Setting up your joint venture

Joint Venture Kenya: Setting up your joint venture

Joint ventures are beneficial for companies who want to establish partnerships with one another. Although it doesn’t mean that you have to make an agreement off the bat with an entity that you like, it’s good to know what the process is so you’ll be ready when the time comes. 

Here in Kenya, joint ventures are popular because of the many benefits that a company or a group of entities can gain. Don’t worry because we’ll help you out every step of the way when you opt for the services of our firm, Joint Venture Kenya. 

Making your joint venture in 4 steps

Joining joint ventures is complicated because of the many things that you need to consider. This is also for your own protection and to prevent your business from falling into shady schemes by the partners you choose. 

However, there’s no reason for you not to learn the process in a digestible manner. Here are the four steps that you should take when you decide to go on a business joint venture:

Step 1: Find a partner or partners

When it comes to business, you can’t just choose a partner or partners based on emotions and attachment. You need to be smart about this decision by clearly stating and defining your objectives. Not only are you helping the companies that would like to partner with you but you are also protecting your interests by clearly saying from the start what you need in this project. 

You must find companies that would best suit what you need. Whether it’s for manufacturing, distribution or any other purpose. Moreover, evaluate the people that you will be working with both in their skills as well as their cultural fit to your company. Ask yourself if the firm or company you’re eyeing has any conflict of interest and if that would serve as a setback or just a challenge to your endeavour.

Prepare yourself for negotiations because there will be a lot of back and forths when it comes to drafting the agreement. This isn’t a setback but a challenge that you should be prepared to face. 

Step 2: Choose a type of joint venture

Structuring the joint venture is the next step to this journey. Whether it’s a project joint venture, functional joint venture, vertical joint venture or horizontal joint venture, you’ll need to have a solid understanding of what type will fit your goal. This is discussed in detail in the ins and outs of joint venture by the Joint Venture Kenya team so browse through that page for more information. 

In this section, we’ll also mention the two ways of handling a joint venture. These are:

  • Forming a separate joint venture entity from the businesses of each partner; and
  • Operating under a joint venture agreement without having to create a separate legal entity.

The former is the most efficient yet very complex way to create a joint venture. However, this protects your interests especially when things go south. 

On the other hand, it’s more cost effective not to create a separate legal entity, especially when it’s just a short-term project. You don’t have to pay separate taxes and file unnecessary paperwork. Although, this does not protect you legally when things don’t go the way you want it to. 

Step 3: Draft the agreement

No matter what type of joint venture you and your partner will choose, drafting an agreement is a way to protect both your interests. This can be settled directly between your representatives but it’s better to have the help of an intermediary that knows the ins and outs of drafting an agreement, just like us at Joint Venture Kenya. 

At the minimum, your joint venture agreement should not leave out the following information:

  • Purpose – There should be a statement of purpose for what the project venture would be so that it’s clear for both parties.
  • Structure – The structure of the joint venture should be clear on the get-go to avoid any confusion between those involved in the project.
  • Objectives – What are the goals that this joint venture project aims to achieve? This should be listed down so everything is clear for both parties.
  • Allocation of duties and responsibilities – Each involved party should have a duty and responsibility to the project depending on the expertise of the entity.
  • Allocation of profit and losses – Both profits and losses should be accounted for from the beginning until the end of the project. This should be distributed depending on the agreement between the two entities.
  • Setting up management and control – Both the parties should have members present in the management and control committee. This way, the tasks are distributed properly depending on what the agreement has come about.
     
  • Voting rights of each party – Depending on the control that each party has, there should be an allotted voting number for each one. This can help with resolving grave issues and decisions that may arise when the project is ongoing.
  • How disputes will be handled – A section on how important decisions and disputes are handled should be present in the

Step 4: Pay taxes and follow other applicable regulations 

As part of your fiscal responsibility for your business as well as the joint venture, you’d need to pay the appropriate taxes. This depends on the structure of your venture whether it’s a separate entity or part of your business model. 

Aside from the tax requirements, you should also check other applicable regulations that your company and the joint venture should follow according to the law. Make sure that whatever processes you will do on this project follows the labour laws and codes of practice in the respective region or country that you are in. 

Tips for a successful joint venture

Plenty of things can happen during a joint venture. This can either make it a success or a failure depending on how you and the other party will handle this kind of collaboration. 

It’s a must to ensure a successful joint venture if you want to benefit from it, but where do you start? Don’t worry because we’ll provide you with Kenyan approved tips for the success of your project, especially when you opt for the help of Joint Venture Kenya. 

Below are the tips that you might find useful for a successful joint venture:

Plan carefully

Before you even start signing papers, you and your team must first plan the goals and objectives for this project. Ask your team if going on a joint venture partnership is the right thing to do for this project. Perhaps create a SWOT (strengths, weaknesses, opportunities and threats) before you commit anything in writing. 

Moreover, during this time, you must assess whether the partner you chose is the right fit. As long as there’s no agreement yet, you can back out of the collaboration. 

Make the agreement terms clear

All the objectives, goals and conflict resolution plans should be clear in the agreement. This will not only protect both of the parties from unnecessary bureaucratic measures but it makes sure that everything will go on smoothly once the project commences. 

Moreover, plan for the termination of the contract way ahead—even before the collaboration starts. This way, you and your partner will be able to part ways without any tension whatsoever. 

Build trust and communication

The most crucial part of a partnership just like a joint venture is trust and communication. You need to be openly vocal about your wants and needs in this collaboration to make things clear. Moreover, you must make sure that everybody is involved in the whole process—from the basics of drafting the joint venture agreement to the enactment of the whole project. 

One of the ways to ensure this is to arrange regular meetings for all the key people that are involved so that there’s an avenue to raise concerns and to keep everyone updated with the events that’s happening. 

Be flexible with the conditions

Simple projects can turn complicated in joint ventures just because there are two companies that are making the final call. You might get into disagreements in the simplest of things just because you don’t want to be flexible with decisions. 

When it comes to this, flexibility is key to attain a peaceful project. It’s a must to regularly review how to improve workflow to avoid any of the problems that can arise with decision making. Moreover, always look over the objectives and goals to see whether there are things that need to be done or changed. 

Establish performance indicators on both sides

Both parties should establish key performance indicators to know whether the project is on track with the agreement. This will also help everyone have a harmonious relationship since all of those involved are trying to achieve the same goals and objectives.

Aside from having a harmonious relationship, the performance indicators can also give you an early warning sign of problems. For example, if there are tasks that aren’t done on schedule, you’d be able to monitor all of that with the performance indicator.  

Deal with problems and disputes properly

There will always be problems and disputes from time to time. It’s a normal occurrence, especially in joint ventures with two or more parties involved. When these disputes arise, it’s best to look at it from a positive perspective with a win-win solution in mind.

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