Joint Venture Agreements in Sultanate of Oman
The joint venture is one of the frequently used types of contracts and many international companies form a Joint venture to do business in Oman. Joint venture is an agreement in which under it two parties come together and operate a venture. The purpose of the joint venture, profit distribution and terms of the contract are the key elements that should be included in a joint venture contract. Under Omani law, a foreign company can’t solely operate in Oman unless with the partnership of an Omani party.
Ahmed is the owner of a construction company in Oman aiming to operate bigger projects but doesn’t have the necessary funds and manpower to assure the expansion of his business. On the other hand, Dave is a British investor wanting to enter the Oman marketplace. They have negotiated in several stages and are not sure what type of contract best meet their objectives and requirements.
Keep their case in mind, you might as well wondering what is exactly a Joint Venture agreement, is it a proper solution to your situation or you must go for a different type of contract? What are the factors you should consider when concluding a JV in Oman and etc.
What Is a Joint Venture?
Joint venture agreements, also called JV agreements, are a contractual combination of two parties. They usually seek to join both party’s resources to achieve a specific objective. Remember the example we mentioned in the introduction, joint venture agreements mostly happen when two parties need the essential equipment, fund or a wider marketplace that the other party can acquire. Especially when it comes to international business, operating in many countries needs the cooperation of a local agent, so joint ventures come to play a significant role in international business affairs. Consider Oman for instance, in the national code of Oman as we more open it up later in this paper, it is stated that foreigners are not allowed to solely operate a business in Oman.
In a joint venture agreement, both parties take into account and determine their expectations, objectives, obligations and the way of profit distribution. A joint venture agreement is a sort of temporary partnership in which after concluding, two parties act as one.
What Are the Key Elements You Should Consider When You’re Drafting a JV Agreement?
- First: The Purpose of the Agreement: When you are opting for a JV type of agreement to regulate your business relations, you should know exactly if is it the best choice for you and your partner. If you’re looking for long term cooperation and you have a very close operation field with your partner maybe a partnership agreement better fulfil your goals. Or if you are deciding to act under name of the other company an agency contract might be the better option for you. Then It is crucial to ask for an expert opinion to identify the kind of contract that best shape your ideal objectives.
- Second: Each Party’ Share of Contribution and Obligations: In a joint venture agreement each party takes part in acquiring one of the needs of the business, would it be bringing assets and finances, doing the administrative operations, sharing their expertise or using their marketing tools. It all should be defined clearly in the agreement. Many disputes arise from the negligence of parties in setting out the extent and scope of contribution.
- Third: The Exact Way of Profit Distribution: Don’t forget to include in your contract the specific way of profit distribution, whether it’s a 50/50 or will be calculated based upon the level of contribution. Mere oral agreements won’t be sufficient in the case of defining the share and profit portion of each party, make sure to write down every single detail.
What Are the Regulations in Oman Regarding a JV?
Oman’s legal system is code-based. Islamic sharia law is the source of legislation, based on a common law system. Business disputes are adjudicated by the commercial courts. Most of oman’s legal business and investment frameworks are updating since 2019 which include Oman’s Commercial Companies Law, Foreign Capital Investment Law, Privatization Law, Public-Private Partnership Law, and Bankruptcy Law.
The commercial code of Oman(Royal decree No.55/90) provides that foreign nationals may not engage in commerce in the Sultanate of Oman except after obtaining ”permission to do so in accordance with the applicable laws” (Article24).
Article 25 of the code provides that foreign companies may not establish a branch in the Sultanate or engage in commerce except through an Omani local agent who is a merchant and in accordance with the rules set forth by the law.
With citing article 85 of royal decree 18/2019 ”A joint venture is a company comprised of two or more natural or juristic persons. Its existence shall not be raised as a defence against third parties. It does not enjoy a juristic personality and is not subject to any procedures of registration with the Registrar. A joint venture contract may be established by all methods of proof. However, if any joint venture partner discloses the existence of the joint venture to a third party who deals with him/her in such capacity, the provisions regulating the general partnership and the general partner thereof shall be applicable to such contract.”
And with cite article 86, 87 of the same rules, a joint venture contract should be very clear in all articles and a partner in a joint venture shall not be considered a merchant in any manner. The most important point in establishing these companies is the issue that is mentioned in the laws of Oman before 2019.
An Omani partner must hold at least 51% ownership of the joint venture project. If the joint venture conducts business with third parties as a joint venture, the transactions will be subject to the provisions of the general partner in a Tamadon company. These companies are very similar to a general partnership in common law legal systems.
To Sum Up
Let’s go back to the case we mentioned in the beginning. Ahmed and Dave at first decided to build up a business together, but weren’t sure how they are going to proceed with their cooperation and put what name and title on their agreement. Plus the fact they didn’t know what laws and regulations are there in Oman which might limit their agreement. By hiring a lawyer specialising in commercial contracts they became confident enough to initiate their cooperation.
If you need help in drafting or reviewing your joint venture contract, or consultation on what sort of whether JV fits your requirements or not, you can contact us to connect you to the top lawyers in the jurisdiction you want to make JV there.