Forming a Joint Venture (JV) or a partnership is a popular strategy for businesses in Nigeria seeking to combine resources, share risks, or access new markets. Here we discuss legal perspectives and implications that need to be understood, particularly intellectual property (IP) protection, and other relevant requirements under the Nigerian law.
1. Choice of Structure: Joint Venture or Partnership?
The first legal consideration is whether to form a Joint Venture or a Partnership, as these are distinct legal structures under Nigerian law:
- Joint Venture (JV)
A JV is typically a contractual arrangement between two or more parties collaborating for a specific project or purpose. It can take the form of a separate legal entity (incorporated JV) or simply a contractual relationship (unincorporated JV). Incorporated JVs are governed by the Companies and Allied Matters Act, 2020 (CAMA), particularly in areas such as incorporation, shareholder agreements, and governance. JVs are commonly structured as limited liability companies, limited partnerships, or limited liability partnerships.
- Partnership
A partnership is a relationship between persons conducting a business in common with a view to profit. It is governed by the Partnership Act, 1890 (as adopted in Nigeria) and CAMA, which define the rights and obligations of partners. Unlike JVs, partnerships do not require incorporation but can expose partners to liabilities based on the actions of the partnership.
Impact of Structure on Intellectual Property
The choice of structure significantly affects IP ownership and usage. The JV or partnership agreement must clearly define who owns pre-existing IP and how newly created IP will be shared, licensed, or managed. This is especially important in sectors such as technology, pharmaceuticals, and media, where Intellectual Property is a relatively more common asset category.
2. Legal Capacity and Eligibility
Before forming a JV or partnership, all parties must have the legal capacity to enter into the agreement:
- Corporate Capacity
For companies, the Memorandum and Articles of Association (under Section 35 of CAMA) should be reviewed to confirm the company’s authority to enter into JVs or partnerships, including IP management and licensing. Companies should ensure their constitutional documents permit them to transfer or license Intellectual Property assets.
- Individual Capacity
Section 20 of CAMA restricts certain individuals (such as minors or persons of unsound mind) from forming partnerships or participating in JVs. In addition, minors cannot be shareholders in a JV structured as a company, nor can they enter into binding partnership agreements without appropriate guardianship.
Intellectual Property Ownership and Transfer
It is vital to ensure that all parties contributing IP assets (e.g., patents, trademarks, copyrights) have legal ownership of these assets and the authority to license or transfer them to the JV or partnership.
3. Regulatory Approvals
Certain industries require approvals or licenses before forming a Joint Venture or partnership. Some examples include:
- Oil and Gas Sector
Under the Petroleum Industry Act, 2021, Joint Venture (JVs) in the upstream, midstream, or downstream sectors must receive approval from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) or the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NWDPRA).
- Banking and Financial Services
The Banks and Other Financial Institutions Act (BOFIA), 2020 regulates joint ventures involving financial institutions, which require approval from the Central Bank of Nigeria (CBN), particularly for investments, mergers, and acquisitions.
Regulatory Compliance and IP
For industries that involve heavy reliance on patents or technology transfer (e.g., pharmaceuticals, telecommunications), additional approvals may be required for IP-related activities, including licensing or technology transfers.
4. Drafting a Comprehensive Agreement
The Joint Venture or Partnership Agreement is the foundation for the legal relationship between the parties and should clearly define several critical elements:
- Roles and Responsibilities
Specify each party’s roles, particularly concerning Intellectual Property. Even in an incorporated JV, the agreement should delineate responsibilities related to IP beyond the general corporate framework.
- Ownership of IP: Clearly define whether IP developed during the JV or partnership is jointly owned or belongs to the contributing party.
- Licensing and Use of IP: Outline how IP will be licensed for use within the JV or partnership, including any usage restrictions.
- Profit Sharing and Losses: For partnerships, Section 24 of the Partnership Act provides that partners share profits and losses equally unless otherwise agreed. In a JV, profit-sharing mechanisms are governed by the agreement.
- Management and Control: Detail decision-making processes, management structure, and voting rights, including control over IP-related decisions.
- Exit Strategy: Include provisions for the dissolution of the partnership or termination of the JV, referencing relevant legal provisions (Sections 32-35 of the Partnership Act) or outlining specific procedures for the JV.
- Confidentiality and Data Protection: Include a Non-Disclosure Agreement (NDA) to protect proprietary IP and sensitive information.
- Dispute Resolution: Incorporate a dispute resolution clause, choosing between arbitration, litigation, or other methods. For IP-related disputes, consider specific mechanisms to address infringement or misuse.
5. Liability and Risk Management
Liability is a matter of great concern in Joint Ventures and partnerships:
- Joint Ventures
In unincorporated JVs, parties may be held jointly liable for the venture’s obligations. In incorporated JVs, liability is typically limited to each party’s investment. JV parties are generally not liable for each other’s debts unless explicitly agreed upon.
- Partnership
Partners in general partnerships are jointly and severally liable for the debts of the partnership. Limited partnerships, however, limit liability to the amount contributed, governed by Section 19 of CAMA.
IP-Related Liabilities: The agreement should address potential IP liabilities, such as infringement claims or unauthorized use. Each party should understand its exposure to these risks, especially in industries heavily reliant on IP.
6. Compliance with Competition Law
The Federal Competition and Consumer Protection Act, 2019 (FCCPA) regulates competition in Nigeria. JVs or partnerships that may result in anti-competitive behavior or create monopolies require approval from the Federal Competition and Consumer Protection Commission (FCCPC). Misuse of IP (e.g., restricting access to patented technologies) can lead to anti-competitive practices, which should be addressed in the agreement.
7. Taxation
- Joint Ventures: Incorporated JVs are taxed as separate entities under the Companies Income Tax Act (CITA), 2007. Profits in unincorporated JVs are taxed at the individual party level.
- Partnerships: Partnership profits are taxed at the individual partner level under the Personal Income Tax Act (PITA), 2011. If companies are partners, corporate taxes apply.
Intellectual Property-Related Tax Considerations: Revenue generated from IP, such as royalties or licensing fees, may have specific tax implications depending on the JV or partnership structure.
8. In Summary
We have discussed the formation of partnerships & Joint Venture in Nigeria & the need for careful legal preparation. We have included considerations of Intellectual Property ownership, liability, regulatory approvals, and taxation.