The Contrato de Asociación en Participación (Joint Participation Agreement) is an ideal structure for an investor seeking to profit from a business without being involved in its management. More importantly, the investor will not be exposed to liability arising from such management, but still hold the right to supervise the business. In sum, it is an agreement by which a party (asociante) grants, in favour of another party (asociado), an interest in the profits of one or more of its businesses in exchange for its investment. The result is much alike the sociedad en comandita (similar to a limited partnership) regulated under the Peruvian Corporations Law, with the main difference that no company is incorporated.
In addition, it is possible to limit or eliminate the risks for the asociado in the business, given that the parties may freely agree on the proportion by which each party will be affected by the losses of the business or even agree that a party will not be liable for any losses. On the contrary, the asociante may obtain liquidity without having to obtain a loan or grant a shareholding interest in its company.
One downside of a joint participation agreement is that the contributions made by the asociado are presumed to be an asset of the asociante (except under certain circumstances) and therefore said contributions would potentially be affected by the asociante's insolvency. However, there are structures than can be implemented to exclude the assets from the asociante's estate.
The real estate sector in Peru remains underinvested. Due to the characteristics of Joint Participation Agreements, several investment funds have considered this form of agreement the main instrument to provide much needed liquidity to local real estate developers in exchange for an interest in the profits of the business.
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