#Joint venture agreements are contracts concluded between entrepreneurs for the establishment of joint venture type partnerships. Joint venture type initiatives enable the realization of comprehensive and costly projects more easily and with less risk thanks to the cooperation established. Joint venture is not positioned as a separate type of commercial company under Turkish law. Joint ventures are initiatives established by legal entities or natural persons who come together under a contract, each with independent administrative and financial organization, and aim to make commercial profit. In Turkey, names such as "business partnership" and "joint venture" are also used for the concept of joint venture. However, we believe that it is more appropriate to use the original name of joint venture, which is an imported concept in terms of our law.
Since there is no formal requirement for the agreement of joint venture type partnerships, it is accepted that a joint venture relationship is established even if there is no written agreement. However, in such a case, it is difficult to prove the existence of the joint venture in case of dispute, and many legal disputes arise between the partners due to uncertainties. For this reason, a joint venture must be established through a written agreement between the parties, the details of which are well thought out.
In this newsletter, we have explained how this agreement, which is the basis of joint venture type partnerships, should be drafted.
For more detailed information on the concept of joint venture, please visit our bulletin on "Joint Venture and its Place in Turkish Law" on our website.
1. PARTIES
The number of parties in a joint venture agreement may be more than two. The notifiable addresses, titles and registration numbers of each entrepreneur must be written in the "Parties" section of the agreement.
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Example Provision: This contract is entered into by agreement between ........................located at the address of............................ on the one hand and ...................located at the address of.......................on the other hand by mutual agreement dated ................ |
2. DEFINITIONS
In this section, the meanings attributed to the concepts that will be used and repeated frequently in the contract should be explained. In this way, there will be no problem in correctly assigning the responsibilities and authorities to be determined according to these concepts in the continuation of the contract.
For example, it may be useful to explain what the terms "project", "works", "pilot partner", "joint venture" stand for in the contract.
3. SUBJECT OF THE CONTRACT
Joint venture agreements are concluded by parties coming together on the basis of a specific project or business. In most cases, the contract is concluded in order to regulate the execution of this project, to determine the partnership structure, and the mutual rights and obligations of the parties. If the parties to the joint venture agreement come together for the realization of a specific project, then the subject matter of the agreement must define this work precisely and accurately. If the parties are coming together for the joint performance of a continuous business, rather than for a specific and permanent business, this article should be regulated accordingly. For example, if the parties are establishing a joint venture in order to participate in the construction tenders of the municipalities in the Republic of Turkey, the duration of the joint venture and the works for which the joint venture is established should be defined.
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Example Provision: The subject matter of this contract is the construction of all kinds of projects of the bridge construction project.............. tendered by the administration ..................... from the beginning until the final account is made, the management of the partnership established for the completion of the works, the rights and responsibilities of the partners, the rights and responsibilities of the partners, the sharing of profit and loss, the final acceptance of the work by the administration to determine the rules of the liquidation of the joint venture. |
4. DISTRIBUTION OF SHARES
Since joint venture agreements constitute a type of ordinary company, if there is no provision for the shares of the partners in the agreement, all partners will be deemed to have equal shares in accordance with the provisions of the Turkish Code of Obligations regarding ordinary companies. Accordingly, the profit shares of the partners are also considered equal. If the partners do not want each partner who is a party to the joint venture agreement to have equal shares, they should clearly regulate the share ratios of the partners in the agreement. Since issues such as participation in profit and loss and bearing expenses are generally determined according to the share ratios, it is very important to regulate this article correctly.
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Example Provision: The shares of the parties in the joint venture, their rights and obligations, and their participation in profit and loss are......% for the company ...................; and ........% for the company ..................... The liability of the parties for the performance guarantees and advance letters of guarantee to be given on behalf of the partnership is directly proportional to their shares. It has been agreed between the partners to have rights and responsibilities regarding all rights and obligations related to the joint venture, participation in profits and losses, meeting expenses, and providing the necessary funds in the proportions determined below, unless otherwise expressly stated in this agreement; ....................................... |
5. OBLIGATIONS OF THE PARTIES
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Example Provision: The parties agree and undertake to work together for the achievement of the objectives of the joint venture and to provide all kinds of contracting services in proportion to their shares determined by this agreement. The responsibility of the partners shall continue until all relations with the employer Administration and all public and private persons and institutions are severed and all guarantees are returned. Each party is jointly and severally liable to the employer administration, third parties, contractors, all personnel employed in the works and other administrative authorities and real and legal persons for the works undertaken by the partnership under the contract. |
6. GUARANTEES AND SURETIES
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Example Provision: The partners are obliged to provide the necessary collateral in proportion to their shares. All expenses and risks of the collaterals shall be borne by the partnership. In case the partnership cannot cover these expenses, the partners are obliged to cover the expenses and risks in proportion to their shares. |
7. INCOME OF THE PARTNERSHIP
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Example Provision: As a rule, the financing of the partnership shall be financed by advances from the administration, rations and loans to be obtained for the partnership. Each partner shall deposit........................TL to a bank account to be opened in the name of the partnership management in order to meet the initial expenses related to the operation of the partnership and the subject of the contract. In addition, the Board of Directors may request the parties to make payments to the bank accounts to be opened in the name of the Joint Venture in proportion to their shares, if required in the later stages of the business. |
8. CONTRACT DURATION
If the joint venture agreement is for a business of certain duration, it may be foreseen that the agreement will remain in force for a certain period of time. In practice, the duration of the partnership established by the agreement is regulated to be slightly longer than the duration of the business subject to the agreement. If the joint venture agreement is for a continuous business, instead of stipulating a limited period of time, a maximum period of time may be stipulated, and the parties may renew the agreement if they wish, and the procedure for such renewal may be regulated.
