Types of joint venture: unincorporated e incorporated
The most well-known distinction is between unincorporated e incorporated joint venture.
Unincorporated joint venture
The unincorporated joint venture the conclusion and execution of a contract by which the parties undertake to implement a common project.
The content of the contract is defined by the companies involved, which establish roles, objectives and conditions for the performance of activities. Furthermore, the contract usually stipulates the duration of the joint venture itself, depending on what has been agreed upon.
An example in the B2B world of an unincorporated joint venture is the agreement between two oil companies to carry out extractive activities in a foreign country in return for a five-year concession for the exploitation of some wells by the local government.
The agreement will provide for the sharing between the two companies of the costs and profits associated with the operation, based on the contractual clauses and the roles of each of the two organisations within the processes.
Incorporated joint venture
An incorporated joint venture is based on the establishment of a new legal entity, which is different from the companies involved and has its own autonomy.
Typically, this type of joint venture is created to pursue more complex long-term goals than can be achieved with a contractual joint venture.
The parties involved might, for instance, need to develop a new line of technological solutions with which to strengthen themselves within their own sector.
To this end, integrating the know-how and capital of different realities may be the most logical solution to design and market new technologies, on the one hand reducing R&D time, and on the other hand compensating with the counterpart’s resources what is not available.
An example linked once again to the oil & gas sector is that of Sensia, a joint venture created in 2019 by Schlumberger – a leader in oil extraction technologies – and Rockwell Automation, a US multinational specialising in industrial automation systems. The aim of Sensia is to combine the different competences of the two companies to develop specific digital solutions for automating processes in the extractive sector.
Also in this case, the parties will have to define contracts to regulate the joint venture, paying particular attention to the structure of the new corporate entity.
These aspects are usually defined by a general contract to which several operational contracts are attached, including activities, property rights, product/service specifications and other legal aspects.