PHILIPPINE LAW AND PRACTICE ON: JOINT VENTURES
instrument is necessary.
I. NATURE OF JOINT VENTURES IN PHILIPPINE SETTING
1. JOINT VENTURE ARRANGEMENTS PRIMARILY GOVERNED BY
CONTRACT LAW PRINCIPLES
 There is no statutory provision that formally governs joint
ventures (apart from specific reference in the National
Internal Revenue Code), although they have been
recognized in jurisprudence and have relatively become
commonplace in commercial ventures.
 THUS: JVA’s fall generally within the realm of Contract
Law.
o PREVAILING CONTRACT RULE: Parties to a
contract may establish such stipulations, clauses,
terms and conditions, as they may deem convenient,
provided that they are not contrary to laws, morals,
good customs, public order, or public policy.
o THUS: No model JVA have been published by the
SEC, nor any other authority, except fairly recently
by the Office of the Government Corporate Cousel
(OGCC) jointly with the National Economic
Development Auhtority (NEDA).
2. JOINT VENTURES ARE SPECIES OF PARTNERSHIP
• Joint ventures are a species of partnership because they fall
within the definition of a partnership under Art. 1767 (i.e.
when 2+ persons bind themselves to contribute money,
property, or industry to a common fund, with the intention
of dividing the profits among themselves).
o Joint Venture would fall under the category of a
“particular partnership” (i.e. one which has for its
object determinate things, their use/fruits, or
specific undertaking).
o A partnership may be constituted in ANY FORM,
except where immovable property or real rights are
contributed thereto, in which case a public
▪ No special form, even one seeking to
establish a JVA, is necessary to give rise to a
partnership.
o When no showing of community of interest, sharing
of risks, profits and losses, or even a representation
by certain entities that they have come together in
common venture, the involvement of several
companies in a large project would not constitute a
joint venture (Information Technology Foundation
of the Philippine v. COMELEC).
• Joint Venture vs. Ordinary Partnership
o As to Purpose.
▪ Ordinary Partnership: organized for general
business venture with no definite term of
existence; a general business with some
degree of continuity.
▪ Joint Venture: organized for a specific
project/undertaking; for the execution of a
single transaction, and temporary in nature.
o As to Definition.
▪ Ordinary Partnership: When 2+ persons
bind themselves to contribute money,
property, or industry to a common fund,
with the intention of dividing the profits
among themselves.
▪ Joint Venture: An association of
persons/companies jointly undertaking
some commercial enterprise wherein
generally all contribute assets and share
risks; requires a community of interest in the
performance of the subject matter, a right to
direct and govern the policy connected
therewith, and duty which may be altered
by agreement to share both in profit and
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 losses; the acts of working together in a joint
project.
3. PARTNERSHIP CHARACTERISTICS OF THE JOINT VENTURE
• Partnership Characteristics of a JVA:
o (a) JVA constitutes a juridical personality separate
and distinct form that of each of the co-venturers.
(Thus, a joint venture as a firm can enter into
contract and own properties in the firm’s name.)
o (b) Each of the co-venturers would be liable with
their separate property to the creditors of the joint
venture beyond their contributions or promised
contributions to the joint venture.
o (c) Even if a co-venturer transfers his interest to
another, the transferee does not become a co-
venturer to the others in the joint venture unless all
the other co-venturers consent. (Pursuant to
partnership’s delectus personae principle)
o (d) Generally: the co-venturers acting on behalf of
the joint venture are agents of joint venture and of
each other.
o Death, retirement, insolvency, civil interdiction, or
dissolution of a co-venturer dissolves the joint
venture.
• A joint venture, being a form of partnership, is generally
governed by the Law on Partnerships.
• Some Partnership Rules Applied to JVA in Jurisprudence:
o Marsman Drysdale Land Inc. v. Philippine Geoanalytics
applied in a JVA Art. 1797 (i.e. if only the share of
each partner in the profits has been agreed upon, the
share of each in the losses shall be in the same
proportion).
▪ HOWEVER, CLV does NOT agree as to the
specific provision applied since the issue of
profits and losses is an intramural matter,
not binding on 3rd parties.
▪ PROPER PARTNERSHIP RULE TO APPLY:
All partners (other than limited partners) are
liable personally for partnership debts
contracted by any of the partners in the
pursuit of partnership business.
