Making joint ventures workable

A special-purpose company can help organise ownership, contracts and accounts around a defined project. Its usefulness depends on how it is constituted and operated. Incorporation alone does not establish that land rights have been transferred, financing is committed or existing liabilities are excluded.

The parties should specify where the property interest sits, which entity contracts with customers and suppliers, and who is responsible for project obligations. The corporate constitution, shareholders' agreement, land documentation and financing terms should be reviewed together. Inconsistencies can create authority gaps precisely when a transaction needs a clear decision.

Contributions need an agreed delivery schedule. Land, cash and services should be described separately, with evidence of delivery and the consequences of delay. The arrangement should state whether later funding enters as equity or a loan and whether it changes economic participation. An initial percentage becomes incomplete if future obligations remain undefined.

Routine project management should have an identified decision-maker and an approved budget. Major changes need a different level of authority. Acquiring additional land, changing the development concept, undertaking substantial borrowing, providing guarantees or selling a material asset may warrant participant approval under the agreed structure.

The Nigerian Code of Corporate Governance 2018 identifies risk management, internal controls and reliable financial reporting as foundations of sound governance. Those principles offer a useful reference for designing project oversight, with advisers determining the requirements applicable to the actual entity. [14]

An approval threshold should be usable in practice. Requiring unanimity for ordinary procurement can delay construction; permitting unlimited managerial discretion can expose participants to obligations that were never contemplated. The agreement should distinguish routine authority, exceptional decisions and urgent protective action.

Deadlock needs a defined sequence. A disagreement about a valuation or certified construction amount may be suited to independent expert determination. A dispute about project strategy may require escalation to principals and a negotiated resolution. Buyout mechanisms should be examined for funding realism, especially where one participant has much greater access to cash. A contractual exit that cannot be financed may offer little practical relief.

Project accounts should enable participants to trace receipts and payments to the undertaking. Payment authority, supporting invoices, certification and reconciliation require named responsibilities. A bank balance tells only part of the story; unpaid commitments and the estimated cost to complete are equally relevant.

Saudi Arabia's REGA rules offer a specific model of structured oversight for regulated off-plan projects. Separate project accounts and professionally approved withdrawal requests demonstrate how control can be built into the release of money. The relevant principle for a Nigerian venture is traceability and defined authority, implemented through locally appropriate arrangements rather than a claim that Saudi rules apply. [8]

A useful reporting pack should relate physical progress to expenditure. Foundations completed, units sold, cash collected, receivables outstanding and remaining commitments need to be reconciled with the programme. Reporting dates and responsibility for verification should be agreed. Forecast revisions should identify the cause of change and the proposed response.

Related-party appointments require particular discipline. A participant may also supply construction, management or sales services. The venture should know the relationship, pricing basis, approval route and performance obligations. An interested participant's role in approving that contract should be addressed so that control and commercial benefit do not become indistinguishable.

The Nigerian stock market offers a useful governance analogy through the disclosure material available to investors. A private venture has a narrower audience, but its participants also need information that allows performance and management decisions to be examined. Information rights should therefore describe actual reports and access arrangements, rather than a general promise of transparency. [5]

Additional funding is one of the most consequential sources of disagreement. The agreement should explain when a capital call can be made, what evidence supports it, who must contribute and what happens if a participant cannot fund the request. Dilution, participant loans or external borrowing have different effects on control and eventual distributions.

An illustrative venture may begin with ₦300 million of cash equity and later need another ₦90 million to complete essential work. A provision that merely requires further funding in proportion to ownership leaves questions unanswered. When is payment due? Does new money earn interest? Can another participant cover the shortfall? How is any change in participation calculated? These hypothetical figures show the issues an agreement must resolve; they are not a project budget.

The funding solution should also fit the original contributions. A landowner who contributed property may have no liquid cash available for a later call. That fact can be addressed in the original structure through a realistic funding allocation. Leaving it implicit until construction stalls makes the eventual negotiation more difficult.

Revenue, profit and cash available for distribution are different measures. Sales receipts may be needed for construction, taxes, debt service or defects obligations. A distribution policy should preserve the funds required to meet those commitments and explain the order in which participants receive payments.

That order is often called a distribution waterfall. It can provide for agreed costs and liabilities, repayment of participant loans or capital, and allocation of the remaining cash. Each step should state its calculation. A preferred return also needs a defined base, accrual method and payment condition; the label alone cannot establish that cash will be available.

Default provisions should address specific events such as failure to contribute, unauthorised commitments or misuse of project funds. Notice, cure periods and remedies should be proportionate and compatible with the legal structure. The venture also needs continuity arrangements for death, incapacity, insolvency or replacement of a key service provider.

Cross-border ventures add currency, reporting and enforcement questions. Participants may fund in different currencies, rely on different accounting conventions or need approvals in more than one jurisdiction. Governing law, dispute procedures and the location of assets require specialist consideration before a remedy is treated as effective.

Good governance creates a visible connection between contribution, authority and responsibility. It allows participants to recognise emerging problems early and respond through an agreed process. That capacity is especially valuable when completion requires difficult decisions and the original projections need revision.