The Joint Venture in the Dominican Republic

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Throughout the years, the globalization and integration of markets have propelled the use of new legal figures and mechanisms of business in the Dominican Republic, as it is the case of the joint venture.

The origin of this figure goes back to the common law at the beginning of the 1800s, but it began to acquire importance in Latin America in recent years, after the development of international business and the practice of attracting foreign investment.

 
In the Dominican Republic the joint venture still hasn’t been regulated in our legislation, being subject to the autonomy of the will of the parties and the legal provisions that regulate contracts in the Dominican Civil Code. In this sense, the joint venture can be defined as the association of two or more parties, natural or legal, foreign or national, in order to exploit a business altogether. The parties create partnerships and projects that bind them in capital and risk.
 
It is important to mention that due to certain characteristics of the joint venture, it is easy to confuse it with other legal figures and operations like Partnerships or Mergers and Acquisitions.
 
However, Partnerships are incorporated by two or more commercial parties that can have unlimited personal liability for their obligations. Meanwhile in joint ventures, parties act in the name of the enterprise they have created, sharing risks, profits and losses. Also, partnerships lack legal personality, assets and incorporation requirements, while the creation of a joint venture involves all those features and requirements. 
 
On the other hand, we can see that a joint venture, although usually involves the creation of a new corporate vehicle as in some mergers, does not change the shareholders composition so that they form part of the new company, while maintaining autonomy and wealth for the same. In the majority of cases the joint ventures are used to avoid a merger, since they are intended for a single project, with a duration and limited object.
 
In addition, joint ventures can be classified in: unincorporated joint ventures or incorporated joint ventures.
 
Other doctrinarians classify them as corporate or contractual joint ventures.
  •        i.          Unincorporated joint venture: is the agreement between two or more parties in order to create a business as such, without the treatment of a different legal entity.
  •       ii.          Incorporated joint venture: joint venture agreements that do give rise to the birth of a different entity. It is an entity of corporate structure, meaning this, a corporation or a limited liability company in which the two partners participate. This is preceded by an agreement between the parties, which establishes the bases of the collaboration.
 
Moreover, it is important we emphasize our clients that the choice of a strategic partner requires a proper assessment of the following factors:
 
  1. The quality of the partner.
  2. The consistency of the objectives.
  3. The complementarities of resources (financial, human, natural etc.).
  4. The assessment of the risk of the companies.
  5. The complementarities of sizes of companies.
  6. The compatibility of the activities of the partners.
 
The main advantage of the joint venture is that the parties share risks and costs of the project. Also, they make easier the development of the business where there is heavy initial investment, helps overcome trade barriers and promotes access to new markets, where it would require a specific know-how.
 
Important issues that should be taken into account when it comes to incorporate a joint venture:
 
  • Decide the corporate vehicle that will be used.
  • Analysis of the impact of the operation on competition law.
  • The financial and fiscal aspects.
  • What is your position in the negotiation (majority, minority or strategic shareholders).
  • Transferability of shares.
 
Finally, we can establish that the process for incorporation of a joint venture involves the following steps and documents:
 
  1. Non Disclosure Agreement.
    Marks the beginning of the negotiation, sets what information will be provided and exchange by the parties, the fact of bargaining and the intervention of the parties, among other things.
  2. Memorandum of Understanding (MOU) or Letter of Intent.
    Regulates the bases and objects of the negotiation.
  3. Joint Venture or Shareholder Agreement.
    All of the steps above will result in the signing of a joint venture or shareholders agreement. These are valid and lawful agreements between the parties, but its effectiveness is purely internal and has an extra statutory character.

    It is important to regulate as much as possible within this agreements.

    For example:  
    Form of society as a whole.
    Composition and contribution of each partner.
    Criteria for the definition of the project.
    Resolution of blockages (Settling votes, terms of scale, Elevator clauses, an output, or the disappearance of the joint venture, liquidation, offers of Put/Call, Russian roulette, Texas shootout clauses, etc.)
    Regime for transfer of shares.
    Basic principles of funding.
    Exclusivity and non-competition clauses.
    Arbitration as dispute resolution clause
     
  4. Closing.
    By incorporation of the company altogether, provision of its bylaws and the registration in the appropriate register.
 

 

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