There are several reasons as to why a business may want to enter a joint venture overseas. Joint ventures allow for much faster and less costly access to foreign markets than can be achieved by purchasing an existing company in the jurisdiction or starting a new venture. They provide quick access to channels of distribution, and they provide access for the non-resident partner to knowledge and know-how of the local marketplace, which substantially enhances the probability of success for the venture. But partnering with, sharing the risks and taking advantage of another firm's local resources and expertise can be a treacherous undertaking without proper planning and understanding.
From a technical standpoint, a joint venture may be defined as a temporary strategic partnership of short, medium or long term, which creates an organization, group or alliance of persons or groups of companies that maintain their individuality and legal independence but act together under one same direction and standards. The aim of a joint venture is to carry out a specific commercial operation, with the parties agreeing on all factors of the agreement, including the constitution of investment, control, responsibilities, personnel, risks, expenses and benefits. It is also referred as a "business collaboration" which is the cooperation between different economic units with a common goal, usually to carry out business while sharing any possible risks.
The normal and recommendable way to begin is to first agree on a MOU (Memo of Understanding) so that the basic issues get resolved from the start. The MOU may cover confidentiality issues, intentions of the parties, basic obligations on how to carry on the business deal, the governing jurisdiction, etc. At this stage, the parties should be aware that an MOU carries little legal strength in the event that one party does not wish to proceed with the deal.
If the parties decide to move forward the next step is to give shape to the business project, properly giving the joint venture its form.
In Chile, this legal-commercial structure may be carried out in two ways:
By means of a legal entity incorporating a company and agreeing on everything to set forth in the joint venture. By means of a contractual agreement, agreeing on every matter that should be taken care of. If a contract is used, it should be comprehensive so that no relevant matters are left out. Incorporating a Legal Entity
Incorporation is usually the recommendable way...