Joint Ventures
The form most often used for doing business in Kuwait is the
joint venture. The main reason for the popularity of this type
of legal relationship is the ease with which it is formed.
Joint ventures are simple contracts that require
no formal establishment procedures.1 However, they
can be the most confusing forms for doing business in Kuwait.
Often foreign entities do not understand the nature of joint ventures
under Kuwaiti Law.
The Kuwait Company Law refers to joint ventures
as joint venture companies.2 A joint venture company
does not have a legal personality3 and may not transact
business in its own name. It may transact business with third
parties only through one venturer, who would be personally liable
for the transactions he enters into with third parties. The transacting
venturer's liability to third parties is unlimited. The liability
of a nontransacting venturer is limited to his share in the joint
venture. Article 57 of the Kuwait Company Law states that a "joint
venture" is a secret agreement between two parties, one of whom
is the ostensible partner transacting business with third parties
while the other partner is the secret partner. If the transacting
venturer is a non-Kuwaiti, then the Kuwaiti venturer in the company
must guarantee him in that transaction. If the joint venture were
to deal with third parties in its own name, the effect would be
to expose all of the joint venturers to unlimited joint and several
liability whether or not they were personally involved in the
transaction.
The limitation of joint ventures under Kuwaiti
law is therefore obvious. Basically, a foreign entity would want
to use its trade name and have control over transactions without
risking unlimited liability.
In practice, foreign companies form joint ventures
and enter into contracts with third parties in the name of the
joint venture, which in reality transforms the joint venture into
a different form of entity under Article 4 of the Kuwait Company
Law, namely a de facto sharikat tadamoun. Under Kuwaiti law, this
is a "company" that is similar to a U.S. general partnership.
1. Kuwait Companies Law (KCL),
Art. 57.
2. KCL, Art. 56.
3. KCL, Art. 59.
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