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Joint Ventures in Bangladesh: Types, Formation, and Agreements

Barrister Remura Mahbub
Director, Tahmidur Remura TLS, Law Firm in Bangladesh

10 Nov 2022

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The purpose of this article is to provide an in-depth overview of joint ventures (JV) in Bangldesh: types of JV, formation of JV, what to look for in a joint venture partner, and JV agreements.

 

What are Joint Ventures?

A joint venture or JV comprises two or more businesses or corporations linking their resources and knowledge to accomplish a specific objective. The venture’s risks and rewards are also shared. A JV may be confined to a single project and so time-bound, or it may be an agreement to conduct a certain type of business as a continuing operation and thus not time-bound. In the case of a time-bound contract, the venture concludes upon completion of the underlying project.

Among the motives for forming a joint venture are corporate expansion, the creation of new products, and entry into new markets, — in particular internationally.

Your company may have a high growth potential and unique concepts, and products, but  a joint venture could expedite the process and provide:

  • enhanced competence,
  • additional resources,
  • better technical prowess
  • easier access to established marketplaces and distribution channels

Formation of Joint Ventures

A joint venture can be established using any of the following options:

A foreign corporation enters a new market by acquiring a stake in a local company; conversely, if a local company desires to expand its operations into new avenues, it can acquire a stake in an already-established foreign company.
 The co-venturers may, however, form a brand-new corporation for each new commercial venture.
Occasionally, the government may also enter into joint ventures with corporate companies for their expertise.

 

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Types of Joint Venture

There are various types of joint ventures. How you form a joint venture will depend on the objectives of your firm.

1. Project Partnership

The most common type of joint venture. It might be used to construct a toll road or an office building, among other things. The purpose is defined and confined to the completion of a particular project in accordance with the agreement of the venture. After the completion of the project, the Joint Venture comes to an end.

2. Limited Co-operation

This is when you agree to a limited and particular collaboration with another business. For instance, a small business with an innovative new product may choose to sell it through the distribution network of a larger corporation. The two partners agree to a contract outlining the rules and conditions of their arrangement.

3. Separate Joint Venture Business

Alternately, you may wish to establish a distinct joint venture, or even a new corporation, to handle a specific contract. This type of joint venture corporation might be a highly adaptable alternative. Each partner owns a share of the company and agrees on its management.

4. Business Partnerships

In some instances, a limited liability company may not be the best option. You could instead establish a company partnership or a limited liability partnership. You could even combine the two companies.
In certain situations, other options may be preferable to forming a corporation. You could, for instance, form a commercial partnership. You may even decide to merge your two enterprises totally.

5.  Functional Joint Venture
Each company has specialization in one or more business functions; consequently, they desire to establish a symbiotic environment for each other and reap the benefits of the synergies that result.

 

 

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6. Vertical Joint Venture

As like  a vertical merger and acquisition, the joint venture consists of two businesses inside the same supply chain. This is done when one of the entities produces a specialized good for which it requires a specialized raw material. To this end, it can invest with the supplier to create and maintain the capacity for such manufacturing, thereby mitigating the risk associated with the unavailability of this raw material. This occurs when the production business wishes to preserve a certain level of secrecy or when the demand for the input is low but the demand for the end product is great. A real-world example would be a certain type of computer chip used in the manufacture of certain patented technological objects.

7. Horizontal Joint Venture

Similarly, this type of joint venture involves two businesses that produce identical goods or services. This enables one of the enterprises to enter a new market, such as a new geographical region. The local partner possesses country-specific knowledge and information, such as an established distribution network, whilst the foreign partner can benefit from economies of scale.

 

 Which type of JV fits your objectives?

To determine which sort of joint venture is optimal for you, you should assess your involvement in its management. You should also consider what might occur if the venture fails and how much risk you are willing to take.

It is essential to seek legal counsel to determine your best course of action. The manner in which a joint venture is established impacts its management, profit distribution, and taxation. It also impacts your obligation should the venture fail. You need a legally binding contract that specifies how the joint venture will operate and how any profits will be divided. Refer to the section of this article detailing how to create a joint venture agreement.

 

 

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          Joint Venture Agreement (JVA) 

When forming a joint venture, the terms and conditions should be outlined in a joint venture agreement. This will aid in avoiding ambiguities once the joint venture is operational.

A JVA should address:

  • the objectives of the joint venture
  • the financial contributions you will each make
  • whether you will transfer any assets or employees to the joint venture ownership of intellectual property created by the joint venture
  • management and control, e.g. respective responsibilities and
  • processes to be followed how liabilities, profits and losses are shared how any disputes between the parties will be resolve.
  • You may also require additional agreements, such as a confidentiality agreement, to safeguard any trade secrets you divulge.

Before making any final decisions, it is crucial to obtain professional advice from barristers or lawyers who may draw up your joint venture agreement. 

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              Choosing a Suitable Co-Venturer

The ideal partner in a joint venture is one with complementary resources, skills, and assets. The joint venture must be viable contractually, and the values of the two organizations must be compatible.

