Equity Joint Ventures

Cooperative Joint Ventures

Wholly Foreign Owned
Enterprises (WFOEs)
Foreign Investment Companies
Limited by Shares (FICLBS)
 What does the term
“Joint Venture” stand
for?

“Joint Venture” is not a strict legal term, but a

description of a certain business relation.”

The term describes a business situation where 2 or

more parties join their capacities in order to
achieve a certain common objective with a benefit
for every party and mostly over a long period of
time.
2
 Joint ventures have become an important
strategic option for many businesses. Due
to increased globalisation, the proliferation
of modern technology as the means of
conducting business, and increased
international travel, businesses are now
operating in a world without borders,
albeit that there are still cultural and
language issues. This guide summarises the
key considerations in establishing a joint
venture or other strategic partnership.
The term ‘joint venture’ is an umbrella term which
describes the commercial arrangement between two or
more economically independent entities.

In practice, the legal form of a joint venture is likely to

be determined by a number of factors including the
nature and size of enterprise, the anticipated length of
the venture, the identity and location of the venturers
and the commercial and financial objectives of the
participants.
Groupi ●
Joint Ventures are often called
“matrimony of companies”.
ng
This venture is made to achieve results

Goals
●

that the parties could not or did not

want to achieve alone.

Type of ●
such an alliance may take place
between:
alliances “
friends”
“market
competitors”
7
Joint Venture ●
the new Joint Venture Company
performed mostly appears on the market and
sells new products.
with “friends”

Joint Venture ●
the parties often try to reduce costs on research or
development by establishing a joint venture
with market ●
company, so that it would not appear on the market.
Such costs could be divided among the Joint Venture
parties
competitors
The parties always hope to save
money and time by unifying their
capacities to achieve a both
common target and profit.
 Market Fiscal
Conditions Conditions
THE PARTIES
SHALL DEAL
WITH

Banking Legal
Systems Rules
Three basic legal structures can be used for joint
venture, these being:

a limited a
a partnership
partnership or
or
liability limited
limited
partnership
partnership (i.e.
(i.e.
company (i.e
an unincorporated
an unincorporated
corporate vehicle;
vehicle;
vehicle)

a purely contractual
co-operation
agreement
 PARTNERSHIP

A partnership is the relation which subsists between

persons carrying on a business in common with a view
to a profit.
There are also certain “hybrid” vehicles or
arrangements, such as a limited liability partnership,
with characteristics from more than one of the above
categories.
 In any case people are getting used to
distinguish 2 main different ways to set
up a Joint Venture

by establishing a
by contract company

Contractual Equity Joint

Joint Venture Venture
 the parties cooperate via a new company, of which both parties are
the cooperation of the parties is ruled by a series of contracts . shareholders

Contr
Equity
actual
Joint
Joint
Ventur
Ventur
e
e
Both forms (i.e. contractual and equity J.V.) require
different solutions for similar problems, such as:

attribution of investment costs, attribution of

controlling powers, distribution of risks and profits,
dissolution of the JV.

Each form is more suitable for a

certain business target
Joint Ventures
Equity Joint Venture (EJV)
 a limited liability corporation with equity

shares from each side

 Equity shares in the form of equipment,

cash, land, factory building, industrial

property rights
 foreign partner’s minimum stake is 25%
 Part of the contribution must be in cash
 Part of the contribution can be in

technology (<20% total capital or 50% of

foreigner’s investment)
EJV (continued)
 share profits/loss according to equity
share
 life of 15 to 30 years, can be extended
 Partners determine the corporate strategy
 Foreigner partner cannot withdraw its

capital while EJV is in operation

EJV: Example
Jinbei-GM automobile Co:
 50/50 equity joint venture
 Chinese partner -- land and building
 American partner -- cash and technology
 GM’s current investment with Jinbei is

$230 million
 Location-- Shenyang
 Fiscal effects:
A JVC has its own
Taxes are
representatives, which attributed to the
makes it easier for the new company.
parties to coordinate
control and other
activities

There is a common target,

mostly not a single one, but
a general, wide objective
(common development and
distribution of a certain
product).

The parties do not

intend to dissolve the
relation, if not in case of
insuperable differences
or conflicts between the
parties.

The cooperation
is planned for a
long period of
As a new company must time
be established it needs
high investment costs
and has a huge impact
on the organisation of
the parties.
It
It provides
rules outrules
lays who is for the
he
constitution
responsibleitself
for and the
objectives
relation
forthe
betweenand
which
the
administration
the JVC shall
contracting partiesbe
and the
representation of the
constituted.
JVC
new JVC.

It
sta
tes
the
dur
ati
on
of
the
JV
C
an
d
so
me
sol
uti
on
s
for
po
ssi
ble
dis
put
es
 PURPOSES OF THE
AGREEMENT

The objectives determine the targets of the JV; what it

was constituted for.
They show what the future should bring. The purpose of
this Agreement is to provide for the establishment,
ownership and operation by the Parties of the New
Company, which shall be the exclusive vehicle of the
Parties for the manufacturing, marketing and sale of
Commercial Products and Components in the Territory
and the supplying of technical assistance and service in
relation thereto
Cooperative Joint Venture (CJV)
 Under it, domestic company provides the

non-liquid assets (land, natural

resources, labor, services and buildings,
equipment or facilities)
 Foreign partner provides the either

capital or technology, equipment or

materials etc.
 CJV contract defines the distribution of

products, profits or losses

 Foreign investors are allowed to recover

the investment before the enterprise

expires.
 The relation is easier
to dissolve. The
cooperation is
generally dissolved
The duration when the target is
achieved.
of the
cooperation is
shorter.

The relationship is more

flexible and does not have
such a high impact on the
organisation of the
parties involved as a
JVC. It does not create a
third legal person.

Fiscal effects: All

taxes are
attributed to the
parties of the
contract.
There is mostly a
single, individual
target. (e.g.: An
international
contract for work)
CJV: Example
Motorola-Apple-Panda
 March 1996, cooperative joint venture
 Apple contributes design of the PC,
Motorola, the G4 processing chip and
Panda, the land and building space
 Failure: Apple was not happy with
Motorola’s slow G4 chip production
decided to withdraw from the joint
venture (which was then dissolved).
Wholly Foreign-owned Enterprise (WFOE)
 Limited liability company
 Foreign investment may be in the form of

hard currency, machinery, industrial

property rights or know-how
 Certain restricted areas.
 Condition for approval

◦ advance technological know-how

◦ more than 50% of output in terms of foreign
exchange
 Foreign Investor Shareholding Corporation

 Regulatory framework allows foreign

corporations to convert existing joint
ventures and wholly-owned foreign
subsidiaries into FISC, provided they have
been profitable for certain years.
 Country’s Development Planning

Commission is generally involved in

creating FISC.
 FISCs are well placed to obtain quick

listings on the stock exchanges, making

it easier for them to raise new capital.
THANK YOU!