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Joint Venture

Joint Venture

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Published by jksharan1987

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Published by: jksharan1987 on Aug 24, 2010
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Joint venture in Germany:
What is International joint venture? The International joint ventures have a very broad meaningin which firms from different countries cooperating across national and cultural boundaries andin some cases joint ventures created by parties from the same country but located in a countryother than their parents¶ are also considered as international joint ventures (Geringer and Hebert1989). According to joint ventures agreements all the parties are agreed to share all the profitsand losses of the business. There is no particular definition for joint venture in German law. InGermany joint venture simply can be understand as- it is an agreement between two or more parties who are agreed to share their resources(money, services and intangible goods etc) toachieve a particular economic goal. In Germany basically there are two types of joint ventures.Equity joint venture and contractual joint venture (Gerhard and Michael 2000).
Equity joint venture:
In equity joint venture all the parties who are agreed to form jointventures establish entities. Equity joint ventures are legally and economically separateorganizational entities created by two or more parent organizations in which all are agreed toinvest finance collectively and other recourses to achieve particulars goals. The company has itsseat in Germany (
The characteristics of equity joint ventures.(1)
In jointly owned businesses each party has an ownership interest.(2)
There is a distinct management structure in which each party directly participates.(3)
In jointly owned business the profits and losses are share by all the parties.
ontractual joint venture
An international joint venture is a structured cooperation between two or more companies from different countries in which the members combine someof their resources for a common undertaking while remaining economically independent. Whenthe different parties don¶t want to go for equity joint venture than the other option is contractual joint venture. In this joint venture all the different parties work together under a contract that¶swhy it is call contractual joint venture. The contact under which all the parties are workingtogether is governed by German law. Agreeable to the German rules and regulations on conflictof laws, all the parties of the contractual joint venture have to decide that governess of thecontact shall be done by which body of law. They are free to take that decision. (cf. Art. 27, sub-sec. I of Introductory Law of the German Civil Code ("EGBGB")). (Gerhard and Michael 2000)
ontractual over Equity joint venture
??? The contractual joint ventures arealso called consortiums. These types of ventures are for short to medium terms businessalliances. These ventures are set-up to implements time limited projects. But other hand equity joint ventures are long term partnerships in which we create a new legal and economical businessentity. Equity joint venture is also known as incorporated joint venture. As we know in equity joint venture each party has equal rights and equal power of decision making, there are alsoequally responsible for all the consequences, profits and losses. But in case of contractual jointventure all the parties work under a contract with creating a new business entity. The parties onthe contractual basis just organize there cooperation, without forming a new corporate body. The
contractual joint ventures have few advantages over equity joint ventures which are greater flexibility, greater exposure of the party¶s liability, and avoidance of double taxation.
Greater flexibility
: The contractual joint venture is regulate by contact law which givesdifferent parties total freedom to regulate contractual relationships, but on other hand in case of equity joint ventures which are regulated by more stringent company law and regulations. Socause of this structure of the contractual joint ventures can be design according to particular needof parties.
As we know in case of contractual joint ventures there is no creation of new legal business entity so the parties can¶t be shield to the joint venture contact from being directly liablefor losses of the joint venture. All the parties are jointly and separately liable.
Tax issue
: In contractual joint ventures we can avoid double taxation this is because in this kindof joint ventures we don¶t create new entity. But in equity joint venture we create a new businessentity which is taxed separately. This is because the tax is imposed on the basis of entity. Equity joint venture prepares the ground for double taxation: 1
on joint venture corporate profits and2
on the dividends transferred to joint venture parties. But nothing like that is in case of contractual joint venture. So we can conclude from all the above point it¶s better to go withcontractual joint venture.
Governmental/regulatory approval:
Most of the businesses are regulation free inGermany, what you need to do is just notify the local government and tax authorities¶. But for some businesses you need prior authorization including, inter alia, banking, insurance andinvestment. If the founder of the business is already authorized and operative in some any other European country then no need of authorization. Gesetz gegen Wettbewerbsbeschrankungen-GWB is a German Act against Restraints on Competition do not differentiate joint ventures. The joint venture which comes under the merger control provisions are called concentrative jointventures and the other which comes under the restrictive practices provisions is called co-operation joint ventures. All the joint venture arrangements are send to German Federal CartelOffice (FCO) for clearance under the merger control procedures and a joint venture can bechallenged under the restrictive practices provisions.For joint venture arrangements clearance, there are few stapes.(1)Filling requirements:- You had to go through the filling requirement if the acquisition of 25%or more of a joint venture. The cetrative joint venture and co-operative joint venture are veryhard to distinguish. So there are few tests. 1
the combined over all worldwide turnover of allthe parties at least ¼ 500m. 2
out of all the parties¶ one party has a turnover of ¼ 50m.(2) Timetable for clearance: The clearance time vary from one to four months. The transactioncan¶t be proceed until after the waiting time has expired or decision for clearance has beenreceived. Violation of the rule is in very limited cases.(3) Test for clearance: The German Federal Cartel Office (FCO) will have a look on the jointventure agreement and try to figure out the affects of this joint venture on the domestic market

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