JV Contracts and Articles of Association

by Richard Hoffmann, , Dezan Shira & Associates, Beijing

A JV can be thought of as having both a heart and a mind. Its heart lies in the contract, which specifies the agreement between, and duties of, each party, while the mind lies in the Articles of Association, which determines how this is to be accomplished. They are equally vital and attention to detail is essential.

Both the JV Contract and Articles of Association are legally binding documents, meaning you may resort to the Contract to assert a right or claim damages against your partner, or your partner may make a claim against you. However, the legal binding effect of the JV Contract and Articles of Association is only between the partners who enter into this agreement, and the documents cannot serve as a defence against any third party or government authority. That is to say, if the agreement vested the compliance issue to one party in the JV, and non-compliance is detected later, both parties shall be jointly held legally liable. Nevertheless, it is arguable that the party who is specifically vested with the responsible for compliance issue should be liable for the whole responsibility.

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This article included in China Briefing Magazine

April 2007: Joint Ventures are Back!

Other articles in this issue: The New Franchise Regulations - three major changes by Richard Hoffmann, , Dezan Shira & Associates, Beijing Developments for Foreign Invested Service Companies in the Pearl River Delta by Zoe Zhou, Manager, Guangzhou, Dezan Shira & Associates Update on Nanjing development zones by Peter Thomsen, Senior Business Development Associate, Dezan Shira & Associates, Shanghai