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Posted on:
15th June, 2018

Time to get "clued up" on the rules for joint ventures

Joint ventures have a lot of appeal for businesses and for good reason – they prove the adage that there is strength in numbers.

Time to get "clued up" on the rules for joint ventures

By Simon Nicholls, CMA Project Director.

When two or more companies join forces they can pool goods, services and funds to innovate and achieve commercial success that they couldn’t otherwise do alone.  Businesses in a joint venture can secure greater access to markets, share expertise and ease the burden of risks and costs when acting together. This is especially true for new and smaller businesses looking to establish themselves or expand. From construction to the arts and fashion, the advantages of teaming up have been experienced by a wide range of businesses looking to grow.  

It’s no wonder that joint ventures are on the rise. According to both PWC and McKinsey research the trend in joint ventures is set to continue into the coming years. So, if you think your business may be in line to consider a joint venture, it’s high time to be clued up about the rules when doing so.

At the Competition and Markets Authority (CMA) we fully support collaboration that results in businesses striving to deliver a better quality of product or service for customers. But businesses should go into joint ventures with their eyes wide open and do their homework when it comes to competing fairly. Matters can turn sour with joint ventures where collaboration strays into collusion (or in other words, using a joint venture as cover for avoiding the rules on how businesses should compete against each other). The repercussions of getting caught breaking competition law can be significant – they include hefty fines (up to 10% of worldwide turnover), reputational damage, possible director disqualification (up to 15 years) and in the most serious criminal cartel cases – prison (up to 5 years).

At the end of last year we fined two businesses £1.7million for market sharing under the cover of a joint venture agreement.  Both businesses had been trading under the same brand since the 1980s in a longstanding joint venture agreement. By the time they signed new agreements in 2012, they should have been competing against each other instead of dividing the country up between themselves.

So how can you ensure your joint venture runs smoothly and by the book?  There are some simple steps you can take to stay on the right side of the law.

  • Before entering into a joint venture, you should clearly define the true purpose of the collaboration and how it will directly benefit your customers.
  • Crucially, you must be certain that you couldn’t individually achieve the same result and that you don’t reduce competition or share commercially sensitive information between yourselves more than is necessary to achieve the result.
  • Once a joint venture is up and running you should keep a regular watch on your joint venture to ensure it still complies with competition law.
  • Be aware of changes in external circumstances that could impact on the alliance - keep an eye on any changes to your arrangements, the marketplace and the law – be particularly alert to changes in circumstances at key moments for a business (for example, a merger).
  • Set up a competition law compliance programme. For more information see our guidance on how to run a compliance programme
  • Don’t be fooled into thinking that you can use a joint venture arrangement to hide what is otherwise price fixing, market sharing or bid rigging.
  • Remember joint ventures come under the same legal scrutiny as all other business arrangements.
  • If in doubt always seek independent legal advice.

Getting joint ventures right is a fine balancing act and requires careful management but the rewards of getting it right are well worth the effort.

See the CMA’s Joint Ventures Competition Law Do’s & Don’ts to find out more about what is and isn’t allowed when you collaborate.

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