a corporate joint venture, a new company is created and assumes its own legal status. This form of joint venture is suitable for long-term or indefinite projects, where the parties contribute capital and other resources to the new company, sharing the profits, losses, and risk.
A classic example would be a partnership between two technology companies that decide to create a new company to develop an innovative artificial intelligence platform. Both invest capital, technology and expertise, sharing the profits and risks of the new venture.
It is worth noting that there is no defined criterion for the document establishing the partnership between companies, but it is essential that it details the business and the responsibilities of the parties involved. In the case of a corporate joint venture that requires the creation of a legal entity, this new company must comply with current corporate laws.
For a contractual joint venture, the document certifying this partnership should contain relevant to guide the companies, in addition to the aspects highlighted previously. Therefore, we have: (i) rights and duties of the parties involved; (ii) project description; (iii) methods of accountability; and (iv) situations in which the partnership may be changed or terminated.
In a joint venture, contractual rights and obligations may vary depending on the specific agreement between the parties involved. However, some common elements are often included in contracts. Contractual rights and obligations typically include participation and sharing of profits, where each party has the right to receive profits from the joint business as outlined in the contract. Furthermore, the parties have the privilege of using shared resources such as technology, know-how, facilities, and personnel. Another important right is participation in decision-making, where each party has a say in important strategic and operational decisions. Similarly, such agreements usually specify the intellectual property rights resulting from the joint venture’s work, including patents, trademarks, and copyrights. As for obligations, each party must contribute the agreed-upon resources, which may include capital, technology, personnel, or other assets.
Confidentiality and non-competition clauses play crucial roles in protecting the interests of the parties involved. The confidentiality clause ensures that sensitive and private information, such as trade secrets, business strategies, financial data, and other proprietary information, is protected. This clause is vital because it prevents any person involved or third parties from disclosing or using this information without prior authorization, thus avoiding potential damage to the business. Confidentiality is essential for maintaining a competitive advantage and the integrity of business operations.
The purpose of a non-compete clause is to prevent the restricted party from engaging in activities that directly compete with the business for a specific period and within a specific geographic area. This clause is crucial for protecting commercial interests and preventing the use of knowledge and skills acquired during the contractual relationship in competing ventures.
Other important clauses include the duration and termination of the joint venture, specifying the length of the partnership and the conditions for its termination. Dispute resolution mechanisms, such as mediation or arbitration, are often included to ensure that any conflicts are resolved efficiently.
In Brazil, the partnership between Unilever and Perdigão was one of the best-known joint ventures. This partnership was established to manage the Becel and Becel Pro Activ brands, as well as to identify new business opportunities for these brands. Unilever licensed the use of the brands and provided technology in foods aimed at cardiovascular health, contributing to research, innovation, and marketing. Perdigão, in turn, was responsible for the production and distribution of the products, utilizing its vast distribution network in Brazil.2
During the transition period, Unilever and Perdigão ensured the continuous supply of these brands, maintaining their commitment to customers and consumers. Unilever continued to provide technology and innovation in functional foods, while Perdigão leveraged its manufacturing and distribution expertise to expand its presence in the margarine market.3
This joint venture was strategic for both companies, allowing Unilever to focus on its expertise in functional foods and Perdigão to expand its product portfolio and its presence in the margarine market.4
Given the above, companies may form a joint venture to combine resources and knowledge to achieve common strategic objectives, either through the creation of a new legal entity or a contractual agreement. However, it is essential to clearly outline the terms of the joint venture in a detailed contract, including, among others, the rights, duties, division of profits and risks, and mechanisms for resolving disputes. The partnership between Unilever and Perdigão demonstrates the benefits a joint venture can bring, as it allows companies to combine their complementary skills and achieve market success.