▪ THUS: A supplier who has claim on the
joint venture may rightful sue all venturers
and hold them JOINTLY liable for the claim.
o J. Tiosejo Investment Corp. v. Ang applied in a JVA
Art. 1824 (i.e. all partners are solidarily liable with
the partnership for everything chargeable to the
partnership, including loss/injury cause to a 3rd
person or penalties incurred due to any wrongful
act/omission of any partner acting in the ordinary
course of the business of the partnership or with the
authority of his co-partners.)
o Realubit v. Jaso applied in a JVA the partnership rule
that the transfer by a partner of his partnership
interest does not make the assignee of such interest a
partner of the firm, nor entitle the assignee to
interfere in the management of the partnership
business or to receive anything except the assignee’s
profits.
4. SPECIAL TREATMENTS GIVEN TO JOINT VENTURES
• Jurisprudence has tended to give JVA’s special treatment not
accorded to ordinary partnerships.
• PREVAILING RULE: A corporation CANNOT enter into
partnerships with other corps. or individuals.
o WHY? -> In entering into a partnership, the identity
of the corporation is lost/merged with that of
another and the direction of the affairs is placed in
other hands than those provided by the law of its
creation (i.e. Board of Directors).
o The stockholders of a corp. are entitles to assume
that their directors will conduct the corporate
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 business without sharing that duty and
responsibility with others.
• NEVERTHELESS: A corporation may validly enter into a
JVA, where the nature of that venture is in line with the
business authorized by its charter (Tuason v. Bolanos).
o WHY? -> In a joint venture (usually covering only a
particular project/undertaking), when the Board of
Directors of a corp. evaluate risks and
responsibilities involved, they can more or less
exercise their own business judgment in
determining the extent by which the corp. would be
involved in the project and the likely liabilities to be
incurred.
o Unlike an ordinary partnership which may expose
the corp. to various liabilities and risks which cannot
all be evaluated and anticipated beforehand by the
board, a JVA covering a single project/transaction
allows the board to fully bind the corp. to matter
essentially within the board’s business appreciation
and anticipation.
a) SEC RULINGS
 General Rule: A corporation cannot enter into a contract of
partnership with an individual or another corp. since if a
corp. enters into a partnership agreement, it would be bound
by the acts of the persons who are NOT its duly appointed
and authorized agents and officers, which is entirely
inconsistent with the policy of the law that the corp. shall
manage its own affairs separately and exclusively (SEC
Opinion, 1966).
 EXCEPTION: Corps. are allowed to enter into partnership,
provided the following CONDITIONS are met:
o (a) The authority to enter into a partnership relation
is expressly conferred by the charter or the articles of
incorporation of the corp., and the nature of the
business venture to be undertaken by the
partnership is in line with the business authorized
by the charter or articles of incorporation;
o (b) The agreement on the articles of partnership
must provide that all the partners shall manage the
partnership, and the articles of partnership must
stipulate that all the partners shall be jointly and
severally liable for all the obligations of the
partnership; and
o If it is a foreign corp., it must obtain a license to
transact business in the country in accordance with
the Corp. Code of the Philippines (SEC Opinion,
1980).
 A partnership of corps. should be organized as a “general
partnership.” (since it is required to be stipulated that all of
the partners shall manage the partnership, jointly &
severally liable for all obligations of partnership) (SEC
Opinion, 1994).
 A corp. may become a limited partner in a limited
partnership, since there is no existing Philippine law that
expressly prohibits a corporation from becoming a limited
partner in a partnership (SEC Opinion, 1995).
II. ALTERNATIVE FORMS IN STRUCTURING A JOINT VENTURE
 Parties have 3 choices of JVA types:
o (a) Informal Joint Venture Arrangement;
o (b) Formal Partnership Arrangement; or
o (c) Joint Venture Corporation.
• The above-mentioned 3 JVA types fall under either of these
3 legals forms under the Philippine Accounting Standards
31 (for purposes of accounting and reporting in financial
statements):
o (a) Jointly Controlled Operations;
o (b) Jointly Controlled Assets; and
o (c) Jointly Controlled Entities.
o * The legal form of the JVA determines its substance,
classification and corresponding accounting.
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1. ACCOUNTING FOR JOINT VENTURES
A) JOINTLY CONTROLLED OPERATIONS (JCO)
 a separate entity is NOT established, with each venturer
using its own assets, incurs its own expenses and raising
its own financing, and what covers the JVA is an
agreement settling out the details of the sharing of
revenues and expenses.
 each venturer will reflect separately in its own financial
statements, the assets that it intended for the project but
which remain in its control, the liabilities it incurs
intended for the project, and its share in the income
derived from the project.
 The type of JVA under JCO is Informal JVA.
