Joint venture

A joint venture (JV, 합작기업/合作企業) means a legal association based on an agreement, which is undertaken by two or more partners to do business jointly by contributing equity, technology, etc. and consequently to share assets, revenues, expenses and risk of the business.

These days a joint venture with a competent partner(s) is preferred when a person seeks to develop a new business or to explore a foreign market. As such, a joint venture is a legal form which many persons are willing to take for the purpose of doing business jointly.

Key words
common enterprises, partnership, corporate joint venture, contractual jointventure, simple contract-based joint venture

Comparison of common enterprises

 * Joint venture
 * Partnership
 * Consortium
 * Strategic alliance
 * Cooperative
 * Social enterprise

Characteristics of JV
A joint venture is characterized by: So participants who are interested in doing business jointly in a form of joint venture should take the followings into consideration: If any dispute arises out of the management of a joint venture, the court is required to decide such legal issues as derived from the initial agreement to daily operation, and even the inherent features of the joint venture.
 * 1) serving a common purpose, for which two or more partners agree to do business jointly;
 * 2) sharing subsequent loss as well as profit from its performance;
 * 3) taking risk of engaging in the joint business; and
 * 4) aspiring to create a synergy effect or to increase profits through mutual cooperation.
 * What they expect reasonably from such a type of business entity;
 * Governance structure and relationship among participants;
 * Their rights and duties, and, in particular, responsibility to a third party;
 * What to do in case of participant’s exit or dissolution of the entity, and division of properties.

Types of JV
The legal forms of JV are first categorized into a corporate entity and a contract-based entity. Then the latter is broken down to i) a limited partnership under the Commercial Act, ii) a partnership under the Civil Act, and iii) a simple contract-based joint venture, which is unincorporated but undertaking a common business based on the agreement among the partners.

Thus, four types of joint ventures and the legal relations their participants are discussed below:
 * a corporate joint venture,
 * a contractual joint venture classified into a limited partnership under the Commercial Act, or
 * a partnership under the Civil Act, and
 * a simple contract-based joint venture.

In considering to do business in a form of joint venture, we must compare the merits and demerits of each type of joint ventures, and the applicable law to such four types of joint ventures, which shall govern the matters of resolving disputes or regulating the relations of partners.

First, the corporate joint venture is used when establishing a corporation to implement a joint business undertaking. The agreement among partners is a shareholders’ agreement on equity investment for the establishment of a company, securing the rights of participants, exercising voting rights for its actual management, corporate governance structure, selection of members of board of directors, restriction on transfer of shares, and withdrawal of investments. In some cases, the shareholders’ agreement is deemed effective to the extent of a partnership as agreed upon by partners, but not valid under the corporation law. Under these circumstances, this paper reviews whether denying the effectiveness of the shareholders’ agreement, which aims to facilitate smooth operation of a common business and maintain cooperative relationship among participants, is still valid citing its violation of mandatory provisions of the corporation law.

Second, the limited partnership under the Commercial Act consists of a general partner and limited partners with limited liability. This type of entity shall be governed by the Commercial Act. If there is no relevant provisions under the Commercial Act, the provisions regarding the partnership of the Civil Act apply. However, it is different from the partnership under the Civil Act, in which the liability of participants is not limited.

Third, the partnership under the Civil Act is somewhat different from others. The agreement among partners shall supersede all provisions, but some of them governing organizational aspects apply mandatorily.

Fourth, the simple contract-based joint venture is operated giving a priority to the agreement among partners in doing a common business.

Although the above three contractual joint ventures are established by an agreement, they differ from each other in legal formulations and relationship, and the rights and duties of participants. This paper outlines what kinds of differences these entities have in relation to such legal issues as equity investment, governance structure, share transfer, exit and division of properties, and suggests appropriate solutions for such issues arising out of conducting business affairs.

International JV
International joint ventures are usually formed and managed by domestic companies and foreign investors for the common objectives. They offer an opportunity for each partner to benefit significantly from the comparative advantages of the other. Local partners bring knowledge of the domestic market; familiarity with government bureaucracies and regulations; understanding of local labor markets; and existing manufacturing facilities. Foreign partners can offer advanced process and product technologies, management know-how, and access to export markets.

From the legal point of view, the formal joint venture agreement must be an offspring of a series of tough negotiations between domestic and foreign partners. They usually stress the long - term relationship with the good will and dedication to each other, and restrict the free transfer of stocks. Both partners are earnestly interested in the ownership and management of the joint venture.

So they keep a close eye on the articles of incorporation, changes of business environment, conflict resolution methods, transparency of accounting and other financial matters. When a multinational corporation (MNC) is involved in the joint venture, conflicts over management strategies, marketing and other issues take place more often than not betw een the MNC and local partners.