If you are doing business in certain countries, the government may stipulate that 51 per cent or more of a new business being established must be owned by a national of that country. In these situations, entering into a joint venture (JV) with a local company presents a lucrative opportunity.
Partnering with a local firm isn’t just a way of getting past regulatory red tape, these businesses can provide your firm with expertise on the local market and consumer tastes, and introduce you to an entirely new network of potential customers and suppliers, as well as valuable business and political contacts.
One disadvantage of a JV is that if you are restricted to a minority ownership in the corporation, as is the case in many countries that require majority ownership by a local firm, you lose some control of your operations. Maintaining managerial control is something that needs to be addressed in merger negotiations between yours and the local firm.
Setting up a JV is a complicated procedure, and you should consult legal council and tax council both in Canada and in the host country to make sure you are doing everything by the book. Any regulatory or tax infractions can come back to bite you later.
It is also important to have local legal council in your host country on retainer to act on your behalf when negotiating issues with the local government. Leaving these tasks up to your partner may not be ideal, as the interests of your firms may not align on every issue.
Source: U.S Government, Export.Gov