B) JOINTLY CONTROLLED ASSETS (JCA)
 there is joint control and ownership by the venturers of
assets contributed to or acquired for the purpose of the
project; and with each venturer sharing in the income
earned and expenses incurred from the jointly controlled
assets.
 normally no company/partnership established because
there are really no operations involved (e.g. jointly
operating leased properties), and the co-venturers come
to the project more as co-owners; and that each venturer
will reflect in its financial statements its share in the joint
assets, and share in any liability incurred for the project;
its share in the income proceeds from the project, as well
as its share in the expenses incurred for the project.
 more like a co-ownership arrangement, has no direct
similarity to any of the 3 types of JVAs, but more akin to
an informal partnership arrangement similar to Informal
JVA.
C) JOINTLY CONTROLLED ENTITIES (JCE)
 setting up a company or a partnership or other form of
media in which each of the venturers shall have an equity
interest.
 when done in a corporate format, such JVA formalizes
within the corporate entity the legal relationship of the co-
venturers, and takes advantage of the “limited liability”
features.
 the assets and other contributions of the co-venturers would
be recognized in each of their books and financial statements
as investments in the project; the joint venture company
would then maintain its own records and financial
statements like any other enterprise in conformity with
Philippine Financial Reporting Standards (PFRS).
 This type of JVA (JCE) would be equivalent to the Formal
Partnership Arrangement or Joint Venture Corporations
arrangements, depending on the medium employed by the
co-venturers.
2. INFORMAL JOINT VENTURE ARRANGEMENT
In cases of corporations which come together in co-venture over
a particular project, there has been an implicit recognition
that such a venture can be pursued merely as a private
enterprise with no intention to present a new / separate
“firm” or “company” and much less a separate juridical
person, to the public.
Informal Joint Venture Agreement
a sort of informal partnership with no firm name
and no legal personality;
the participating merchants can transact business
under their own name, and can be
INDIVIDUALLY LIABLE therefor;
usually limited to a SINGLE TRANSACTION,
although the business of pursuing to a
successful termination may continue for a
number of years
vs. Partnership — generally relates to a
continuing business of various
transactions of a certain kind.
How is it constituted?
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 A “Joint Venture Agreement” or a “Memorandum
Agreement” is executed by the co-venturers to
provide for the terms of arrangement, but the
business enterprise will be pursued in the names
of the co-venturers through their duly
authorized representatives.
No separate company office is set-up, no separate
books of accounts are kept, no formal
registration of the enterprise is made with the
appropriate government agencies.
THUS: The co-venturers intend their relationship to
be PRIMARILY governed by the contractual
terms of agreement upon them in the Joint
Venture Agreement.
A) SEC Recognition of the Informal JVA
SEC Rules on Informal JVA:
• Generally, a JVA of two corporations need not be
registered with the SEC, provided it will not result in the
formation of a new partnership or corporation.
o HOWEVER, to acquire a separate Tax
Identification Number (TIN) from the BIR for
the business venture, SEC registration is
required so as to create a separate legal
personality with its own separate TIN.
• 2+ corporations may enter into a joint venture through a
contract or agreement (Contractual Joint Venture) if the
nature of the venture is authorized by their charters,
which contract need not be registered with the SEC;
provided, however that the joint venture will not result
in the formation of a new partnership or corp.
o THUS: Under a “contractual joint-venture
format,” the co-venturers pursue the JVA by a
private contract between them, choosing not to
represent to 3rd parties or to the public a
separate firm undertaking the project.
o Under this agreement, the relationship of the co-
venturers, their rights and liabilities, are
governed but he joint venture contract executed
among them.
B) Jurisprudential Example of an Informal JVA
Traveno v. Bobongon Banana Growers Multi-Purpose Coop.
FACTS: Diamond Farms, Inc. (DFI) entered into an arrangement
with landowners in Davao del Norte to convert their lands
into banana plantations and for which DFI would purchase
their quality export produce.
o Landowners organized themselves into a
Cooperative and entered into a formal “Banana
Production and Purchase Agreement” (the
Contract) under which the Cooperative would
handle and fund the production of bananas and
operation of the plantation covering the lands
owned by its members in consideration of DFI’s
commitment to provide financial and technical
assistance as needed.
o The Cooperative would hire its own workers an
day their wages and benefits, and sell
exclusively to DFI all export quality bananas
produced that meet their agreed specifications.
• When some of the laborers were laid-off by the
Cooperative, a labor case for unlawful termination was
brought and the claimants included DFI as respondent
on the ground that the arrangement under the Contract
was the job-contracting or sub-contracting practice
(which is prohibited by law).
• ISSUE: Can DFI be held liable for the labor claims poised
against the Cooperative?
