The Joint Venture Agreement: Partnering on One Project Without Forming a Company

The contractual joint venture versus forming a new entity

The first decision after the memorandum of understanding is not drafting clauses but choosing the form. You have two paths: each business keeps its own entity and register, linked by a contract that governs cooperation on a specific project, or the two sides form a new company that they own together and run the project through it. The Companies Law issued by Royal Decree No. M/132 of 2022 sets the company forms at five: the general partnership, the limited partnership, the joint stock company, the simplified joint stock company and the limited liability company, and none of them is a standalone form called a joint venture. So the contractual joint venture in this guide is a contractual relationship between two parties, not a new legal entity.

The contractual path usually suits you when the project is defined by scope and duration, such as a single tender or a single contract with one client, when each party keeps its own staff and assets and provides them to the project without transferring ownership, and when the two sides do not plan a permanent multi-project relationship. On the other hand, the balance tips toward forming a limited liability company when the relationship is long and open-ended, the project needs assets, contracts and employees in its own name, the two sides want to separate the project's risks from each party's balance sheet, or an investor is expected to join later.

• One project with a clear scope and duration: usually a contractual joint venture agreement.
• An open-ended relationship, successive projects and assets in the project's name: form a company with a shareholders agreement.
• A need to isolate project risk from both parties' balance sheets: a separate entity fits better.
• The tender or client terms impose a specific form: those terms decide the choice.

Note that the contractual path does not shield your balance sheet from project risk the way a separate entity does, because each party contracts and commits in the name of its own business. If you end up forming a company, your place is the LLC shareholders agreement guide, not this one.

Scope, each party's contribution, and sharing profit, loss and liabilities

The first clause in the agreement defines the project itself: the client or tender name, the subject of the work, its geographic and time limits, and what falls expressly outside it. This clause prevents the most dangerous dispute in joint ventures, where one party later discovers its partner is dealing with the same client on parallel work and treating it as outside the deal. The more precise the scope, the clearer the split of everything that follows.

After the scope come the contributions. Write down in detail what each party provides: a cash amount and its payment date, equipment with a statement of whether it is provided for use only or its ownership transfers, staff with who bears their salaries and costs, or technical expertise, licences and a classification that qualifies for the tender. Then set the value of each non-cash contribution by a method both parties agree on, because that value is usually what the shares are built on.

• Cash contribution: the amount, the payment date, the account it goes into, and the effect of late payment.
• In-kind contribution: the description, the agreed value, and who owns it at the end of the project.
• Staff and expertise: who employs them, who bears their costs, and how their contribution is counted.
• Additional funding: who must provide it if the project needs money nobody expected, and in what proportion.

Then profit and loss. The common approach is to follow contribution shares, but the parties may agree a different split that reflects effort or risk, as long as it is written clearly. Set how net profit is calculated, which expenses are deducted before it, when it is distributed, and who keeps the project accounts and provides their periodic statements. Ask your finance team and external accountant to review the zakat and tax effect and the invoicing method toward the client before signing, because they differ with the project arrangement.

As for liabilities, the agreement governs the relationship between the two parties only and does not bind the client or third parties to anything they did not sign. The client looks to the contract it signed, so if the tender contract makes both parties liable together or names a lead member, that is what applies toward the client. Your agreement therefore sets how the two parties split that liability internally, and who indemnifies whom if the fault lies in one party's scope.

Management, key decisions and the exit mechanism

A joint venture without clear management stalls at the first disagreement. The common practical model is a management committee on which each party is represented by an agreed number of members, chaired by one party or on rotation, with a project manager appointed to run daily execution within written authorities. Distinguish in the agreement between operational decisions, where the manager's decision or a majority is enough, and key decisions that are taken only by unanimous agreement of both parties, such as the following.

• Changing the project scope or accepting material change orders from the client.
• Borrowing, giving guarantees or pledging assets for the project.
• Subcontracting part of the works or appointing a major supplier.
• Calling for additional funding from the parties or changing how profit is distributed.
• Settling with the client, filing a claim or agreeing to arbitration.

What if the parties cannot agree on a key decision? This is where the deadlock clause comes in: escalating the dispute to the senior executives of both businesses within a set period, then mediation, then the route the parties choose to resolve the dispute. Next comes the exit mechanism, which most partners overlook. Set the cases in which the agreement ends: completion and settlement of the project, failure to win the award, a material breach not cured after notice, the insolvency of a party, or impossibility of performance. And set what happens on an early exit: who completes the obligations to the client, how the leaving party's share is valued, and whether the remaining party may buy it.

Intellectual property, confidentiality and the agreement's duration

Each party enters the project with what it already owns: designs, software, working methods, supplier lists and a trademark. The safe rule is that this background ownership stays with its owner, with the other party granted a limited licence to use it for the project and for its duration only. As for new outputs produced during the project, the agreement must state their owner expressly: whether both parties own them together, the party that produced them, or they pass to the client under its contract. Silence here breeds a dispute at the end of the project, when each party wants to reuse what was produced.

Confidentiality does not begin with the agreement. The two parties have most likely exchanged prices, client data and technical studies during the study phase, a phase protected by a standalone non-disclosure agreement explained in the NDA guide. The joint venture agreement carries that obligation into execution and beyond, and usually adds a commitment not to deal directly with the project's client outside the arrangement and not to solicit the other party's staff, for a reasonable period the parties agree on.

• Background IP: stays with its owner, with a limited licence for the project's purpose.
• Project outputs: their owner named expressly, subject to what the client contract requires.
• Confidentiality: survives the end of the project for a period the parties agree on.
• Duration: from signing until the project is completed and accounts are settled, or until the award goes elsewhere.

Finally, the duration. Tie it to the project, not to a fixed date: it starts on signing and runs until the client obligations are completed, any warranty period expires and the final accounts between the parties are settled. If the agreement covers a tender not yet awarded, state that it ends automatically if the parties do not win it, with the costs of preparing the bid split between them.

From the memorandum of understanding to signing the agreement: practical steps

Moving from intentions to commitment needs an order. These steps help the business owner and the admin and finance team reach a coherent signed agreement without missing what the tender or the client requires.

1. Review the signed memorandum of understanding, identify what you agreed and what remains open, and whether it contains binding clauses such as confidentiality or exclusivity that are still in force.
2. Read the tender documents or the client contract carefully and identify what they require for teaming, a lead member and liability toward the client, because those terms constrain your agreement.
3. Agree in writing on the list of contributions and their values, then on the shares and the method of sharing profit and loss.
4. Ask the finance team and the accountant to review the accounts, invoicing, and the zakat and tax effect before signing.
5. Prepare the agreement with template C-11, and complete the contributions annex, the financial annex and the key decisions matrix.
6. Have the agreement signed by whoever holds signing authority in each business, and keep a signed copy with its annexes in the project records.

Template C-11 is a certified draft and a strong starting point, but it does not replace specialist advice on a high-value project or an existing dispute. The Arabic text prevails in case of any difference between the two versions.

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