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What is International joint venture? The International joint ventures have a very broad meaning in which firms from different countries cooperating across national and cultural boundaries and in some cases joint ventures created by parties from the same country but located in a country other than their parents¶ are also considered as international joint ventures (Geringer and Hebert 1989). According to joint ventures agreements all the parties are agreed to share all the profits and losses of the business. There is no particular definition for joint venture in German law. In Germany 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) to achieve 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 joint
ventures establish entities. Equity joint ventures are legally and economically separate organizational entities created by two or more parent organizations in which all are agreed to invest finance collectively and other recourses to achieve particulars goals. The company has its seat in Germany (Pfeffer and Nowak,1976).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.
Contractual joint venture: An international joint venture is a structured cooperation
between two or more companies from different countries in which the members combine some of their resources for a common undertaking while remaining economically independent. When the 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¶s why it is call contractual joint venture. The contact under which all the parties are working together is governed by German law. Agreeable to the German rules and regulations on conflict of laws, all the parties of the contractual joint venture have to decide that governess of the contact shall be done by which body of law. They are free to take that decision. (cf. Art. 27, subsec. I of Introductory Law of the German Civil Code ("EGBGB")). (Gerhard and Michael 2000)
Why Contractual over Equity joint venture??? The contractual joint ventures are
also called consortiums. These types of ventures are for short to medium terms business alliances. 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 business entity. 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 also equally responsible for all the consequences, profits and losses. But in case of contractual joint venture all the parties work under a contract with creating a new business entity. The parties on the 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 gives different 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. So cause of this structure of the contractual joint ventures can be design according to particular need of parties. Liability: 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 liable for 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 kind of joint ventures we don¶t create new entity. But in equity joint venture we create a new business entity 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: 1st on joint venture corporate profits and 2nd 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 with contractual joint venture.
Governmental/regulatory approval: Most of the businesses are regulation free in
Germany, 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 and investment. If the founder of the business is already authorized and operative in some any other European country then no need of authorization. Gesetz gegen WettbewerbsbeschrankungenGWB 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 joint ventures and the other which comes under the restrictive practices provisions is called cooperation joint ventures. All the joint venture arrangements are send to German Federal Cartel Office (FCO) for clearance under the merger control procedures and a joint venture can be challenged 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 very hard to distinguish. So there are few tests. 1st the combined over all worldwide turnover of all the parties at least ¼ 500m. 2nd 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 transaction can¶t be proceed until after the waiting time has expired or decision for clearance has been received. 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 joint venture agreement and try to figure out the affects of this joint venture on the domestic market
whether it will create or strengthen. There is nature of a statute supposition, a market share of 33.3% by any of party out of all in single-firm dominance and in case of joint dominance where may be 3 or more firms one of the party out of all parties have a market share of 50%. (4) Mandatory/voluntary Penalties: Filing and implementation are to be done respectively before completion and after clearance decision. From 2005 for incomplete and incorrect filing the fines of up to ¼ 100,000 and in case of implementation without clearance fines can be up to ¼ 1m or 10% of the turnover generated during that period.
y y y y y Geringer, J.M., Hebert, L. (1989), "Control and performance of international joint ventures", Journal of International Business Studies, Summer, pp.235-54. Gerhard J Kaiser, Michael Sorgel. Corporate Finance.: Partnerships: How to Ensure Success London:Feb 2000. p. 9-11 (3 pp.) Pfeffer, J. and P. Nowak. "Joint Ventures and Interorganizational Dependence," Administrative Science Quarterly, (21), 1976. Hewitt,I.(2005),´ Joint ventures´, London: sweet & mexwell, p517-527 INTERNATIONAL TRADE CENTRE UNCTAD/WTO, ITC Contractual joint venture model agreements, Geneva: ITC, 2004. vii, 107 p.