The British Virgin Islands is an ideal home jurisdiction for establishing joint ventures because of the variety of structures available under its laws. The Territory is known for a relentless pursuit of refining and advancing its financial services legal structures and complying with worldwide regulatory regimes.
While a variety of corporate options exist, other structures are available that do not involve the creation of a company. Your answers to these ten questions will uncover the best path for your needs. Whatever the size or nature of your venture, the BVI will have a solution for you.
1. Who is involved?
Knowing exactly who the involved parties are is necessary for creating enforceable structures. The responsibilities that a party takes on will vary depending on these facts. Also, special considerations will apply if a cross-border element is involved.
- Are the parties individuals, corporations, unincorporated associations, or a mix of these?
- Where is each party located, geographically?
- What is each party's role in the joint venture?
2. What stage is your project at right now?
Have the parties decided what business will be carried on, what each party will contribute, and the places where the business will be carried out? Are market studies needed before entering into the joint venture?
If any of these matters remain outstanding, you need to consider a negotiation period and perhaps an evaluation period. Much will depend on the parameters you set for evaluation and negotiation.
- the length of time you will allocate for evaluation and negotiation;
- the options for what happens if the negotiation breaks down or if the evaluation yields unexpected results;
- the level of confidentiality you need; and
- the intellectual property considerations that should be built into these processes.
3. What business will be carried on?
Appropriate structures are based on whether the enterprise is intended to be a long-term venture, versus a one-off, a pilot, or a limited time project. Also, you need to be clear about whether it is a non-profit or a profit-making venture, and if the latter, the level of expected turnover and income.
Objectives and expectations must be set out at the beginning of your joint venture even if subject to review and revision later on. We strongly recommend that you establish a clear process for revision and decision making. If the activities are subject to regulation in any jurisdiction, specific constraints may be imposed by the regulator on the form that the joint venture must take and the persons who may be involved.
4. What contributions are needed?
Contributions may be financial, physical, creative, intangible, or different combinations of all of these. Also, different types of contributions may be required at various stages and can be valued in multiple ways. For example, parties may choose to place a certain tangible value on intangible contributions, such as facilitating strategic alliances with key industry participants or within industry networks at the onset and relinquish that value at a certain point in the venture's operation.
You will need to decide:
- whether parties will be required to make contributions;
- how needed finance will be raised;
- whether parties can be called upon to provide additional contributions when needed; and
- how the responsibility for such contributions will be allocated.
5. What commitment and restrictions will be required?
Parties must consider whether they will be able or allowed to devote time to other businesses or projects, whether the activities compete with the joint venture or not. If there are any restrictions, will parties be compensated, and if so, what will be the nature of the compensation? Also, will restrictions be limited by time or geographic region? If so, these restrictions must be reasonable to be enforceable. However, because there is no set standard for what is "reasonable," what is reasonable in the particular context of the venture and the parties involved needs to be identified.
If parties are involved in other ventures that might trade or contract with the joint venture, the parameters of those arrangements should be clearly defined, including how the parties will deal with real or potential conflicts of interest.
6. How will the BVI joint venture be operated?
All required permits and registrations for the operation must be applied for before the venture will start operations and thus parties must allow for sufficient time to acquire them. Also, the parties must consider the administrative structure of the joint venture, whether they need to appoint professional advisers such as bankers, lawyers, accountants, or auditors, and whether they will need to hire employees. What will your management structure look like? Will the business need insurance, and if so, what types of insurance will need to be maintained?
Other factors to consider are:
- Who will oversee implementation?
- Who will be authorized to communicate information on behalf of the joint venture?
- Who will have signatory power?
All operating matters should be adequately documented and available to all stakeholders.
7. How will income, profits, and losses be distributed?
Arrangements for how income will be treated and allocated, how and when any profits will be distributed, and how any losses will be borne must be established at a very early stage. If cross-border profit distributions are involved, parties need to take advice on the tax implications of distributions that they may become entitled to and whether there are different tax consequences depending on the structure of the joint venture or whether they participate as an individual or through a corporate entity or another vehicle such as a trust.
8. How will disputes be resolved?
In any collaborative project, disputes may arise. If you establish a clear, simple process for dispute resolution, this can help to resolve disagreements while preserving the relationship between the parties quickly. Depending on the complexity of the joint venture, parties can consider a hierarchy of dispute resolution strategies, increasing in formality, to escalate disagreements if the resolution is not initially achieved.
9. If necessary, how will the BVI joint venture be dissolved?
The joint venture may be for a specific project or a specific time, or, eventually, a dispute may arise that can only be resolved by the dissolution of the venture. Whatever the case, establishing clear procedures at the very outset for bringing an orderly close to the business and relationship of the parties and apportioning or otherwise dealing with the assets and liabilities of the joint venture is extremely beneficial.
10. What is the best structure for the joint venture?
Careful consideration of the factors outlined above will help the parties and their legal advisers decide on the most appropriate method for establishing the joint venture. Under BVI law this can be done by contract, through various forms of partnership, or through a BVI Business Company.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.