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Example Provision: The contract shall continue until the liquidation of the accounts of the partners with each other and with third parties and institutions after the acceptance of the final account and the return of all guarantees following the fulfillment of all the commitments undertaken to be performed against the employer, the Contracting Authority. The contract expires on the date the final balance sheet is approved by the board of directors. |
9. PILOT COMPANY
Due to the large number of parties in joint venture agreements and the difficulty in coordinating the works and ensuring healthy and continuous communication, a pilot company is determined by the parties in practice. The pilot company is authorized to organize the relations between the partnership and the partners with the employer, to make the necessary correspondence, to represent the partnership, to provide various controls and to report. In this way, it is possible to represent the partnership through a single firm, and the employer and third parties do not have difficulty in finding a person to be addressed on behalf of the partnership.
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Example Provision: The Pilot Company of the project which is the subject of this agreement is......................... The Pilot Company is fully authorized within the framework of the decisions to be taken by the Board of Directors; 1. To represent the partnership before the employer administration and official institutions and managing the necessary relations, 2. To control the overall planning and follow-up of procurement and manufacturing works, 3. To submit a report by making price checks, 5. To report to the Executive Committee on disputes arising from the contract or its performance, and to plan dispute resolution in line with the opinions of the Executive Committee. |
10. BOARD OF DIRECTORS
By law, all partners have management authority over the ordinary partnership established between the parties through joint venture agreements. Since this situation may cause duality and crises for the partnership, it is generally preferred to remove the management authority of all partners and leave the management authority to a board of directors or a managing partner to be elected. Such determination is possible through provisions to be included in the joint venture agreement. If the parties do not make an arrangement in the contract, all partners will be deemed to have management authority, as the ordinary company provisions of the Turkish Code of Obligations No. 6098 will apply. If the parties do not want to leave the management of the partnership to a certain partner or partners and prefer the formation of a board of directors, the number of members of the board of directors, the method of election of the members, the election of the chairman, the quorum for meetings and decisions of the board of directors, the meeting times, the duties and powers of the board of directors, the recording of the decisions in the decision book, the remuneration and travel rights of the board members should be regulated in this article of the contract.
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Example Provision: The Board of Directors is the decision-making body and the most authorized board of the partnership. The Board is composed of one representative of each party. The members elect one of their number as chairperson. The duties and powers of the Board of Directors are as follows;
The Board of Directors convenes with the majority of its members and takes decisions unanimously (If it is considered that unanimity would make it difficult to take decisions, it is also possible to foresee any majority of votes. In this case, the procedure to be followed in case of equality of votes should also be regulated). The Board of Directors convenes upon the call of the Chairman. In the event that all members fail to attend the meeting, the quorum for the meeting to be held ...... days later has been determined as........... In this case, a decision will be taken by unanimous vote of those attending the meeting. The remuneration rights of the members of the Board of Directors should also be regulated in this article. |
11. EXECUTIVE COMMITTEE
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Example Provision: The executive committee shall be composed of...........persons from each of the parties. The board may provide as many personnel as it needs. The task of the board is to ensure that the decisions of the board of directors are implemented. |
12. SUBCONTRACTORS AND SATELLITE CONTRACTS
One of the most important clauses in joint venture agreements is the clause that determines the agreements to be made with subcontractors and the procedure for subcontracting a certain part of the work. Especially in large-scale construction works, it is very common to subcontract some parts of the project undertaken to subcontractors. The partners are jointly responsible for the proper and timely performance of the undertaken project. Since each contracting party will be liable to the owner due to a subcontractor's mistake or defective/late manufacturing, it is beneficial to clearly and meticulously regulate issues such as the selection of subcontractors, priority, the consents and approvals to be obtained from the employer and the partnership before the subcontracting of the work, and the manner of arranging satellite contracts in the contract.
