08 Mar

Joint ventures are commercial partnerships that are formed under a separate legal entity or by an agreement by two or more independent entities for the purpose of performing a specific work under the same objective. They are typically established when an entity’s resources are not enough to fund the ventures by itself and need to collaborate with another entity. Entities may contribute to the joint venture in equity or non-equity form.

Because Research and Development (R&D) projects may be costly for the technology firms, especially for the start-ups, the firms may choose to conduct R&D activities under a joint venture. In addition to financial burden of R&D, lack of know-how or other IPs may also make creating a joint-venture an attractive idea. In most cases, intellectual property contribution matters as much as an equity contribution for IP centric joint ventures.

Joint Ventures under Turkish Law

Turkish law does not stipulate joint ventures although they have been widely used in practice. There are two types of joint ventures: (1) an agreement based joint venture that does not have a legal personality; and (2) an equity joint venture that has a separate legal personality. Agreement based joint ventures are deemed as ordinary partnerships in legal doctrine and in Court of Appeals decisions. Provisions of the joint venture agreement are subject to the ordinary partnership provisions of the Turkish Code of Obligations numbered 6098 and dated 4.02.2011. Agreement based joint ventures are generally established for the purpose of performing a specific work. Partners of the joint ventures are jointly liable for the debts of the joint ventures. A joint-ownership of partnership is established on the assets of the joint venture. Any business transaction conducted by a partner on behalf of the joint venture would result in the liability of all partners. Rules regarding the management of the company may be stipulated under the joint venture agreement; such rules are generally stipulated for internal management. Rules also may be prescribed in the joint venture agreement however such rules, most of the time, do not bind the third parties (especially for the joint liability). Agreement based joint ventures do not have the capacity to sue or to be sued for any dispute arise in connection with the joint venture, partners of the joint venture is going to be sued or partners would have file a lawsuit on behalf of the joint venture. A formal liquidation process is not required for the joint venture following the fulfillment of its purpose or the partner’s decision to end the venture; termination of the joint venture agreement would serve the purpose of the liquidation.

Equity joint ventures, on the other hand, have separate legal personalities and partners of the joint venture are the shareholders thereof. Such joint ventures are generally established as a limited liability company and a joint stock company in accordance with the Turkish Commercial Code numbered 6102 and dated 14.02.2011 (“TCC”). Equity joint ventures have separate assets independent from the shareholders and for that reason a joint-ownership of joint venture’s assets is not possible. Most of the time partners of equity joint ventures are only liable for the unpaid amount of their equity contributions. Transactions conducted with third parties are performed under the separate legal entity of the joint venture and joint liability does not arise except for the existence of a suretyship. Partners may stipulate rules regarding internal affairs in articles of association of the company or other agreements independent of articles of association. Nevertheless, such rules can not violate the mandatory provisions of the TCC. Equity joint ventures have the capacity to sue or to be sued. Such joint ventures are established for larger ventures. A formal liquidation process is mandatory to end the venture; liquidation process can be lengthy depending on the structure of the joint venture.

Technology Firms

Technology firms or non-technology firms intend to conduct R&D activities and manufacture the products as a result of such R&D activities may establish joint ventures. Most recent and largest joint venture established in Turkey is “Türkiye’nin Otomobili Girişim Grubu Sanayi ve Ticaret Anonim Şirketi”, established as an equity joint venture in the form of a joint stock company consisting of 6 partners (shareholders). The purpose of this joint venture is to develop and manufacture Turkey’s first locally developed and manufactured car. Globally, with 14 partners, Sematech Inc., a technology joint venture, is considered one of the largest equity joint ventures.

Need to establish a joint venture comes from the need of equity to fund the venture. In addition to equity needs, firms choose to collectively fund an R&D activity by establishing a joint venture rather than funding it individually. Intellectual property, especially patents and know-how, is also profoundly important for the R&D activities for the joint ventures. Joint ventures may be established to connect those who have equity needs but have the know-how and other intellectual property with those who have the equity but lacking the intellectual property to perform a specific activity[1] and for that very reason, joint ventures are a great legal tool.

As per the TCC, intellectual property may be contributed as an equity to limited liability companies and joint stock companies. To achieve this, monetary value of an intellectual property must be determined and such monetary value is contributed to the equity of the company. However, intellectual property contribution would result in the transfer of the intellectual property rights to the company. That transfer should be structured diligently, especially when the joint venture formed for a specific task and for a temporary period of a time, because transferring intellectual property rights to a joint venture may create disputes as to the ownership of the intellectual property for the post liquidation period. Transferring ownership rights to the joint venture is also a crucial issue which should be structured on contractual rights basis for limited purposes and specific period of a time. Moreover, a non-competition agreement between the partners of the joint venture is crucial for the protection of intellectual property rights for post liquidation of a joint venture.

An agreement based joint venture and an equity joint ventures are subject to different rules under Turkish law. Persons who intend to establish a joint venture must be very diligent before establishing a joint venture. To maximize the benefits of a joint venture, partners should stipulate a thorough joint venture agreement and other additional agreements. Deciding on the scope of the right of use of an intellectual property is also highly important.

[1] Kamien, Morton I., Eitan Muller, and Israel Zang. “Research joint ventures and R&D cartels.” The American Economic Review (1992): 1293-1306.

Author: Batuhan Ecin, LL.M.

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