• HELD: The Contract between the Cooperative and DFI is
in essence a business partnership that partakes of the
nature of joint venture, far from being a job contracting
arrangement.
o Thus, the laws on job contracting do not apply.
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 o The Court may not alter the intention of the
contracting parties (gleaned from Contract’s
stipulations) without violating the autonomy of
contracts principle (i.e. parties have the utmost
liberty and freedom to establish such terms and
conditions as they may deem convenient,
provided they are not contrary to laws, morals,
good custom, etc.)
o JVA is a species of partnership, and like an
ordinary partnership arrangement, it is
primarily contractual in character, subject to the
principles of autonomy and obligatory force.
• CLV: DFI could still be held liable on the principle of
“mutual agency” applicable to all form of partnership.
o When the Cooperative terminated the laborers’
services unlawfully, it may be considered
binding on DFI also, since the act of a partner
binds not only the acting party but also the
partnership and his other partners.
C) JVA Hidden Through Another Form of Contract
Sometimes, the parties to a JVA, in order to avoid having to
present to the public the real nature of their arrangement,
execute another form of contract that will either facilitate the
implementation of their agreement, or that will hide their
true intent and arrangement.
Jurisprudential Examples:
Mendoza v. Paule
o An informal JVA to undertake a particular
government project was pursued among two
partners through the use of an existing
registered and accredited construction company
(a sole proprietorship owned by one of the
partners), instead of executing a formal JVA.
o Represented as an Attorney-in-fact
Arrangement: Engr. Paule, proprietor of E.M
Paule Construction, executed an SPA
authorizing Mendoza to participate in the pre-
qualification and bidding of a NIA project and
to represent him in all transactions related
thereto.
o REAL AGREEMENT between Paule &
Mendoza: A partnership/JVA wherein Paule’s
contribution his contractor’s license and
expertise, while Mendoza would provide and
secure the needed funds for labor, materials and
services; deal with the suppliers and sub-
contractors. For this, Paule would receive 3%
share of the project cost while the rest of the
profits shall go to Mendoza.
o THUS: Paule, as a partners, rather than the
principal of Mendoza, should be made liable for
abandoning the partnership, leaving Mendoza
to fend for her own, and for unduly revoking
her authority to collect payments from NIA.
• Philex Mining Corp. v. CIR
o An informal JVA was pursued in the operation
of a mining concession bet. 2 corps., wherein
they executed merely a “Power of Atty.” and
designated one another as “principal” (the
owner of the concession) and “manager” (the
entity that would directly manage development
and operations.
o The Court cannot consider the relationship
between the parties a debtor-creditor, principal-
agent, or principal-manager, since by the terms
of the arrangement, the essential elements of a
partnership existed.
o Parties are not allowed to treat the advances
made to the venture as loans or advances to one
another since the relationship between co-
venturers in a JVA cannot be conserved a
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 creditor-debtors relationship with respect to
their advances and contributions to the business.
o While a corporation cannot generally enter into
a contract of partnership unless authorized by
law or its charter, it has been held that it may
enter into a joint venture.
o The parties had intended to create a partnership
and establish a common fund for the purpose
since they had a joint interest in the profits of the
business as shown by a 50-50 sharing in the
income of the mine.
o The parties to a JVA may choose to treat one
another as not being bound by a partnership
relationship, BUT when controversy arises by
which their right and obligations have to be
determined, the courts would have no choice
but to impute the legal relationship of a
partnership or JVA when the essential elements
of a partnership are present.
o MAIN POINT: Since a JVA is a species of
partnership, then the peremptory provisions and
principles under the Law on Partnerships will be
the ones employed by the courts to smoke out
whether the underlying agreement was a JVA.
• Kilosbayan, Inc. v. Guingona, Jr.
o Since the Philippine Charity Sweepstakes Office
(PCSO) was prohibited by its charter from
holding and conducting lotteries in
collaboration, association or joint venture with
any person or entity, the PCSO entered into a
“Contract of Lease” with the Philippine Gaming
Management Corp. (PGMC) instead, in order
not to violate such prohibition.
o PCSO purported to lease the lottery facilities of
PGMC in order to operate nationally the on-line
lottery system (“lotto”).
o HOWEVER, the Court held that the
contemporaneous act of the PCSO and PGMC
reveal that the PCSO neither had funds of its
own nor the expertise to operate and manage an
on-line lottery system — the only contribution of
PCSO being its franchise or authority to operate
the on-line lottery system — with the rest,
including the risks of the business being borne
solely by the proponent or bidder.
o THUS: The JVA was found to exist under the
terms of the Contract of Lease, with the essential
element of participating in the profits of the on-
line lottery system, and at the same time,
bearing the risks of loss.
o The so-called Contract of Lease is a crafty device
carefully conceived, to provide a built-in defense
in the event that the agreement is questioned as
violating PCSO’s charter; woven therein are
provisions which negate its title and betray the
true intention of the parties to be in or to have a
joint venture for 8 years in the operation and
maintenance of the on-line lottery system.
