The article addresses the difference between a joint venture agreement and a shareholders agreement as instruments employed to conduct business in the United States
In short, a joint venture agreement is a definitive contract used when two or more partners desire to enter into a joint venture and pool efforts and resources to accomplish a specific task while remaining independent. A shareholders’ agreement is a contract among the shareholders of a corporation (co-owners) outlining the shareholders’ rights and obligations. Simply put a joint venture agreement is an agreement between several members of different companies, while a shareholder’s agreement is an agreement between several members of the same company.
The joint venture can be a contract between two or more joint venture partners, or it can be created by establishing a joint venture entity
Regardless of how the venture partners decide to establish the joint venture, the relationship among them should always be governed by a definitive joint venture agreement. Generally, the joint venture agreement is governed by the law of the U.S. state provided for in the agreement and any applicable rules and regulations arising under U.S. federal law. For example, if a joint venture agreement specifies that Florida law governs the agreement, the document is subject to the applicable rules and regulations in the State of Florida regarding contract formation and interpretation. In addition, some provisions may be governed by U.S. federal law.
The joint venture agreement outlines the essential terms of the overall relationship between the joint venture partners and deals comprehensively with principal matters such as the scope and purpose of the joint venture, the ownership structure, management and governance of the joint venture and allocation of risks and rewards among the joint venture partners.
A shareholders’ agreement, also known as a stockholders’ agreement, is an agreement between and among the shareholders of an existing corporation that describes how the company operates and outlines the shareholders’ rights and obligations. In other words, the shareholders’ agreement is a contract between the co-owners (also known as shareholders) of the same corporation that includes information about the privileges and protections of the corporation’s owners; it is intended to ensure that the owners are treated fairly and their rights are protected. Similarly to joint venture agreements, a shareholders’ agreement is governed by state law as well as applicable U.S. federal law. A shareholders’ agreement may be necessary if a joint venture is established as a corporation. In this case, the shareholders’ agreement is supplemental to the joint venture agreement and manages the operation of the joint venture by providing the procedure to appoint directors, officers, etc.
A shareholder’s agreement contains provisions outlining the number of shares issued, the fair price of the shares, the shareholders and their percentage of company ownership, the decision-making process for becoming a new shareholder, and restrictions on share transfers, among others.
The content of a shareholders’ agreement is similar to that of a joint venture agreement, but some differences exist. In most cases, shareholders’ agreements concern financial participation in an existing company and related issues while joint venture agreements contain more than that such as technical know-how or supply of materials, among others.
The key difference between joint venture agreement and shareholder’s agreement:
- Structure. A shareholders’ agreement sets out the terms between several members (shareholders, co-owners) of the same company, while a joint venture agreement provides for terms entered into by several members of different companies.
- Content. A shareholders’ agreement contains primarily provisions related the owners’ financial contribution to an existing corporation and related financial issues, while a joint venture agreement goes above that and provides for know-how and resources to be exchanged between owners of different companies.
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