For many businesses in Nigeria, collaboration is a powerful means of growth, expansion into new markets, and leveraging business strengths. Two of the most common structures for business collaboration are Joint Ventures (JVs) and Partnerships. In choosing either of the structures, you must understand the type of relationship you are entering into because it determines the responsibilities, expectations, and how risks and profits are shared.
Once parties agree to work together, the next step is to formalize that understanding in a clear, written agreement. This is where many ventures succeed or fail. Whether you are entering into a Joint Venture or a Partnership, an agreement functions as the foundation of the relationship. It defines the nature of the collaboration, protects the interests of all parties, sets expectations, clarifies responsibilities, and ensures legal compliance.
Without a properly structured agreement, a business alliance may be exposed to potential misunderstandings, disputes, and financial liabilities. In this article, we outline the key features of joint venture and partnership agreements and highlight the key points to consider.
Overview of a Joint Venture in Nigeria
A Joint Venture (JV) is a business arrangement where two or more parties come together to work on a specific goal, like developing a product, executing construction projects, expanding into a new market, or executing foreign-local investor collaborations. Businesses usually enter into JVs to share financial responsibility, combine technical or operational strengths, and reduce risk by working collaboratively.
While each party contributes to the venture and shares in its profits, losses, and expenses, the joint venture itself operates as a distinct business entity. This separation allows the JV to have its own structure, governance, and operations, independent of the existing businesses of the participating parties.
When creating a Joint Venture, there are generally two main ways to set it up, depending on how closely the parties want to work together and how formal the arrangement needs to be.
a. Contractual JV
In this structure, the parties enter into a written agreement describing what they will do together. They do not create a new company; instead, everything is done under the existing companies’ legal identities. This approach is common when the project is temporary or limited in scope. For example, two businesses may work together to deliver a one-time contract or short-term initiative. In this type of JV, the collaboration exists only because of the contract, not because a new corporation or legal entity was formed.
b. Equity-based JV
Here, the parties actually create a brand-new company for the joint venture. They both invest in it either through money, assets, technology, intellectual property, or other valuable contributions. For example, the Chevron Corporation and NNPC joint venture created Chevron Nigeria Limited for oil exploration and production. This new entity operates independently both legally and operationally.
In this structure, parties usually sign a Shareholders’ Agreement, which governs ownership percentages, voting rights, board composition, profit distribution, and the process of exiting the agreement. Equitable JV is more suitable for long-term partnerships where the goal is to build something jointly owned and managed.
Overview of Partnership in Nigeria
On the other hand, a Partnership is a longer-term business arrangement where two or more people or entities join together to carry on a business for profit on an ongoing basis. In Nigeria, a partnership can be formed informally through a verbal understanding or formally, through a written agreement.
However, the best practice is to document the arrangement through a partnership agreement, which sets out the roles, rights, obligations, profit-sharing structure, management responsibilities, and expectations of each partner.
A partnership agreement defines how the business will operate, how decisions will be made, how disputes will be resolved, and how assets or liabilities will be allocated. This helps minimize misunderstandings and reduces the risk of conflict as the business grows.
Key Elements in JV and Partnership Agreements
Whether parties are entering into a Joint Venture or a Partnership, the agreement should include these key contractual terms that clearly define the legal and operational relationship between the parties.
1. Name of the Business or Venture
Clearly identifies the registered or operational name under which the collaboration will run, ensuring clarity in dealings with third parties and regulatory bodies.
2. Principal Place of Business
Specifies the business address and jurisdiction of operation. This determines tax obligations, regulatory compliance, service of legal documents, and administrative filings.
3. Business Purpose and Objectives
This agreement must define the purpose of the agreement and the scope of activities.
- In Joint Ventures, the purpose is limited to a specific project, transaction, or business initiative. The JV exists primarily to achieve that defined goal, and once completed, the venture may be dissolved.
- In Partnerships, the scope is generally broader and covers a wider range of business activities, allowing the partners to engage in ongoing operations over time.
This clause ensures that neither party engages in activities outside the agreed purpose without mutual consent. Any expansion, modification, or extension of scope requires a formal amendment agreed upon by both parties.
4. Capital Contributions
This section addresses what each party contributes to the business, whether in capital, property, equipment, labour, technology, intellectual property, etc. It also sets out whether contributions are equal or not, or whether additional contributions may be required in the future.
Clear contributions create fairness and transparency and prevent disputes over who brought what and what rights such contributions confer.
5. Ownership and Profit-Sharing
The agreement should explain the percentage interest or ownership stake of each participant. This section influences who owns what percentage, how profits are distributed, responsibility for losses, and rights upon dissolution. It also sets out the voting rights of parties.
6. Management and Decision-Making
This section explains how the business relationship will be governed and who is responsible for daily operations. It establishes the roles of partners or board members, determines which decisions must be taken jointly or require unanimous approval. It also sets out how voting rights are exercised, whether equally or proportionately to ownership or contribution. It can also allow some powers to be given to managers or committees. The goal is to keep things organized and avoid disagreements.
7. Assets and Legal Title
Both JVs and Partnerships must include an asset and legal title clause that states who legally owns any assets or funds acquired during the collaboration. In a Joint Venture, especially one that creates a separate company, the assets are usually owned by the JV entity itself and not by the individual parties. While in a partnership, assets may be jointly owned or treated as partnership property.
8. Transfer or Assignment of Interest
This clause places limits on whether a party can sell or transfer its ownership interest to someone else. It usually requires that any transfer must first be approved by the other parties to protect the integrity and original intention of the collaboration.
9. Dispute Resolution
Generally, this contractual term sets out the steps for handling disagreements between parties, either by negotiation, mediation, arbitration, or litigation. It often specifies which courts or arbitral bodies have jurisdiction for enforcing the final decision, or the procedural rules to be applied.
10. Duration and Termination
This agreement should define the lifespan of the business relationship and conditions for termination, such as:
- completion of business purpose,
- mutual agreement,
- breach of contract,
- insolvency,
- death or withdrawal of a partner (in partnerships).
It should also include asset distribution procedures upon winding up.
11. Confidentiality and Non-Compete
To protect sensitive business information, the agreement should contain a confidentiality and non-compete clause. This clause requires parties not to disclose confidential data, restrict the use of proprietary knowledge outside the scope of the collaboration, and impose limitations on competing with the business within a defined market or timeframe.
12. Indemnities and Liability
The liability clause explains how much each party is legally responsible for. In a Joint Venture, especially one set up as a separate company, liability is usually limited to the JV entity itself. In a partnership, however, the partners may bear personal liability for obligations of the business unless the structure is specifically designed as a limited partnership or LLP.
Conclusion
In Nigeria, deciding between a Joint Venture and a Partnership depends on your objectives. Regardless of the choice, having a well-drafted agreement helps protect you legally, minimizes risks, prevents misunderstandings, and safeguards everyone’s interests.
Some business collaborations fail because expectations are unclear. Ultimately, a strong agreement sets clear terms from the very start, giving your collaboration the best chance to succeed.
Leave a Reply