3. JOINT VENTURE SET-UP AS A PARTNERSHIP
Co-venturers execute formal Articles of Partnership, which may also
be denominated as a “Joint Venture Agreement,” embodying their
arrangements, as well as the firm name and structure of the
company that they are forming, and register the same with the SEC.
 Governed by the legal rules and principles pertaining to
particular partnerships
 Provides better protection for the parties in a sense that they
have a set of laws by which they can base their rights and
claims
 In the absence of a contract of partnership, plus the inability
of the heirs to indicate by clear evidence the essential
elements of a partnership, no joint venture arrangement can
be imputed into the business enterprise
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  Best evidence of a partnership would have been the contract
of partnership itself or the Articles of Partnership
4. JOINT VENTURE COPORATION ARRANGEMENT
Equity joint ventures – each co-venturer being allocated
proportionate shareholdings in the outstanding capital stock of the
join venture corporation.
An equity joint venture may also be pursued where a co-venturer is
allocated the agreed shares of stock in an existing corporation, either
from new isuances of capital stock, or from sold shares from those
already issued in the names of other co-venturers.
a. Corporate Principles vs. JVA Provisions
 In case of conflict between the provisions of the
joint venture agreement and the charter of the
joint venture corporation, the provisions of the
latter shall prevail
 In case there are provisions or clauses in the
joint venture agreement not found in the charter
of the joint venture corporation, such provisions
and clauses remain binding contracts among the
joint venture signatory to the agreement, but do
not bind the joint venture corporation or other
parties not signatories thereto
Articles of incorporation forms a basic contract document
defining the charter of the corporation.
These articles of incorporation is characterized as a contract
between and among 3 parties:
(a) b/w the state and the corporation
(b) b/w the stockholders and the State
(c) b/w the corporation and its stockholders
Although the JVA may contain rules on management and
control of the joint venture corporation, it does not
authorize the co-venturers (as equity owners) to override the
business management of the corporate affairs of the joint
venture corporation by its board of director. Any stipulation
is void. By having adopted the corporate entity as the
medium by which the co-venturers have sought to pursue
the joint venture enterprise, they are bound by Corporate
Law principles under which the entity must operate.
Joint venture agreements are binding contractual
commitments and that the contractual intent and agreement
between and among the co-venturers must somehow be
given binding effect into the corporate set-up of the JVA.
b. JV Company Organized as a Close Corporation
 Close corporation requisites:
(a) Stocks shall be held by not more than a
specified number of persons, not exceeding
20
(b) All stocks shall be subject to one or more
specified restriction on transfer in the nature
of a “right of first refusal”
(c) Corporation shall not list in any stock
exchange or make any public offering of any
of its stock of any class
Business of the corporation shall be managed by the
stockholder of the corporation rather than by board directors
c. Right of First Refusal; a Delectus Personae Feature in a
JV Company Scheme
The right of first refusal clause in the JVA is meant to protect
the original or remaining joint venturer(s) or shareholder(s)
from the entry of third persons who are not acceptable to it
as co-venturer(s) or co-shareholder(s) because the joint
venture is in the nature of a partnership which, unlike an
ordinary corporation is based on delectus personae
ASPECTS WHICH INFLUENCE CHOICE OF JV SCHEME
1. Defining Joint Ventures Scope Business Activity
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  Foreign Investments Act of 1991 (RA 7042)
provides the conditions, activities and
procedures where foreign enterprises may
invest and do business in the Philippines. By a
negative list scheme which established the
restricted areas, and declared all other areas as
open to unlimited foreign equity participation.
2. Limited Liability Features
 Partners and co-venturers are liable for
partnership debts beyond their contributions to
the partnership or JVAs
3. Exclusion of New Parties; Non-Dilution of Equity
4. Tax Issues Pertinent to Joint Ventures
 Like a partnership, a joint venture is considered
a corporate tax pater and are subject to
corporate income tax
 Double taxation
 Informal or contractual joint venture has the
advantage of limiting the extent of the
arrangement between and among the co-
venturers, as in undertakings that require
privacy. This lessens the need to have to register
the project as a separate corporate tax payer.
