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Below is our brief analysis about the primary characteristics, as well as of the advantages connected with this type of association.
A. Concept and primary characteristics
Joint Ventures (hereinafter JV), regulated in our positive law through Law 18/1982, of May 26, about the Tax System for Groups and Joint Ventures and Regional Development Corporations, with the modifications introduced during its more than 40 years of existence, are considered a system of collaboration and/or association between companies seeking to unite resources, knowledge and experience, since on their own they would need to make major investments in machinery, infrastructure, development, and research, to reach the same objective that the JV pursues.
Signing the contract of association, by public writ, necessary for the establishment of the JV, creates a new autonomous company that acts under a management unit and with a name that must be that of one, several or all the associated companies, followed by the expression <<Joint Ventures Law 18/1982>>.
The primary characteristics are the following:
- Although the new company acts under a management unit, the JVlacks a legal identity different from that of its members. This means that its members are jointly responsible toward third parties for actions and operations for their common benefit, in all cases joint and unlimited for its members.
- The JV administration of the corresponds to a sole administrator with sufficient powers to attain the objective. The sole administrator is the person who represents the companies integrated in the JV in all aspects regarding their movements and activities, especially in external representation.
- In the establishment document, and as affecting the internal system established by the companies comprising the JV, the proportion or method will be determined to establish the participation of the members in the distribution of results or, as applicable, in the income or expenses of the JV; this also may include special legal agreements and conditions that the members consider appropriate to establish and that will have “inter partes” scope without affecting third parties with which they contract or are associated.
- The JV enjoys special tax status, as long as it complies with the legally established requirements.
- Duration of existence is connected with the duration of the work, service and/or supply that constitutes the primary goal of the collaboration, so that on completion, the JV must dissolve and liquidate itself.
- Having no legal identity, the JV does not need to create annual accounts; however, it is required to provide a separate accounting record pursuant to the regulations.
- The JVs maycontract with the public sector, as long as the required conditions of identification and designation of representative are met. In public contracting, they have the advantage that the classifications of the members are extended in favor of the JV, which helps consolidate its efforts.
B. Primary advantages
Notwithstanding the primary technical motives noted in the first paragraph; that is, to unite resources, knowledge and experience, since on their own the companies would need to make major investments in machinery, infrastructure, development and research, there are other advantages connected with the association in the form of JV:
- Motives of economic and fiscal type, since the resources of several companies together are greater than the individual, which assumes(i) decreasing execution costs and the possibility of presenting a more advantageous offer to the client; (ii) the risk is diversified among the associates; they can negotiate in better conditions to obtain guarantees and financing from third parties, which they must obtain at a rate much lower than that of a sole company, since the JVs are financed with contributions of the members and with the resources that they may generate.
- The organizational advantages of the JV, which may translate into improvement of the cost control systems, information, orders, marketing, publicity, human resources and in general, any aspect that results from the joint experience of the various members of the JV.
- Finally, the advantages are also transferred to the entities that contract with the JVs, with the members’ joint and unlimitedresponsibility toward third parties for actions and operations performed to benefit the common goal.
In conclusion, this type of association and/or collaboration is well-accepted and used among companies involved in work or projects that consume a large amount of resources; for business reasons, they may bid jointly for projects on which they will work as a unit.
It is noted that contracting in our country, whether in public or private work, collaboration of companies of the same branch (builders) or complementary sectors (builders with installers or industrial firms) is a customary option, without negating the contractor’s performance, but rather the contrary, the cooperation of more than one company (normally of corroborated solvency since no one wishes to risk a partnership with insolvent companies) guarantees the client or owner that the work contracted will be performed with greater guarantees since there is a higher number of responsible parties.