What is a joint venture?

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 Second Conduct Rule prohibits abuse of market power. This implies that if any undertaking has a substantial degree of market power in a market then it is prohibited from abusing that power by engaging in conduct that has the object or effect of preventing, restricting or distorting competition in Hong Kong.

Any infringement of the First and Second Conduct Rule will be investigated by The Hong Kong Competition Commission.

Key takeaway

• A Joint Venture is a structure where two or more parties combine resources (e.g. capital)  to complete a specific task/project.  
• A joint venture may be incorporated or contractual.
• Joint ventures must ensure compliance with the Competition Ordinance.

Bibliography

1. Competition Commission, Guideline on the First Conduct Rule: https://www.compcomm.hk/en/legislation_guidance/guidance/first_conduct_rule/files/Guideline_The_First_Conduct_Rule_Eng.pdf
2. Competition Commission, Guideline on the Second Conduct Rule: https://www.compcomm.hk/en/legislation_guidance/guidance/second_conduct_rule/files/Guideline_The_Second_Conduct_Rule_Eng.pdf

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