A Memorandum of Understanding (“MOU”) document sets out the preliminary terms of a commercial transaction agreed by the parties in the course of negotiations. This is often used to ensure both parties are on the same page as regards the major aspects of the transaction and prevent misunderstandings. It is also known as a heads of term agreement, letter of intent or heads of agreement. Key elements Names of the parties; including contact numbers, companies involved, etc.Purpose of the agreement; goals and intentions of the parties; state if parties intend for the MoU to not be legally binding and is subject to a final agreementResponsibilities and roles of the parties; the framework of the negotiations, e.g. stages of negotiation and meeting timesDetails of the project; other parties involved, deadlines, a summary of the transaction, key issues Non-disclosure, confidentiality clauses Even though an MOU is essentially “subject to contract/agreement” and hence not legally binding, they may still contain certain binding provisions, such as confidentiality, applicable law, exclusivity, non-solicitation or good faith negotiations, which the parties will have to abide by. Why is it important? Having a mutual agreement on the major aspects of the deal prevents likelihood of any misunderstandings and allows for effective communication. Thus, MOU is particularly important if you are negotiating a complex deal or are engaged in a matter for a long period of time as it will further reduce disagreements when drafting the final agreement. When do you need it? They are used in the beginning stages of negotiations, to agree upon preliminary terms before detailed formal and binding agreements are made. Parties can enter into more than one MOU during negotiations, especially if they are lengthy. In the joint venture context, the joint efforts and possible merger of businesses would take lengthy negotiation and the commercial impacts to all

There are two common types of joint venture: Incorporated Joint VentureContractual Joint Venture Small businesses may consider setting up a joint venture with a local enterprise in Hong Kong. Below are the different characteristics of incorporated and contractual joint ventures to enable you to choose the structure that best suits your requirements. Incorporated Joint Venture An incorporated joint venture is often formed as a limited liability company. It must be registered in the Company Registry in accordance with the Companies Ordinance.The parties may determine terms and conditions relating to sharing of profits and losses, right to vote, ownership structure in a shareholder agreement or joint venture agreement. Since this joint venture will be a separate legal entity, the parties will have limited liability and profits can be distributed as dividends. Essentially, this structure is regulated by the articles of association and shareholders agreement. Keep in mind that if the joint venture is conducted in the form of a company, it is governed by the Companies Ordinance (Cap. 622) and the common law. Though if the company is incorporated in the BVI or Cayman Island, it would be governed by the laws of the respective jurisdiction. Contractual Joint Venture In a contractual joint venture, the parties enter a contract to cooperate to achieve a business goal. Unlike the incorporated joint venture, no new corporate body is formed. This form of joint venture is advantageous if parties are working on a one-off undertaking for a short period of time, since there is no filing or continuous compliance requirement except for the mandatory business registration.Therefore, the cost is lower and parties can maintain a higher level of privacy. Key takeaway Joint ventures can be incorporated or contractual in Hong Kong. Incorporated joint venture is often structured as a limited liability companyContractual joint venture is formed by entering into a

A joint venture can be understood as a short-term partnership that comes to an end once its purpose is served. There would be a specific task that the joint venture is established to complete, and the concert ends upon completion. On the other hand, a partnership is usually set up for conducting continuous business. Joint venture A joint venture consists of two or more parties contributing resources to accomplish a specific task. It may have a separate legal personality from the parties. It can refer to several types of business arrangement between undertakings. There are two types of joint ventures in Hong Kong i.e., incorporated and contractual. Corporate joint ventures registered in Hong Kong are governed by the Companies Ordinance and the common law; while contractual joint ventures are largely regulated by agreement between the parties. Partnership Partnership is an arrangement where two or more individuals co-own the business with a plan to share the profits in the manner mutually agreed between the partners. There are in general two types of partnership, namely general and limited partnerships. They are governed by the Partnership Ordinance, the Limited Partnerships Ordinance and the common law in Hong Kong. To see more on partnership, read the FAQ on Partnership. Comparison Joint VenturePartnership If the joint venture is set up as a limited liability company then the parties will be liable only to the extent of their investment. In case of contractual joint venture, each party may give the other an indemnity in respect of loss caused by his failureThe partners are jointly and severally liable for any debts or liabilities of the PartnershipIt involve two or more companies combining their resources and efforts for a common business goal It is comprised of individuals who are running the business togetherEnds once the task is completed Usually last for a longer period of time and ends when the partners decide to dissolve or exit the

A joint venture consists of two or more parties contributing resources to accomplish a specific business project. There are two main types of joint venture in Hong Kong: Incorporated Joint Venture where the joint venture is a separate corporate body and is registered with the Companies Registry in accordance with the Companies Ordinance. For more information on the registration of a company, read “How do I register a company in Hong Kong?”.Contractual Joint venture where the parties enter a contract to cooperate to achieve a business goal. The relationship between the joint venture parties is governed by the agreement between the parties. For more information on business registration, read “What is a business registration certificate? If my business is owned by a company, do I need to register my business in Hong Kong?”. To understand more about the types of joint ventures in Hong Kong, read “What are the different types of joint ventures?”. Why joint ventures? A joint venture is advantageous in the following ways: The parties can share and combine resources to achieve the venture’s goal;The parties can enjoy the benefits of economies of scale, since purchasing and production in bulk will generally result in lower per-unit cost; and The parties can benefit from expertise and talents from all parties. The Competition Ordinance Joint ventures are subject to the Competition Ordinance in Hong Kong, which prohibits any conduct that harms competition in Hong Kong. The Ordinance contains two conduct rules: The First Conduct Rule prohibits agreements that harm competition in Hong Kong. This implies that undertakings are prohibited from making or giving effect to an agreement if the object or effect is to prevent, restrict or distort competition in Hong Kong. This rule does not apply, for instance, if the joint venture amounts to a merger as defined in the Competition Ordinance; or enhances the overall economic efficiency. The