Joint venture agreement in Lithuania: Protecting interests of the contracting parties and foreseeing consequences of collaboration
In Lithuania joint venture agreements are applied very widely: from participation in tender to short term or even term-less private projects. The main idea of such agreements is to protect interests of the contracting parties and foresee consequences of collaboration. Whatever is the case of collaboration, it is important to know principal aspects of a joint venture agreement.
Notion of joint venture agreement
If chosen to collaborate with another company for a project, it is always a good idea to protect one‘s interests by signing an agreement. A joint venture agreement provides a legal base for two (or more) partners to achieve a common goal without creating a new legal entity. This type of agreement can regulate fixed-term or open-ended partnership.
Contributions of the partners
In case of a joint venture agreement, contributions are considered everything that a partner donates in order to achieve the common goal: money, other assets, professional knowledge, know-how, professional reputation, connections and etc. It is recommended to underline which are the contributions of one partner and which are the contributions of the other partner. The best way to do that is to list off the contributions of the partners in the joint venture agreement. This will also facilitate dissolution of joint venture and termination of the agreement.
Proportions of the contributions
It is recommended to evaluate the proportions of each partner‘s contributions. If contributions are monetary or otherwise easily evaluated, the proportions can be determined mathematically. In case where the contributions (or a part of them) are non-monetary or their value cannot be easily determined, proportions can be defined by percentage (e.g. 35% and 65%). However, it shall be noted that proportions of contributions are related with proportions of profit, expenditures and loss, so they shall be establish as accurately as possible.
Operating on behalf of partnership
It shall be decided which of the partners will operate on behalf of the partnership. Usually the partner nominated to operate on behalf of the partnership can take the decisions regarding the activities of the partnership. Traditionally, the partner with bigger percentage of contributions takes the responsibility to operate on behalf of partnership, however in certain cases this rule may not be followed.
Profit and expenditures
Typically profit is distributed between the partners in proportion to their contributions, however the partners may decide on a different procedure. It shall be decided if the profit will be distributed in proportion to the contributions or in other manner. When it comes to termination of a joint venture agreement, it shall be decided:
- in which cases a partner can terminate a joint venture agreement unilaterally;
- what is the notice period in such case;
- if a partner terminating the agreement unilaterally shall compensate the other partner;
- what shall be the size of compensations, fines, etc.;
- how the contributions of the partners shall be distributed;
- what are other consequences of termination.
How the expenditures and loss will be distributed between the partners is one of the most important parts of the joint venture agreement which is unfortunately often forgotten by the parties. To avoid this mistake, make sure to link the percentage of expenditures and loss to the percentage of contributions or establish a different manner of absorbing the costs of the agreement.
One of the most common recommendations is to establish that all the information regarding joint venture agreement shall be deemed confidential. Nevertheless, it might be useful to indicate a sample list of confidential information in order to avoid misunderstandings (e.g. information regarding profit, expenditures, etc.).
Jovita Valatkaite, attorney at law of the Gencs Valters Law Firm in Vilnius
Practising in fields of Contract Law in Latvia, Lithuania and Estonia
T: +370 52 68 52 50
F: +370 52 61 11 00