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Example Provision: In the fulfillment of the works undertaken by the partnership, a part of the work may be transferred by concluding satellite contracts with other contracting companies. All contractual obligations between the contracting authority and the partnership must be complied with. |
13. CONFIDENTIALITY AND NON-COMPETITION
A joint venture agreement brings together independent companies and aims to conduct joint business for a period of time. Since the parties obtain important information about each other's companies during this period, it is necessary to protect the partners from the disclosure and damaging use of this information. Joint venture agreements, which are a type of ordinary company, provide for a prohibition of competition for all partners. Although it is a legal prohibition, we consider it necessary to include special provisions regarding the prohibition of competition in the contract and to regulate the rights of other partners in case of violation of the prohibition.
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Example Provision: During the partnership, the parties may not disclose the information they learn about each other to third parties. Other companies of the parties, companies under their control and company employees are subject to this prohibition. Partners may not engage in any business in their own favor or against the partnership. In case of violation of this prohibition, the other partners have the right to demand the removal of the partner from the partnership, the dissolution of the partnership, and the removal of the management authority of the managing partner, without prejudice to their right to demand compensation for damages. |
14. AUDIT PROCEDURE
As joint venture agreements are governed by the provisions applicable to ordinary companies, the audit authority of the partners of ordinary companies shall apply to the audit authority of the joint venture partners. Accordingly, all joint venture partners are authorized to audit the partnership. The scope of the audit authority includes rights such as the right to examine the books and balance sheets, and to request information about the general situation. It is not possible to include a provision in the agreement to remove these powers of the partners. Pursuant to Article 631 of the TCO, such restrictive provisions are deemed null and void. The procedure for the exercise of the supervisory authority should be regulated in the agreement.
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Example Provision: Each party is authorized to audit the partnership. The audits may be carried out by the auditors of the parties on the day determined by the parties, provided that the board of directors is notified...............days in advance. First auditors; .................. representing PARTY 1 ............... representing PARTY 2 |
15. TERMINATION OF THE JOIN VENTURE
Article 639 of the TCO on the termination of ordinary companies regulates that an ordinary partnership shall be terminated in the following cases;
- Realization or impossibility of realization of the purpose stipulated in the partnership agreement.
- If there is no provision in the contract for the continuation of the partnership with the heirs, upon the death of one of the partners.
- Unless there is a provision in the contract that the partnership shall continue, by the restriction of a partner, bankruptcy or the forfeiture of his/her share in the liquidation by way of enforcement.
- By unanimous decision of all partners.
- At the end of the agreed period for the partnership.
- If the right to give notice of dissolution is reserved in the partnership agreement or if the partnership is established for an indefinite period or for the life of one of the partners, by a partner giving notice of dissolution.
- In case of justified reasons, by a court decision upon a request for termination, always without any further conditions
In addition to the reasons for termination given above, the parties may agree on other reasons for termination in the joint venture agreement. These reasons should be regulated according to the purpose of the partnership and the subject matter of the project.
16. DISPUTE RESOLUTION
The parties may agree on how to resolve disputes arising from the joint venture agreement. In practice, arbitration is generally adopted as a dispute resolution method. If an arbitration clause is to be included in the agreement, it is beneficial to determine the details such as the parties' choice of arbitrators, the method of payment of arbitration fees and expenses.
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Example Provision: It has been accepted that the arbitration rules stipulated in the Code of Civil Procedure shall apply to the resolution of disputes to which the Incorporation is a party. |
17. EFFECTIVENESS
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Example Provision: This agreement consisting of ....... articles has been prepared in ...... copies on ..................... with the agreement of the parties and signed by the authorized representatives of the parties. PARTY 1 .......................... PARTY 2 .......................... PARTY 3 .......................... |
Conclusion
Joint venture agreements are a type of business model formed by bringing together more than one company for the realization of comprehensive projects. Joint venture type partnerships, which are considered as ordinary companies under Turkish law, are important due to the size of the works undertaken by the partnership or the establishment of long-term commercial business relationships. The way for such a partnership, whose management, execution and balances are very sensitive, to continue on its way without stumbling, is through a basic contract that is meticulously and expertly regulated. The main basis of all these agreements will be the joint venture agreement. This is because the partners who start off with a joint venture agreement will enter into many other agreements in the future, and will continuously expand and differentiate the scope of the business. Therefore, the joint venture agreement should be both clear enough to provide the necessary flexibility to the partners and restrictive enough to protect the partners and the partnership from damages and losses.
In the basic agreement of the joint venture, issues such as management of the partnership, execution of decisions, liability of the partners to each other and to the partnership, non-competition, participation in profit and loss, contracts with subcontractors should be regulated in accordance with the partnership structure and with maximum convenience.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.