May 19, 2024

Introduction

Joint Ventures (JVs) can be defined as strategic arrangements between two or more businesses, where resources are pooled to work together on a project. Joint ventures are vital in bringing together businesses from different areas of expertise for business purposes. JVs can take many forms such as; i) limited liability company- in the case where the project will incur a lot of capital, the party may decide to form a new company for this purpose, mostly referred to as a ‘special purpose vehicle’. The new company will be a separate legal entity, ii) a partnership, and, iii) a contractual joint venture- two or more parties collaborate or share knowledge and expertise on an ongoing basis, here an agreement is well drafted.

To put this into context, let’s say a company, Company A, has extensive expertise in Real Estate and has delivered many successful projects. Another company, Company B, owns a well-situated piece of land in an area where Company A has previously delivered a successful project. Company B wants to develop this land. In this case, Companies A and B can enter into a joint venture where Company A will provide expertise, and Company B will provide capital for the project.

JVs in many cases, the operating member and the capital member of a Real Estate joint venture establish the project as an independent limited liability company (LLC). They sign a joint venture agreement outlining the terms and conditions, including the venture’s objective, the capital member’s contribution, profit-sharing arrangements, management responsibilities, ownership rights, and more. It is important to note that a Real Estate joint venture is not limited to an LLC. It can also be structured as a corporation, partnership, or other business arrangement. The specific structure of the JV defines the relationship between the operator and the capital provider.

In Real Estate, multiple parties can collaborate and combine resources to develop a project. Some of the largest Real Estate projects are financed and developed through joint ventures. Joint ventures allow parties with extensive experience in managing Real Estate projects to work with capital providers who have the financial capacity to fund these projects. This week, we shall focus on joint venture arrangements in Real Estate. We shall discuss the following;

1. Joint Venture Process,
2. Things to Consider in Joint Ventures,
3. Benefits of Joint Venture Agreements, and,
4. Conclusion,

Disclaimer: The views expressed in this publication are those of the writers where particulars are not warranted. This publication, which is in compliance with Section 2 of the Capital Markets Authority Act Cap 485A, is meant for general information only and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor