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What is the legal status of Joint ventures in Ukraine?
By Ukrainian law, joint venture is called cooperation agreement (dogovir pro spilnu diyalnist) – an agreement of the parties to co-operate, for profit or achieve other goals.
Under Ukrainian civil code, rights and obligations of the parties of joint venture are regulated by cooperation agreement. And that is very good because parties can decide the way the will cooperate and algorithm of actions, as there are no so many restrictions for JV agreements. Consider that there are two forms of Cooperation agreement in Ukraine:
- production sharing agreement;
- asset management agreement;
Joint venture agreement must be registered in the tax (fiscal) authority in Ukraine. If one party of agreement is a foreign citizen or a company, it shall be also registered and verified by Ministry of economic development and trade of Ukraine. Parties to the agreement must choose the operator or a manager of agreement (the person responsible for payment of taxes and fees). JV can be also registered as VAT taxpayer and have a bank account. Usually it is an operator of agreement to have the right to sign financial documents and contracts from the name of Joint Venture.
Advantages of Joint venture in Ukraine
A great advantage of joint venture, as a form of association of investors, compared with companies (JSC, LLC, LTD, etc.) is the ability to set the rights and obligations of the contract, based on the situation under agreement. Joint venture is constituted without establishing a legal entity and can be created by two or more parties. Although it has many features of corporation like:
- can have a banking account;
- can invoice and be invoiced by companies and businesses;
- has Director (manager);
- is to be registered by Ukrainian tax administration and pay duties;
Parties may agree the investments, liability for failure to fulfill obligations, the procedure for resolving disputes, and the obligation to refrain from certain actions. Ukrainian legislation grants the parties the right to establish the procedure itself: management, appropriation of profit/loss and termination of agreement. It is very flexible. So the agreement itself is the main law for all parties of cooperation contract. That is why it is very important to make a proper consent between the investors.
Today, cooperation agreement has been widely spread in Ukraine, mainly in oil and gas production industry. It is not so popular in production in Ukraine, but still there are cases. It can do for renewable energy generation (for example in the case if one party invests money needed to buy required equipment and other party invest land where it will be constructed). But we have never heart that such legal form was used in agriculture activity. Although it can be potentially a solution if one party has an agriculture land and other has needed machines or/and real estate or funds.
Joint Venture agreements is not very popular form of cooperation between two or more investors, but it is accounted for more than 9% of all global deals (see more at www.transactionadvisors.com).