12 November 2025
9 min read
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Entering into a joint venture can be one of the most effective ways for organisations to combine strengths, share financial risk and pursue new business opportunities. Whether expanding into new markets, pooling capital for large-scale projects or gaining access to new resources and expertise, a well-structured joint venture allows parties to achieve synergy that might not be possible individually.
However, beneath the commercial benefits lies a web of legal, financial and structural complexities. Too often, joint ventures move ahead without adequate discussion, documentation or due diligence, leading to disputes, litigation and, in some cases, liquidation.
Our three-part series on structuring and managing joint ventures is designed to guide businesses from start to finish. This first article provides a comprehensive checklist for setting up a joint venture, helping businesses think through key legal matters and build a strong foundation for a sustainable and profitable venture.
A simple but critical first step. Each entity should be clearly identified and documented, particularly where a wider corporate group is involved. Conduct adequate due diligence to confirm financial standing and ownership structure to ensure the other parties have requisite capabilities.
If one of the parties is a subsidiary of a group and the relevant entity does not hold sufficient capital to compensate for any breach that it may be liable for under the joint venture, a parent company guarantee may be necessary.
The parties should agree on the nature of the joint venture and any geographical, time or other restrictions on its operations. If one or more of the parties intend to invest in the venture for a limited period, the agreement should include a clear exit strategy, such as a trade sale, management buyout, or IPO.
For ventures spanning multiple jurisdictions, including Australia, it may be necessary to establish subsidiaries or branches in the relevant foreign jurisdictions where the venture will operate.
The parties should also identify any pre-conditions that must be met before the joint venture commences, such as regulatory approvals to carry out the intended activities, Foreign Investment Review Board approvals or compliance with the Australian Securities and Investments Commission’s requirements.
Choosing the right structure is fundamental. The parties should determine whether the venture should be operated through a joint venture entity or by commercial agreement only.
Where profits, assets and liabilities are shared, an incorporated joint venture entity (such as proprietary limited company) is likely necessary. However, if the parties only intend to share revenues from certain activities, a formal entity may not be required.
If an incorporated vehicle or entity is to be formed, the parties should select the jurisdiction of incorporation and entity type that best align with the venture’s nature, location and operations.
When preparing the agreement, joint venture parties should document all decisions relating to:
Future funding arrangements should also be agreed on at the outset, for example, whether to obtain external debt and/or equity financing, or further capital from the joint venture parties. If finance is to be obtained from an external source, the financier may require one or more of the joint venture parties to provide security.
It is also recommended that the joint venture parties agree early on who will bear the costs of incorporating the joint venture company. Typically, such costs are shared according to each party’s respective proportionate interests in the venture.
If a joint venture entity is to be formed, the parties need to decide whether to operate under a new trade name or use one of the parties’ existing brands and logos. Any licensing for the use of intellectual property by the joint venture should be properly documented with terms agreed on.
The parties should also carefully consider registering their respective trade names and logos with IP Australia to ensure their rights in relation to the intellectual property continue after they cease to have an interest in the joint venture.
With increased scrutiny on corporate governance, compliance with basic corporate administrative and regulatory requirements, such as those listed under the Corporations Act 2001 (Cth), has never been more important.
To be compliant, the joint venture agreement should address:
The parties may also wish to appoint an external company or one of the joint venture partners to manage the venture. Such arrangements should be formalised through an appropriate management agreement.
Joint venture parties should anticipate changes in ownership and provide clear mechanisms for buying, selling or transferring shares. Options may include purchasing or selling shares in the company from or to the other joint venture parties at a later date for a certain price. This generally requires clear agreement drafting to avoid a later dispute over pricing.
Agreements may also specify obligatory transfer events that require a party to transfer its shares to the other joint venture parties under certain circumstances, such as a change of control, insolvency, cessation of business, or a material breach of the joint venture agreement. The parties should set out how the price is determined, commonly by appointing an independent third-party valuer to establish fair market value at the time of transfer.
The parties may also wish to provide tag-along rights to minority shareholders, allowing them to sell shares at the same price if a majority shareholder sells to a third party. Tag-along rights may also be required when the venture relies on the specific expertise of one of the parties to ensure the other parties can sell their own shares on equivalent terms to the same third party.
Similarly, drag-along rights may be granted to the majority shareholder to require the minority joint venture partners to sell their shares on the same terms if the majority shareholder sells to a third party.
Finally, the joint venture agreement may need to include other transfer restrictions, such as preventing sale shares for a certain period or setting a minimum sale price to protect the venture’s value.
Most joint venture agreements include a confidentiality clause that restricts the disclosure of any confidential information obtained in relation to each other and the venture to third parties. Public announcements are also generally agreed upon between the parties, including its timing and content.
The joint venture parties may also wish to include a provision in the agreement requiring them to refrain from competing with the business of the joint venture for a certain period after ceasing to hold an interest in the venture.
Depending on the nature of the business, the joint venture may be subject to various regulatory restrictions, including:
The joint venture parties should consider the tax implications of the joint venture at the outset. While joint venture companies are generally taxed in their home jurisdiction, additional tax implications may arise where the joint venture intends to operate in other jurisdictions or where any joint venture party is a foreign-registered corporate entity.
The parties may also wish to consider offering performance-based incentives to managers or employees of the joint venture, such as share bonuses upon the achievement of certain milestones. If such managers or employees are parties to the joint venture, these incentives could be described in the relevant joint venture documentation. Otherwise, they should be documented separately, with careful consideration of applicable employment laws and tax regulations.
Documenting all aspects of a joint venture can be challenging and time-consuming, especially when parties wish to move quickly on a commercially attractive project.
Ensuring all parties to the joint venture are adequately protected and that key issues are addressed at the outset is crucial for long-term success. Joint ventures progressing without sufficient consideration of relevant matters results in disputes from poorly conceived or inadequate agreements – all of which could have been avoided with proper planning.
In the next part of this series, we explore common disputes in joint ventures and how to resolve them. If you have any questions about this article or need assistance with entering into or setting up a joint venture, please contact us here.
Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
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