Types of Joint Venture
What is Joint Venture ?
A joint venture is a cooperative arrangement between two or more parties or entities, in which they combine their resources—such as capital, expertise, technology, intellectual property, market reach, competitive edge, and other valuable assets—to pursue a business and/or a project.
Types of Joint Ventures
Joint Ventures are of two types which are Incorporated Joint Venture and Unincorporated Joint Venture. An incorporated joint venture is when two or more parties form a new company to pursue the joint venture business and/or project through the newly set up company. Whereas in an unincorporated joint venture, the joint venture partners do not incorporate a separate entity to undertake the business and/or project.
In either case, the joint venture partners enter into a contract to govern their relationship as shareholders (in case of an incorporated joint venture) or as joint venture partners (in case of unincorporated joint venture). The governing agreement is called a Joint Venture Agreement or a Joint Venture cum Shareholders Agreement depending on the nature of the joint venture contemplated by the parties. The governing agreement, amongst others, sets out the parties’ roles, responsibilities, rights and powers, obligations, resources, share, capital contribution, dissolution and exit mechanism.
Case Studies on Incorporated Joint Venture
Based on recent news, Petroliam Nasional Berhad (PETRONAS), Enilive S.p.A (a company directly controlled by Eni S.p.A.), and Euglena Co., Ltd. (Euglena) intend to establish a joint venture company in Malaysia with the purpose of constructing and operating biorefinery with PETRONAS Mobility Lestari Sdn Bhd (PMLSB), a subsidiary of PETRONAS. The joint venture company is said to be located within PETRONAS’ Pengerang Integrated Complex (PIC), Johor, Malaysia with an objective for the joint venture company to be operational by the end of 2028.
With the increasing demands of the global aviation and transportation industries, the intention of the companies in constructing and operating the biorefinery is for the biorefinery to be capable of producing Sustainable Aviation Fuel (SAF) and other biofuels such as Renewable Diesel/ Hydrogenated Vegetable Oil (HVO).
Gamuda Bhd. had also entered into a joint venture agreement with Sabah Energy Corp Sdn. Bhd. and Kerjaya Kagum Hitech JV Sdn. Bhd. with respect to their incorporated joint venture company, UPP Holdings Sdn. Bhd, which is established for the development of the 187.5MW hydroelectric power plant in Tenom, Sabah. Gamuda Bhd. holds 45% equity interest in the joint venture company, whereas Sabah Energy Corp Sdn. Bhd. and Kerjaya Kagum Hitech JV Sdn. Bhd. hold 40% and 15% equity interest respectively. This is a long term environment, social and governance (ESG) strategy and commitment initiated by the parties involved.
Case Studies on Unincorporated Joint Venture
Recently, Sime Darby Property (“Sime Darby Property”) and GSPARX Sdn Bhd (“GSPARX”), a subsidiary of Tenaga Nasional Berhad (“TNB”), are in the midst of launching a joint venture company with the goal of boosting sustainable renewable energy initiatives in Malaysia. In this joint venture, the intention of the parties will be to focus on finance, development and operation of rooftop solar generation projects on Sime Darby Property’s asset portfolio and townships. The duties and responsibilities of Sime Darby Property shall be providing excellent services and reliable energy solutions. Whereas GSPARX shall provide technical advisory, services in installation and continuous maintenance on the rooftop solar installations.
Conclusion
Joint ventures offer numerous benefits to a business including expansion of business, enhanced productivity, market reach and competitive edge. It is pertinent to determine the type and structure of joint venture that the parties intend to establish as this will set out the necessary steps required by the parties. Therefore, seeking legal assistance will assist parties in producing a joint venture according to the parties specific requirements.
References
https://www.eni.com/content/dam/enicom/documents/press-release/migrated/2024-en/07/PR
Enilive Malaysia
https://gamuda.com.my/2023/10/gamuda-in-rm4bil-sabah-hydroplant-joint-venture/news/
Yasmin Harizal
Associate (Corporate & Commercial) | NSA Legal
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