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Joint Ventures in Mexico

20 Sep , 2016  

Joint ventures are atypical contracts in Mexico and, therefore, except for few states, Mexican Contract Law does not have specific provisions or chapters for this type of agreements. This does not mean, however, that the Law does not recognize the existence of joint ventures, because they are, in the end, contracts. And, contracts can take different legal structures, shapes or forms in Mexico.

Accordingly, joint ventures are the “genre” while “strategic partnerships” and “co-investments” are the species, and one could define these concepts as follow:

A Joint Venture implies two natural or legal persons that come together to work on a common project, basing their relationship on a contract. In essence, it creates a sort of partnership without necessarily creating a new, distinct legal person.

Strategic Partnerships or Strategic Alliances, a species or type of joint venture, are agreements that entail a collaboration project between two persons or firms. The idea is to share resources (offices buildings, researchers, clients, expertise, etc.) and risks (without the guarantee of obtaining any results). In other words, each firm provides qualities or features that the other firm requires for which the purpose or end may be common or different. In this type of joint venture, it is possible for the parties not to invest in money, but rather in their qualities or characteristics. An example may be when an establishment allows another firm to use their facilities for other purposes other than those it ordinarily is involved in, so as to increase the flow of customers in its stores (i.e., express delivery services located in stationeries).

On the other hand, a Co-investment, is another joint venture species, whereby two persons or firms invest money or goods in a common project, in contrast with the Strategic Partnerships. This type of joint ventures involve a joint management and parties, therefore, make decisions together.

As for the clauses contained in joint venture contracts, these can vary significantly since they are not expressly regulated in Mexican Contract Law. Notwithstanding the foregoing, common clauses are the following:

  1. Exclusivity,
  2. Geographic Location,
  3. Patent and Trademark Licenses,
  4. Profit Sharing,
  5. Arbitral Clauses, and
  6. Fines.

As for other legal considerations, it is important to note that joint ventures may be considered as a legal person for tax purposes in Mexico and even give rise to the creation of permanent establishments for foreign investors in Mexico. In that sense, when drafting a joint venture contract it is critical to take into account Mexican Tax Law and/or any relevant Tax Treaty. Finally, the Federal Competition Law must also be taken into consideration since anti-trust issues may arise with joint-venture contracts.

 

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For more information, visit the following link:  VTZ – Business Law practice

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