Establishing a joint venture between property developers and investors can be a lucrative partnership, but it requires careful planning and consideration of various factors.
1. Venture purpose
- Define the clear purpose and objectives of the joint venture.
- Ensure alignment of goals and expectations between property developers and investors.
2. Percentage of ownership
- Determine the ownership distribution between developers and investors.
- Specify the voting rights and decision-making power of each party.
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3. Venturer capital contributions
- Clearly outline the financial contributions required from each party.
- Specify the timing and method of contributions (cash, property, services).
4. Loan guarantee
- Decide whether any party will provide a guarantee for loans taken by the joint venture.
- Clearly define the terms and conditions of such guarantees.
5. Default in capital contributions
- Establish consequences if any party fails to meet their capital contribution obligations.
- Define the steps to address defaults and possible remedies.
6. Defaulting venture’s loss of rights
- Determine the consequences if one party consistently fails to fulfill its obligations.
- Specify the conditions under which the defaulting party could lose certain rights or benefits.
7. Timing of distributions
- Clearly define how profits and losses will be distributed among developers and investors.
- Determine the frequency and timing of distributions.
8. Management of venture
- Decide on the structure of management (board, executives, committees).
- Outline the responsibilities, decision-making process, and reporting mechanisms.
9. Compensation for services
- Determine whether developers will receive compensation for their management and operational services.
- Clarify how such compensation will be calculated and disbursed.
10. Duration of venture
- Define the expected duration of the joint venture.
- Specify conditions that could lead to an extension or early termination.
11. Termination of venture
- Outline the procedures for terminating the joint venture.
- Include provisions for voluntary and involuntary terminations.
12. Buy/Sell agreement
- Establish a mechanism for developers or investors to buy out the other party’s stake.
- Define the valuation method and process for executing buy/sell transactions.
13. Bookkeeping of venture records
- Agree on a standardized system for maintaining financial and operational records.
- Specify the frequency and format of financial reporting to all parties.
14. Tax allocation
- Determine how tax obligations will be allocated between developers and investors.
- Consider consulting with tax professionals to optimize tax implications.
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