The use of trusts in Joint Venture transactions.

This article is intended to highlight specific areas where Joint Venture partners can employ Trusts to effectively run a business or manage a project as partners. Therefore parties who are already in joint ventures or contemplating going into joint venture arrangement may find this article useful as it provides insights into how best they can use Trusts to manage their relationships to achieve set
objectives rather than go solo.

As a starting point, it is imperative first to understand what constitutes Trust and
a Joint Venture (JV).
What is Trust?
There are several and varied definitions of what constitutes a Trust, and most of the definitions are essentially similar in context. According to Investopedia, a Trust is a legal entity with separate and distinct rights, like a person or corporation. To constitute a Trust, a party known as a Testator, (Testatrix), Trustor or Settlor (depending on your preference), essentially surrenders his rights to another party, called the Trustee, the right to hold title to and manage property or assets for the benefit of a third party, called the Beneficiary. Kindly note that the creation and administration of trusts are governed by specific legal principles and regulations that vary by jurisdiction. In Nigeria, we have regulations made
pursuant to The Trustee Investment Act, CAP T22 LFN 2014, The Investments and Securities Act,2007 and the Rules made pursuant thereto, the Companies and Allied Matters Act, (CAMA), 2022 etc. Essentially, the agreements entered by partners (Trust Deed) is equally important and partners must be abreast of their respective responsibilities as contained in the Trust Deed.

What is Joint Venture (JV)?
A Joint Venture (JV) is typically a business arrangement, and it is deemed constituted when two or more parties come together to collaborate on a specific project, business activity, or a series of related activities. The parties involved, often referred to as joint venture partners, pool their resources, expertise, and capital to achieve a common goal while retaining their separate identities and interests. Joint ventures could therefore be for a specific purpose or purposes and may or may not have specific durations. It serves as powerful vehicles for collaboration, allowing businesses to combine strengths, resources, ideas, and expertise to pursue shared objectives. Again, let us see how Investopedia defines this concept: It says, a Joint Venture is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. Each of the participants in a JV is responsible for profits, losses, and costs associated with it. However, the venture is its own entity, separate from the participants’ other business interests.
Why Joint Venture?

This question is germaine, because entities could decide to go alone rather than form alliances with other entities to achieve set tasks or businesses . In addition to the several advantages the use of joint ventures engenders, the joint venture arrangement is good for businesses as it offers a range of benefits that can contribute to growth, innovation, and strategic advantage. Additionally, some of the reasons partners prefer to explore Joint Ventures are as follows:

Faster Entry into new or emerging Markets: Setting up operations in a new market can be time-consuming and challenging. Joint ventures provide a faster route to market entry, as partners can leverage existing infrastructure, distribution channels, and local knowledge. Since one of the JV Partners already has a good knowledge and foothold on the market, other partners can enter the market faster.

Risk Sharing: While agreeing that risks cannot be totally avoided in business, the use of joint ventures can help to mitigate the risks that Joint Venture Partners carry. Sharing risks is therefore very fundamental in Joint Ventures. An entity entering a new business carries the risks usually associated with that business alone. Instead of bearing the entire burden or risks of a new project or venture, the use of joint ventures enables partners to distribute the risks among themselves. This can be particularly valuable when entering unfamiliar territories or industries.

Resource Pooling: Where partners opt to enter into Joint venture arrangement, they can do so by combining their resources, whether it be financial capital, technological capabilities, intellectual property, or distribution networks. The massive resources pooled together are deployed to the project resulting in a more robust and competitive entity.

Cost Efficiency: When joint venture Partners shares costs associated with the business, especially for capital-intensive projects with long gestation periods, they tend to be more cost-efficient than an entity that undertakes the activity alone.

Access to New Markets: Joint ventures provide an avenue for companies to enter new markets or expand their presence in existing ones. By partnering with a local or established entity, businesses can leverage the partner’s knowledge of the market, regulatory environment, and consumer behavior. The challenges usually associated with penetrating new environment or market is therefore avoided as partners can leverage on the joint venture partner that already has very strong foothold on the environment or market. Other joint venture Partners can therefore provide their other resources to complement that of the entity already entrenched in the system.

Strategic Alliances: Joint ventures can serve as strategic alliances that enhance a company’s overall competitiveness. Partnering with entities that have complementary strengths can create synergies and improve the ability to respond to market dynamics.

Technology Transfer and Innovation: Where Joint Venture partners Collaborate together, they are more likely to have a better exchange of ideas in areas such as technology, expertise, and best practices. This would in turn result to innovation and the development of new products or services that an individual entity would not have been able to achieve independently.

Flexibility in Structure: Joint Ventures offer flexibility in structuring the partnership. Whether as equity joint ventures, contractual agreements, or strategic alliances, businesses can tailor the arrangement to meet their specific needs and objectives.

Learning Opportunities: Collaboration in a Joint Venture offers learning opportunities for all parties involved. It allows Joint Venture partners to gain insights into different markets, business practices, and management approaches, fostering a culture of continuous improvement.

Market Diversification: Joint ventures enable partner companies to diversify their products or service offerings. This diversification helps in stabilizing revenues and reducing dependence on a single market or product line.