Is A Joint Venture Agreement Business Partnership?

What is a Joint Venture?

 

To explain briefly, Joint Venture is the name given to the community established by more than one company to work together on a project. Such kind of a consortium can be determined as a joint venture company. The main difference between a joint venture and a consortium or business partnership is that the parties establish a new company rather than acting as an ordinary partnership for a project.

 

In other words, Joint Venture is a joint business structure formed by 2 or more legal entities to come together and act together for a certain investment project they have decided on. For example, a “new company” established by 2 companies with different share ratios in their own country or a foreign country falls within the scope of a Joint Venture.

 

Two Types of Joint Ventures in the Doctrine:

 

  1. Joint Venture Based on a Contract Only: It is established together with the conclusion of a contract to realize the common purpose of the parties. In other words, it will not be possible to establish a commercial partnership in this type of joint venture. For this reason, the joint venture has no capital, and the realization of the joint purpose is possible with the contributions of the parties. Joint ventures based on only contractual agreements are generally only for single works and their lifespan is limited to the project being carried out. The joint venture ends when the project ends and reaches its goal.

 

In a joint venture based solely on a contract, the joint purpose is not to establish a partnership, but to directly carry out the work that causes the parties to come together. For this reason, the contract that will shape the joint venture relationship includes matters such as the purpose of establishment, field of activity, management and representation of the joint venture, the rights and obligations of the parties, and the cooperation relationship between the parties.

 

  1. Joint Venture with Participation in the Capital:In this type of joint venture, it is possible for more than one person and organization to unite as a joint venture and establish a partnership to realize the common purpose. It does not matter whether the partnership to be established has a legal personality or not. However, in practice, it is seen that partnerships with legal personalities and joint-stock companies are preferred among them. The reason for this can be shown as the limited liability of the joint-stock company only with its assets.

 

The reason why the parties prefer joint ventures with capital is to ensure that the cooperation between them is permanent and institutional. However, this does not mean that a joint venture with capital can be established to carry out continuous economic activities, it is only a reason for preferring this type of joint venture. In that case, in our opinion, a joint venture with capital should be established for the execution of temporary or non-temporary economic activities.

 

 

What are the Rights and Obligations of the Parties in the Joint Venture Agreement?

Since the Joint Venture contract is an ordinary partnership contract, to the extent that it is suitable for the contract, article 620 of Turkish Code of Obligations will apply.

  1. Rights:

As a rule, there is no ownership of the underlying ordinary partnership in a joint venture. The common purpose is realized through the participation shares brought by the partners. However, the partners will jointly have the right of ownership on the goods purchased during the operation of the joint venture, according to Article 638/1 of the Turkish Code of Obligations.

Another right of the partners in a joint venture is the right to participate in the management according to Article 625 of the Turkish Code of Obligations. Because, according to the said article, all partners have the right to manage the partnership, unless otherwise specified in a contract or decision.

One of the important rights for joint venture partners is the right to audit. According to article 631 of the Turkish Code of Obligations, titled “Examination of partnership affairs,” every partner has the right to obtain information about the operation of the partnership, to examine its books and records, to take a copy of them, and to draw up a summary of their financial statements, even if they do not have management authority.

  1. Obligations:

According to Article 621/1 of the Turkish Code of Obligations, each partner is obliged to put a participation share in the partnership as money, receivables or other goods or labor. Unless otherwise agreed, the participation shares brought by the partners should be equal to each other. However, in a joint venture, unlike an ordinary partnership, the ownership of the goods allocated to the partnership remains with the partners and is not transferred to the partnership.

According to Articles 622 and 623 of the Turkish Code of Obligations, the partners are obliged to share among themselves all the gains and losses that, by their nature, belong to the partnership. Unless otherwise agreed in the contract, each partner’s share of gains and losses is equal regardless of the value and nature of the contribution. However, as it is accurately stated in the doctrine since the principles and rates of participation in the profit and loss are one of the important points of the contract, in practice, it is usually determined by the contract.

One of the important issues for the parties of the joint venture is the prohibition of competition. According to the prohibition of competition regulated in Turkish Code of Obligations 626, the partners cannot do any work that hinders or harms the purpose of the partnership for the benefit of themselves or third parties. Accordingly, whether it is a joint venture based on a contract or a joint venture with capital, following Article 626 of the Turkish Code of Obligations, the partners cannot act to prevent the realization of the joint purpose.

Another obligation of the partners is the duty of care as mentioned in the Turkish Code of Obligations. According to Article 628/1 of the Turkish Code of Obligations, which regulates the duty of care, each partner is obliged to show as much effort and care in partnership affairs as they do in their own business.

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