Assessing the compatibility of existing clients and suppliers with whom you have an established, long-term connection is a solid beginning point. You may also consider your competition and other professional colleagues. In general, you must consider the following:

  • What is their performance?
  • How do they view collaboration, and do they share your level of dedication?
  • Are your business objectives the same?
  • Can you rely on them?
  • Do their brand principles align with your own?
  • What is the nature of their reputation?

If you decide to evaluate a new potential partner, you must conduct the following checks:

  • Are they secure financially?
  • Do they experience credit issues?
  • Do they have existing joint venture ties with other companies?
  • What type of management team do they possess?
  • How are their production, marketing, and people operations?
  • What do their clients and suppliers have to say about their reliability and reputation?

Before entering into a joint venture, it is essential to safeguard your personal interests. This should entail drafting legal documentation to protect your own trade secrets and determining if your possible business partner has intellectual property rights agreements.

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FAQ

How much money is required for company registration in Bangladesh?

The governmental fees for registering a company are determined by the amount of authorized capital. Government fees for the issuance of an Incorporation Certificate shall be BDT 1000.

How long does it take to register a company in Bangladesh?

Once the aforementioned formalities have been completed, RJSC will usually issue the certificate of incorporation (Company registration certificate) within 6-8 working days.

It usually takes 2-3 weeks from the date of submission of all documents to RJSC to register a company.

What is BIDA?

Bangladesh Investment Development Authority (BIDA) is in charge of facilitating foreign investments in the country.

BIDA's responsibilities include issuing work permits for foreign employees, visas for foreign investors, processing loans from foreign sources, approving remittance of royalties and technical fees, assisting in the acquisition of industrial plots, facilitating utility connections, approving foreign loans, suppliers credit, and providing assistance and advice on a variety of investment-related issues.

Foreign investors with industrial projects are strongly advised to register with BIDA after forming their limited company. However, there is no requirement for a commercial or trading company to register with BIDA. The average time frame for obtaining registration is 7-10 working days.

What documents are needed to set up a private limited company in Bangladesh?

1. Memorandum of Association
2. Article of Association
3. Certificate of Incorporation
4. Trade License
5. TIN
6. VAT Registration Certificate
7. Name Clearance
8. Environmental Clearance Certificate
9. Fire Certificate

What is the minimum capital required for a private limited company in Bangladesh?

In Bangladesh, there is no minimum or maximum authorised capital for a local company.

However, for practical reasons and to obtain complete flexibility in terms of expatriation and bringing in foreign expatriates, a minimum of USD 50,000/- must be invested in the Company.

Can a single person start a company in Bangladesh?

 Bangladesh does not allow a single person to open a private limited company or One Person Company (OPC).

A private limited company must have at least two shareholders. In the case of a public limited company, however, the total number of shareholders required is seven.

Can a private limited company have one director in Bangladesh?

A private limited company must have at least two directors. Local or foreign nationals may serve as directors.

Directors must be at least 18 years old and have never been bankrupt or convicted of a crime. A director is required by law to own the qualification shares specified in the Articles of Association.

What is the difference between authorised capital and paid-up capital?

- Authorised capital: The amount of authorised capital must be specified in the Memorandum of Association and Articles of Association. It is the maximum amount of share capital that a company may allocate to shareholders.  

In Bangladesh, there is no minimum or maximum authorised capital for a local company. However, for practical reasons and to obtain complete flexibility in terms of expatriation and bringing in foreign expatriates, a minimum of USD 50000/- must be invested in the Company.

-Paid-Up Capital : The minimum paid-up capital for registering a Bangladeshi company is Taka 1 (for local companies) and USD 50000 (for foreign companies).

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Author’s Bio
About Meheruba Mahbub | One of the most innovative young lawyers in Bangladesh

Meheruba Mahbub is a finance partner and one of the Bangladesh's market leading international lawyers. She is head of the firm's Mergers and Acquisitions practice, which advises corporates and financial institutions on outbound and inbound investments, projects and financings.

Meheruba has a diverse finance practice , representing large banks, financial sponsors, and corporations. She specializes in acquisition and structured financings, loan portfolio purchase and financing, real estate financings, and inbound and outbound transactions. She has extensive expertise in the energy and infrastructure industries.
Work highlights

Meheruba has acted on many high-profile Finance and Commercial deals in Bangladesh and India. These include advising:

⦾ Standard Chartered Bank on the sale of a portfolio of loans in Bangladesh, the first in a series of similar deals in Bangladesh as part of the government’s directive to banks to focus on the robustness of their balance sheets.

⦾ the lending and underwriting banks on the refinancing of US$6.9bn worth of debt uninsured by the Summit Group

⦾ Brookfield Property Partners on the acquisition and financing of Unitech’s real estate portfolio

⦾ Enron on the US$3bn Dhabol power project (since renamed Ratnagiri Gas and Power), the first ever inward investment into the power sector

⦾ the sponsor and borrowers on the Sakhalin LNG project, the world’s largest integrated oil and gas project and the largest LNG financing in Russia

Email: [email protected]

Address: 2 Turner Street, Canning Town, E16 1FH, United Kingdom

Gender: Female

Job Title: Barrister and Senior Associate

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