- An incorporated joint venture is a new company owned by the partners.
- A contractual joint venture creates no new entity, just an agreement to work together.
- Either way, agree contributions, control, profit sharing, IP, deadlock and exit up front.
- Check whether competition law or licensing rules apply to the venture.
Two ways to structure it
In an incorporated joint venture, the partners set up a new private limited company and hold its shares. The company is run by its board, and the partners' relationship is governed by a joint venture or shareholders' agreement.
In a contractual (unincorporated) joint venture, no new entity is created. The parties simply agree to work together on agreed terms.
A joint venture company
Because the company is a separate legal person, each partner's liability is generally limited to what it puts in, unless it gives guarantees. This suits a long-term venture with its own assets, staff and contracts. The cost is formality: ACRA filings, accounts and proper governance.
A contractual joint venture
This is quicker, cheaper and more flexible to set up and to end, and suits a single project or a short collaboration. But each party holds its own assets and liabilities directly, may be jointly liable, and runs the risk of the arrangement being treated as a partnership, with unlimited liability.
Terms to agree
Whichever structure you choose, the agreement should cover:
- The venture's purpose and scope.
- What each party contributes: money, assets, people or know-how.
- Management and control, and how decisions are made.
- How further funding will be provided.
- How profits and losses are shared.
- Who owns intellectual property created by the venture.
- Non-compete and non-solicitation.
- How deadlock is resolved, for example escalation, then mediation, then a buy-sell mechanism.
- How a party exits, and how its share is valued when it does.
- How disputes are resolved.
Common pitfalls
Singapore firms see the same problems again and again: informal arrangements with nothing in writing, unclear ownership of intellectual property and clients, no deadlock clause, and no agreed way to value a party's share on exit.
Competition law is also worth checking. Singapore's merger regime is voluntary: parties assess whether a deal would substantially lessen competition and may notify the Competition and Consumer Commission of Singapore (CCCS). If they do not, the CCCS can still investigate.
This article is general information on Singapore law and is not legal advice. Rules and agency policies change, and every situation is different. For advice on your own circumstances, speak with one of our lawyers.
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