- What is a joint venture?
- What are some of the benefits of entering into a joint venture agreement?
- What Are the key elements you should consider when you’re drafting a JV agreement?
- What structures can a joint venture take in Oman?
- What Are the regulations in Oman regarding a JV?
- What are the key provisions in joint venture agreement?
- To Sum Up
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. It is an agreement in which under it two parties come together and operate a venture. The purpose of this, 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 meets 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?
Joint ventures can be a particularly effective way for foreign businesses to enter the Omani market, as they can leverage the expertise of a local partner and benefit from its government support. In addition, this business partnership enables the business to profit from what each partner offers, including; capital, workforce and marketing capacity to reach a broader or formerly undiscovered market.
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, these 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 these agreements, both parties take into account and determine their expectations, objectives, obligations, and the way of profit distribution. This agreement is a sort of temporary partnership in which after concluding, two parties act as one.
What are some of the benefits of entering into a joint venture agreement?
Entering into a joint venture has several benefits that help the venture be more successful. Some of these benefits include; –
Access to local expertise: Oman has a unique market with its laws, regulations, and cultural norms; therefore, having a local partner can help businesses navigate these complexities and avoid potential pitfalls. Thus, entering into a joint venture can provide access to local expertise and knowledge of the Omani and help navigate local laws, regulations, and cultural differences.
Access to new markets: Oman is strategically located in the Middle East, with easy access to the Gulf Cooperation Council (GCC) markets, as well as the wider Middle East and North Africa (MENA) region; thus, a joint venture can help businesses access new markets hence expanding their customer base. In addition, the Omani government has implemented a range of measures to support businesses entering the market, such as offering tax incentives and supporting R & D.
Shared risk and resources: The costs of setting up a joint venture can be shared. This includes; – investment in infrastructure, hiring of staff, and marketing expenses. This can help businesses reduce their financial risk and conserve resources. On the other hand, a joint venture can make it easier for businesses to access financing. This is because lenders may be more willing to lend to a joint venture with a strong local partner than to a foreign business operating in Oman independently.
Access to new technology and skills: Joint ventures can provide access to new technology and skills that may not be available to either party individually.
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 the 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’s 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 structures can a joint venture take in Oman?
Joint ventures (JVs) in Oman can take different forms, depending on the nature of the project, the objectives of the parties involved, and the level of risk they are willing to assume. Some of the most commonly used forms include; partnerships, limited liability companies, joint stock companies, consortia, and strategic alliances.
- Limited Liability Company (LLC): This is one of the popular types of JV in Oman because it offers limited liability protection to its members. It is formed by two or more persons who contribute capital and share in the profits and losses of the joint venture. It is a separate legal entity. Thus, it can enter into contracts, own assets, and sue or be sued in its name. To establish an LLC joint venture in Oman, the parties must submit the joint venture agreement and all necessary supporting documents to the Ministry of Commerce and Industry (MOCI) for review and approval. The minimum capital requirement is:
- for wholly Omani-owned companies’ minimum capital of OMR 20,000, while
- for foreign investment, minimum capital of OMR 150,000 or minimum capital of OMR 20,000 for foreign investment applicable under US-Oman Free Trade Agreement and Gulf Cooperation Council (GCC) reciprocal arrangements.
- Partnership: In this type of JV, two or more persons agree to carry on a business together to profit. However, a partnership does not provide limited liability protection to its partners; hence partners are personally liable for the debts and obligations of the partnership.
- Joint Stock Company (JSC): This is a type of joint venture where the capital of the company is divided into shares, and the shareholders are not personally liable for the company’s debts and obligations. It is governed by a board of directors, and its shares can be freely traded on the stock exchange. The minimum capital requirement is OMR 500,000 for SAOC, and the minimum capital of OMR 2,000,000 for SAOG. JSC is managed by a board of directors appointed by the shareholders. The board of directors is responsible for the overall management and decision-making of the JSC.
- Strategic Alliance: A strategic alliance is a joint venture where two or more companies collaborate to achieve a common goal. In this structure, the companies involved retain their separate legal identities while collaborating on a specific project or objective. A Strategic Alliance joint venture is typically formed for a specific purpose or project, such as research and development, marketing, or distribution. The companies involved may bring complementary resources and capabilities, such as technology, expertise, or market access.
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 defense against third parties. It does not enjoy a juristic personality and is not subject to any procedures of registration with the Registrar. This contract may be established by all methods of proof. However, if one of the partners discloses the existence of the contract 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, this 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 project of this kind. 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.
If you are in a dilemma about whether to invest in Oman or not, maybe the article below can give you a great point of view:
What are the key provisions in joint venture agreement?
The following are key provisions in any joint venture agreement; –
- The purpose and scope of the joint venture: The joint venture agreement should clearly state the objectives, the scope of the business activities as well as the markets it intends to operate in.
- Ownership and equity including the board composition and management arrangements: Ownership structure of a joint venture agreement should be well outlined. Additionally, the agreement should state the equity contributions of each partner and the intended sharing of profits and losses.
- Management and governance: The management and governance structure of the joint venture should be well defined. This includes decision making, composition of the board of directors as well as the roles and responsibilities of each partner.
- Financing of the joint venture company: The agreement should state how the venture will be financed and the source of the finances where possible. The agreement should also define each partner’s shares. Where the partners are obliged to make contributions, the agreement should explicitly state the consequences of non-compliance in case one of them defaults.
- Confidentiality and non-compete provisions: The joint venture agreement should include provisions that protect the confidentiality of any proprietary information or trade secrets and prevent partners from competing with the joint venture.
- Dispute resolution: The joint venture agreement should include a mechanism for resolving disputes between partners, such as arbitration or mediation.
- Termination and exit provisions: The joint venture agreement should outline the conditions under which the joint venture may be terminated or dissolved, including provisions for the transfer of assets, liabilities, and intellectual property.
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 might limit their agreement. By hiring a lawyer specializing 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.
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