Joint ventures (JVs) are a common corporate structure chosen by contractors in Qatar. Two companies interested in pursuing a project together often form a JV to increase their chances of being awarded the contract and to share the cost and risk of performing it. The JV structure provides companies with the opportunity to bid for projects they would not otherwise have been technically or financially capable of tendering for.
Types Of JVs
Qatari law recognises particular forms of companies and sets out the rules that apply to each of them. Article 4 of the Commercial Companies (Law No. 11 of 2015) states: “A company which is established in Qatar must take any of the following forms:
- Joint Partnership Company;
- Limited Partnership Company;
- Particular Partnership Company (Mahasa Company);
- Public Shareholding Company;
- Private Shareholding Company;
- Equities Partnership Company; and
- Limited Liability Company.”
Article 5 provides that “any company that does not take one of the forms referred to in the preceding article shall be void, and the persons who contract in its name shall be personally and jointly liable for commitments resulting from the execution of such a contract”.
JVs in Qatar can therefore take two forms; they can be incorporated (IJV) or unincorporated (UJV). The fundamental difference is that an IJV is recognised by the Commercial Companies Law as being an independent legal entity, whilst a UJV is not. A UJV is a contractual arrangement.
IJVs are essentially a special purpose vehicle owned by the IJV participants to hold the JV property and conduct JV operations. Foreign companies in the country wishing to be incorporated may need to comply with both the Foreign Investment Law and the Commercial Companies Law.
This may involve production of documents such as approved memoranda and articles of association (in Arabic), foreign parent companies’ notarised constitutional documents, bank letters confirming funds, a certificate of registration, commercial registration documents and municipal licences.
UJVs are often seen as more attractive commercial vehicles since they enable companies to join together without incurring the additional incorporation and operational costs associated with a new corporate vehicle and the time required to incorporate IJVs (often before success in bidding for a project is assured). Parties instead produce a bespoke contract (the “JV Agreement”), which governs their specific relationship and includes whatever contract terms they wish. This may provide greater flexibility in terms of governance and approvals as well.
Considerations
Whether two companies choose to formally incorporate as a JV or not may be dictated by the requirements of the project they are tendering for. Often contractors invited to bid for a project will be required to be incorporated if they are in a JV arrangement. However, many public tenders in Qatar do not require this, and indeed several current high-profile projects are being built by UJVs (for example, the Doha Metro lines and stations).
Factors which may influence this decision include how much flexibility each of the JV entities want, the liability each party is willing to accept and the urgency with which the parties wish to begin operating. Tax considerations also usually feature in the decision as UJV entities are treated independently for tax purposes and, unlike IJVs, can offset their losses against income from other businesses outside the JV.
OBG would like to thank Pinsent Masons for its contribution to THE REPORT Qatar 2016
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