Most times, individuals and companies can do more when they come together than when working on their own. In this era of globalisation, where borders are increasingly becoming ambiguous, the consumers of any product or service can exist beyond the shores of any one country. As a result, going solo might bring less profit than an entrepreneur would desire.
If you are considering delving into a joint venture with another person or business, you will surely need guidance and enough information to proceed. And while the potential for expansion and more returns on investment is bright, risks and challenges are also not absent. This article presents essential things about joint ventures in Singapore you need to know and how to set them up. But let’s begin by defining this concept.
What is a Joint Venture?
A joint venture is a business arrangement between two entrepreneurs or companies to achieve a business goal. Stated differently, it is a merger or collaboration between otherwise independent firms for either survival or expansion. Participating individuals or companies can be within or outside Singapore, and while any gains are shared among the participants as agreed among them, the risks also have to be shared.
Reasons for Joint Ventures
Ordinarily, businesses would prefer to operate independently of others, amassing all the proceeds for sales just for themselves. However, there are times when working alone can quickly mean the end of such business or a significant drop in sales. As such, to avoid a downward movement in fortunes, companies might agree to joint ventures.
Sometimes, businesses and individuals enter into joint ventures to develop novel products that may be a hard nut for individual firms to crack. For instance, a company may specialise in producing the raw materials that another company needs dearly to make its finished product. In addition, in cases of emergency like the COVID-19 pandemic, many pharmaceutical and research companies went into joint ventures to develop and distribute vaccines for immediate use.
Again, businesses looking for an international face may see joint ventures as the way out. Instead of establishing a branch in another country, which may cost more money and other resources, a simple merger will make their aim of expansion a reality.
When successful, joint ventures can bring about expansion, greater technical capability, more extensive resources, and a broader market for the participating parties.
Forms of Joint Ventures
Joint ventures can take either of two forms: corporate or contractual. Another form is a partnership venture, which resembles what you get in a business partnership.
Corporate Joint Ventures
Joint ventures that require a separate legal framework for operations are termed corporate joint ventures. In other words, the participating partners give legal backing to their collaboration in the form of a general partnership, limited liability company, or limited liability partnership.
If the legal vehicle for the corporate joint venture is a limited liability company, the most crucial document for their incorporation is the constitution. This document spells out the roles and privileges of board members, directors, and other stakeholders in the venture.
For partnerships and other joint ventures that are not corporate in nature, the agreements they make govern the rights and privileges of the participating parties, and they are bound by the relevant laws that govern the establishment of such partnerships in Singapore.
Contractual Joint Ventures
Contrary to corporate joint ventures, contractual JVs do not require the formality of incorporation. Participants or partners simply enter into a contract to collaborate on a specific project for some time, after which they return to the status quo. The agreement usually contains the terms of collaboration for the ventures and the duties of each partner.
The Pros and Cons of Joint Ventures
| Pros
|
Cons
|
| Increased capacity for production | Though simple on paper, it can be complex in reality. |
| More resources for operations | There’s a possibility that each collaborator’s objectives may be different. |
| Shared risks | Partners may not give their best in terms of leadership and financial commitment. |
| Opportunity for market expansion |
When a joint venture arrangement is successful, it should all be advantageous and with no negative effects for anyone. However, in reality, things don’t always happen as planned. In instances when the partnership is less successful than planned, the downsides or disadvantages highlighted above will begin to manifest.
How to Set Up a Joint Venture in Singapore
Setting up a joint venture in Singapore is straightforward, especially since the government is open to it. The steps to follow include:
Discover or be Discovered
Two or more intending collaborators must find each other before a joint venture can commence. In this case, it can be you searching for a partnership with another firm with the same objective as yours, or it can be the right firm discovering you. Whatever the case, both parties must share the same business vision for a joint venture. Besides sharing the same vision, one other consideration before allying with another business is their market potential. Therefore, you must be sure that your coming together will bring to the table something you cannot achieve on your own.
Define Your Alliance
As mentioned earlier, joint ventures can be a corporate or contractual agreement. If corporate, you need to decide whether it will be a limited liability company or partnership and then go on to set up the required documentation for incorporation. If it’s a contractual joint venture, you also need to establish it before proceeding.
Draft the Terms of Agreement
At this stage, you need to come to terms with your collaborator on the modus operandi of the new venture. Things to set straight include:
- How you intend to share profits, losses, and liabilities.
- Modes of resolving any dispute that arises within the business framework.
- The venture’s structure – corporate or contractual.
- The financial commitment or responsibilities of the parties.
- How to manage or lead the joint venture.
- Ownership of any property that arises from the collaboration.
- An exit pathway once the aim is achieved.
The things in your agreement document depend on the nature of your businesses and the scope of the collaboration. That is why you need an experienced corporate service provider to help draft this document. The professional can advise on confidentiality and dispute resolutions in ways that wouldn’t tear the venture apart. They will also advise on how to meet government requirements in order to avoid any sanctions.
Conclusion
It can be an excellent idea to join business forces with another because of its tremendous benefits. Of course, the number of joint ventures is rapidly rising in Singapore, with many small startups exploring it to upscale. Nevertheless, defining every bit of the agreement is essential to forestall a bitter end. While it is not impossible to draft a constitution or partnership agreement without professional advice, it isn’t safe. A specialist in company incorporation in Singapore will help identify possible loopholes and help guide you around them.
