A joint venture is a contractual business between two companies or more parties are invested. t is similar to a business partnership but with one key difference, a business partnership has long-term business relationship, whereas a joint venture is based on a single business transaction. The joint venture is own entity, separate and apart from the participants’ other business interests, each of the participants is responsible for profits, losses, and costs associated with it.
FORMATION AND FUNDING JOINT VENTURE COMPANY
All joint ventures whose fixed capital exceeds SR 1 million, excluding the value of land and buildings, must be licensed. Licenses are provided by the National Industries Protection and Encouragement Act. In terms of joint international investment, an international investor will often partner with a KSA investor for commercial, legal or practical reasons. the Foreign Investment Law provides the ground rules for foreigners wishing to establish a legal entity or acquire an interest in a KSA Entity. The Saudi Arabian General Investment Authority (SAGIA) is the body responsible for granting licenses to foreign investors. The Foreign Investment Law permits up to 100% foreign ownership of a KSA Entity unless the proposed activities appear on a “negative list” which restricts any foreign ownership. Certain activities which do not appear on the negative list may still fall into a sector where foreign ownership is restricted in amounts ranging from 25% to 75%. It is important that a thorough examination of the proposed activities is undertaken to ascertain if any of these restrictions apply. In general, foreign investment is permitted in most manufacturing, technical services, and trading activities.
ADVANTAGES OF JOINT VENTURE COMPANY
· Share strengths.
· Minimize risks.
· Increase competitive advantages in the marketplace.
· Entering related businesses that previously provided high barriers to entry.
· Gaining access to expertise without the need to hire more staff.
DISADVANTAGES OF JOINT VENTURE COMPANY
· Setting unrealistic objectives that may not be completely clear in advance and not aligned with a common goal.
· dealing with differing cultures, management styles, and working relationships that prevail in each company.
· Making poor tactical decisions caused by a misunderstanding of the roles of each company.
· can be highly complex and require excellent relationships between the senior management teams of each partner.
MANAGEMENT OF JOINT VENTURE COMPANY
Joint venture managed by the parties’ appointed directors or those directors can act in a supervisory capacity over an independent executive management team.
LIABILITY OF THE JOINT VENTURE COMPANY
In the joint venture, each party assumes “joint and several” liability for the actions of the entity, regardless which party made the error. Under joint and several liabilities, The injured person may pursue an action against to any one of the party as if her/his were fully liable for the damages. It would then be up to that defendant to pursue the other party or parties to the joint venture. Moreover, the parties can agree that each one of them will be responsible for their own actions, with liabilities allocated accordingly or the agreement may stipulate that liability is split 50-50. In joint venture only the parties that are governed by this agreement. While a claimant client, contractor or another third party may be willing to abide by the terms of the joint venture agreement as long as they are made whole by the ultimate settlement, but they are not legally bound to do so.