 Zero-rated dividends for JV corporations
JOINT VENTURE AGREEMENTS BETWEEN GOVERNMENT
CORPORATIONS AND PRIVATE ENTERPRISES
1. Legal basis for Guidelines
 EO 423 by Pres. Gloria Macapagal Arroyo which
mandated the NEDA to issue guidelines
regarding JVAs with private entities with the
objective of promoting transparency,
competitiveness and accountability in
government transactions where applicable,
complying with the requirements of an open
and competitive public bidding.
 NEDA issued the “Guidelines and Procedures
for entering into Joint Venture (JV) Agreements
between government and private entities” (JV
Guidelines or Guidelines)
 OGCC also issued with the Guidelines “A
Primer on the 2008 Joint Venture Guidelines (the
OGCC Primer
2. Objectives and principles underpinning the Revised Guidelines
Purpose of the Revised Guidelines:
1. To prescribe the rules, guidelines and procedure in the
forging of JV Agreements between government
corporations and private entities
2. To encourage pooling of resources and expertise between
government and private sector entities through JVs as a
viable, efficient and practical alternative in pursuing
development goals of the government
3. To ensure that all JV Agreements are entered into under
the policy that all government contracts shall be awarded
through a transparent process
The Government shall enter into a JV arrangement consistent
with the following principles:
1. Free competition: The creation of the JV should not
prevent potential players from profitably entering into
business venture/market
2. Efficiency: The cost of producing the articular product,
activity or service should be efficient or potentially
efficient towards earning potential profits for
government and the market player/private sector
partner
3. Conflict Free: The role of govern as a regulator of the
business of the JV should be clearly and explicitly
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 delineated from its role as implementer of the business to
avoid conflicts of interest
4. Government Divestiture: As differentiated from projects
procured under Official Development Assistance (ODA),
Government Procurement Reform Act (GPRA), and the
Build-Operate-and Transfer (BOT) Law, except for the
BOO scheme and similar schemes, where generally
ownership of the asset/business will stay with the
government, JV Agreements allow the private sector to
take over the undertaking of the projects in its entirety
after the government divests itself of any interest in the
JV
5. Agency Accountability: Accountability for the JV project
ultimately devolves on the Head of the Government
Entity involved in the JV Agreements and the
implementation of the JV project. The private parties
dealing with the Government are similarly held
accountable for all their actions relative thereto.
The JV involves a community or pooling of interests in the
performance of the investment activity, and each party shall
have the right to direct and govern the policies in connection
therewith with the intention to share both profits and, risks
and losses subject to agreement by the parties.
Sec. 5.7 of the Revised JV Guidelines: A JV may be
1) Contractual JV
2) Corporate JV (JV Company)
W/N a JV is a partnership:
YES. Under the Civil Cod, a partnership may be particular or
universal, and a particular partnership may have for its
object a specific undertaking Hence, under Philippine law, a
JV is a form of partnership and should thus be governed b
the general law on partnership.

3. JV Arrangements Covered by the Revised Guidelines

Joint Venture (JV) – an arrangement whereby a private

sector entity or a group of private sector entities on hand,
and a Government Entity or a group of Government Entities
on the other hand, contribute money/capital, services, assets
(including equipment, land intellectual property or anything
of value), or a combination of any or all of the foregoing to
undertake an investment activity

Investment activity – for the purpose of accomplishing a

specific goal with the end view of facilitating private sector
initiative in a particular industry or sector, and eventually
transferring ownership of the investment activity to the
private sector under competitive market conditions or to
the government.

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Contractual JV v. JV Company
Contractual JV
A legal andbinding agreement under which the JP Partners shall
perform the primary functions and obligations under the JV
Agreement without forming a JV Company.
The Guidelines do not recognize formal JV arrangement whereby
a partnership is registered with the SEC. It provides for the
following “Coverage”:
 The Revised Guidelines shall apply to all GOCCs,
government corporate entities, government instrumentalities
with corporate powers, government financial institutions,
state universities and colleges
 These Guidelines shall NOT apply to the following:
 Transactions of GFIs in the ordinary course of business as
part of their normal and ordinary banking, financial or
portfolio management operations
 JV activities of government corporate entities in the
exercise of their primary mandate to dispose government
assets or properties
 JV activities or undertakings of the LGUs
JV Company
A stock corporation incorporated and
registered n accordance with the
provisions of BP 68 (Corporation Code
of the Philippines), and based on the
prevailing rules and regulations of the
SEC, of which 50% or less of the
outstanding capital stock is owned by
the government. The JV company shall
be registered by the JV partners that
shall perform the primary functions
and obligations of the JV as stipulated
under the JV Agreement. The JV
Company shall possess the
characteristics stipulated under these
Guidelines.
