One of the fundamental economic policies of the 6th phase government is to promote and encourage foreign direct investment. The information available shows that the policy is steadily working very well. Foreign or International business capital is now flowing in Tanzania, according to Tanzania Investment Center reports.
The question that confronts foreign investors, very often than not, is the form through which to start business in Tanzania. Forms available include incorporating a local company under the Companies Act, registering a branch (also under Companies Act) forming a partnership under the Law of Contract or entering into a joint venture agreement, which is somehow a hybrid form involving some elements of partnership and a limited liability company.
Joint ventures are normally formed to undertake a specific commercial venture i.e. a construction project or to undertake a huge long term project such as mining, gas production, establishment of an industry/factory, investment in real estate, etc. It is a means for pulling together and mobilizing resources – finances and skills.
There are certain things that are to be done/negotiated by the parties prior to forming of the joint venture.
- Both parties must conduct due diligence exercises of each other by seeking directly from each certain information or accessing the same from the public domain if possible. This is essential for either part to understand the legal status of the other. Information that may be asked include legal status of either party, information about various statutory compliances, directors and shareholders, property ownership, legal disputes in both courts and tribunal, tax status and letter audited financial accounts, past and existing similar projects.
After the completion of the due diligence exercise based on the information obtained, parties will then negotiate the terms and condition of the joint venture. The following issues are important to note prior to signing of the JVC.
- The purpose of the JV must be appropriately defined
- The form of the joint venture. This may entail formation of a joint venture company, a partnership or contractual joint venture or by one party acquiring shares from other party
- Financial provisions, capital and share structures
- Composition of Board and the management and Employees issues
- Shareholder meeting and powers
- How is the Board to conduct its meeting
- Business Plan and implementation
- Accounts and records
- Sharing of profits and losses
- Deadlock and dispute settlement
- Intellectual property rights and transfer of properties
- Extent of confidentiality clause
- Costs of formation of Joint Venture
- Duration and termination, etc. and other usual clauses.
In order to have a good elegantly done joint venture, parties are normally advised to have two sets of legal firm; the transacting firm responsible for drafting (and part of due diligence) and the reviewing legal firm that would opine to ensure that law and practice related to joint venture formation is complied with. Depending on the form the joint venture has taken further, compliances may be required under revenue laws, Competition Act, Industrial licensing Act and the companies Act and sectoral regulatory laws.
LEGENDGLOBE ATTORNEYS