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 budget for parametric
4. Nature of JV Covered by the Guidelines the formulas
contract)
“Public-Private Partnerships (PPPs) – broadly refers to long-term Price escalation Prohibits Allows price ---
contractual partnerships between the public and private sector price escalation
agencies, specifically targeted towards financing, designing, escalation
implementing, and operating infrastructure facilities and services Payment/procee Procuring Operator/contract GE and
that were traditionally provided by the public sector. These ds entity will or will remit fees private
collaborative ventures are built around the expertise and capacity of pay private to public entity partner
the project partners and are based on a contractual agreement, which entity share in the
ensures appropriate and mutually agreed allocation of resources, proceeds
risks and returns. according to
their
GPRA BOT JV proportionat
Purpose Procuremen Development of Joint e ownership
t of goods infrastructure undertaking Cost ABC covers Fees regard the With regard
and services projects through of an costs of project as a whole to the entire
within the project finance and enterprise individual enterprise
budget other financing components
cycle of the modes Incentives Prohibits Provides No
government incentives incentives for large incentives
agency/LG capital
U investments
Financing Generally, Generally, Joint Application Applies to Applies to all Limited to
financed financed from financing all Government GOCCs,
from public private sector from public Governmen Entities GCE, GICPs,
sector and private t Entities; GFIs, and
sector exempts SUCs (LGUs
Term Generally, Generally, long- Generally, from its under
short-term term short-term coverage separate
Ownership Stays with Stays with Generally, are projects guidelines)
Governmen Government short-term falling
t within BOT
Fees Fixed fees; Fees may be No law
Attached to adjustable in prescribed
ABC accordance with fees 5. General Guidelines in Entering into Covered JV Agreements
(approved pre-determined a) Parameters for the JV Agreement

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  The Revised Guidelines now only mandates that JV
Agreements entered into by the Government Entity
concerned with the private sector partner, whether
through contractual agreement or through the
formation of a JV Company, should be clear in its intent
to undertake a specific activity that is responsive to
national development goals and objectives
 Q: May Government Entities enter into JV Agreements
for the sole purpose of making profit?
A: Though the parties to the JV are expressly allowed to
profit and earn dividends from the JV activity, it is the
clear intention of the guidelines that profit making is
not the main purpose f or the participation of a
Government Entity in a JV Activity. The guidelines
clearly state that government participation is limited
(less 50% of equity; limited period of participation.)
And that the development of the particular JV activity
involved is of greater importance than the financial
impact or financial benefit of the proposed investment
to the Government Entity concerned.
b) JV Company as a preferred mode of implementing JV
Agreement
 The preferred mode of implementing a JV Agreement
shall be through a JV Company to be formed by the
Government Entity and the private sector entity (see
page 760 of CLV)
c) When JV Company is not best mode
 When the GE determines that the formation of a JV
company is not the best mode to implement a JV
activity, it may opt to implement the JV project through
a contractual agreement, using the same parameters as
those required for JV Company.
d) Transfer of JV Project of Facility
 The ownership of the JV project or facility may be
transferred to either the GE or the private sector partner
after the expiration of the JV Agreement depending on
the terms stated therein
e) Procurement Activities Financed by GE
 Whenever applicable, the procurement activities
financed by the GE or Government of the Philippines
regardless of source of funds, whether local or foreign,
shall comply with the GPRA
f) On the JVA Activity
 The Revised Guidelines provide for the following
parameters with respect to the JV activity:
 The JV activity shall also comply with other
laws, rules and regulations, guidelines and
legal issuances on procurement, as may be
applicable
 It shall be subject to audit examination under
existing laws, rules and regulations, and other
legal issuances
 A JV activity may be entitled to investment
incentives as may be approved by the BOI
under the Omnibus Investment Code, and as
well as in other incentives under other existing
laws
g) When involving government assets or properties
 For JVs involving government assets or properties, the
JV Agreement may be terminated/rescinded if the
private sector partner fails to deliver or perform any
major obligations prescribed therein
 In such cases, the GE concerned may likewise forfeit the
performance security of the private sector partner
6. Process for Entering into JV Agreements
 Under the Guidelines, prior to entering into a JV Agreement,
the proposed JV activity shall first be approved in principle,
in accordance with the procedures discussed below
a. Requirements/conditions for JV proposals
 The JV activity is within the mandate and charter of the
GE concerned
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  The JV activity is responsive in meeting national or
specific development goals and objectives
 The JV proposal clearly describes the proposed
investment, including its total cost, activities, objectives,
sources of funding, extent and nature of the proposed
participation of the GE concerned and the relevant
terms and conditions
 The JV proposal establishes all the components in
determining the over-all feasibility of the JV proposal
which include, among others, the technical, financial,
economic, and legal aspects
 The terms and conditions of the approval of the PC, if
applicable
b. Approval of JV Proposals
 The approval of the JV proposals must be in accordance
with the following:
i. Prior to submission of a JV proposal to the
Approving Authority, approval from concerned
entities shall be secured as indicated:
a. Projects which involve divestment or
transfer of government assets or
properties to the private sector partner
or a private sector/entity shall be
required to secure approval/clearance
from the PC
b. Projects which involve the formation of
a JV company shall be required to
secure approval from GCG
c. Projects which involved divestment of
government equity that is not in the
form of asset or property shall be
required to secure approval from GCG
ii. For the following projects, the Approving
Authority shall be the NEDA Board Investment
Coordination Committee:
a. Infrastructure projects with
government contribution amounting to
P150M and above
b. Projects that are Public Utilities with
government contribution amounting to
P150M and above
c. Negotiated JVs that are initiated by a
private sector proponent with
government contribution amounting to
P150M and above
d. Projects that are not related to primary
corporate mandate with government
contribution amounting to P150M and
above
iii. For the following projects, the Approving
Authority shall be the Head of the Government
Entity concerned:
a. Projects that are related to primary
corporate mandate and not involving
infrastructure Projects
b. Projects not covered under the
approval process of the PC or the GCG
iv. Project proposals that shall be submitted to
NEDA ICC for approval as indicated should
include:
a. Endorsement of the JV proposal by the
head of the Government Entity
concerned
b. Projec details
c. Draft JV Agreement
d. Other documents and requirements as
may be determined by the NEDA ICC
pursuant to its guidelines
The GE concerned shall furnish the
DOF all the documents submitted to
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 the NEDA ICC for the approval of a JV
proposal
e. The Approving Authority shall act on
the JV proposal within a period of 30
calendar days upon submission of
complete documents
c. Clearance/approval of DOF and DBM
 For JV activity that will require national government
undertakings, subsidies or guarantees,
clearance/approval of the DOF and/or the DBM, as the
case may bee, shall be secured.
d. Approval for Registration of JV Company
 All JV proposals which involve the pursuit of the
project through a JV Company shall be submitted to the
GCG for review and recommendation to the President
of the PH for approval before registering the same with
the SEC
e. Modes of Selecting a JV Partner
1) Competitive Selection – This refers to a process of
selection by a Government Entity of a JV Partner(s),
based on transparent criteria, which should not
constrain or limit competition, and is open to
participation by any interested and qualified private
entity.
2) Negotiated JVs – This refers to a proposal initiated by a
private sector proponent or, by the government in case
it has failed to identify an eligible private sector partner
for a desired activity after subjecting the same to a
competitive selection
f. Approval of the JV Agreement
 Upon approval of the JV proposal by the Approving
Authority, the GE Head shall approve the draft contract
or JV Agreement.
 GE Head will be responsible for ensuring the
consistency of the tender/bid parameters and the draft
contract or JV agreement with the parameters, terms
and conditions set forth by the Approving Authority
g. Deviations and Amendments to the JV Agreement
 The concerned GE shall not proceed with the award and
signing of the contract if there are material deviations
from the parameters and terms and conditions set forth
in the proposal/tender documents that tend to increase
the financial exposure, liabilities and risks of
government or any other factors that would cause
disadvantage to government and any deviation that will
cause prejudice to losing private sector participants.
 Said material deviations and amendments shall be
subjected to the approval requirements
 The GE Head shall be responsible for compliance with
this policy
 Violation of this provision = award of JV Agreement as
invalid
 Any amendment to a JV Agreement after award and
signing of contract shall undergo approval by the
appropriate Approving Authority as provided in these
Guidelines. Noncompliance with the corresponding
approval process stated shall render the amendment
null and void.
7. Reporting Requirements
a. Annual Report
 During the course of the implementation of the JV
Agreement, the concerned GE shall submit an annual
report on the status of its implementation during a
current year to the DOF and GCG for monitoring
purposes
b. Submission of Salient Features and Copy of JV Agreement
to NEDA
 The Heads of the GEs shall submit to NEDA, DOF and
GCG the salient features and a copy of JV Agreements
together with all documents required thereto for
monitoring of compliance with relevant policies,
15
procedures and conditions for approval of the JV
undertaking.

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