Contributing parties have certain rights that they can exercise and certain obligations. The clause must specify in detail what is expected of the parties. This is done to avoid future litigation and misunderstandings, there are various expenses such as legal fees or employee travel and other expenses necessary for the proper functioning of the joint venture. There should be a provision on how to deal with these expenses. these costs may come from the benefits or the parties may agree to share the costs in a mutually agreed report. When an impasse occurs in a joint venture, the first step in trying to resolve it is often an escalation procedure. An escalation provision applies if the matter has already been discussed by the board of directors (in the case of corporations) or the board of directors (in the case of LLCs) but has not been resolved. One party that wants to break the deadlock must notify the other party, and then the matter is referred to some senior leaders of each JV party. These agents must then try to resolve the closure for a while. In addition to the procedures and financial conditions contained in the withdrawal and termination provisions, the parties must also consider the impact of these measures on other matters: over time, the parties to a joint venture agreement may find that their vision or strategic interests have diverged.
In these cases, well-designed exit and termination provisions can help the parties get the most out of the joint venture. This article explains why exit and termination provisions are useful and discusses the main aspects to consider when drafting and negotiating these provisions. However, a trustee appointed by the court or a dissolution ordered by the court may result in a protracted dispute and loss of value of the joint venture. Indian companies can gain a competitive advantage by entering into a joint venture with a foreign company that has better and advanced technologies and processes. When considering exit or termination provisions in a joint venture agreement, the following preliminary issues must be considered: There are many ways in which the parties to the joint venture can provide the “joint venture parties” with an early exit from or early termination of a joint venture. An overview of common topics can provide a good basis for creative solutions specific to the agreement. Creating a joint venture involves a series of steps, starting with the identification and evaluation of a viable joint venture partner, to enter into an agreement. Joint venture transactions require effective documentation and other related/ancillary agreements. If a party violates a substantial or contained provision of the agreement, the aggrieved party may request the termination of the joint venture. Starting a joint venture can be very easy if done with effective planning, evaluation of a viable joint venture partner, format, target market research and structure. Again, it`s up to the parties to choose an exit mechanism, but here are some exit mechanisms that are commonly used: Parts of a joint venture may come from different jurisdictions and be subject to different laws. Therefore, the mechanism to be followed in the event of a dispute must be mutually agreed between the parties and defined in the agreement.
It is important to mention what kind of events should fall under this clause. This clause may cover events under the heading “Force Majeure” and other events such as war or terrorism, strikes, medical pandemics, etc. Therefore, it is important that the distribution of shares is specified in the joint venture agreement. Both clauses are equally important. The following list of events can be included in the termination clause: Thinking about all the scenarios that could lead to the exit is never a fun exercise, and we understand the psychological hesitation behind deep investment in a number of exit clauses. But this is clear: negotiators who do not plan to exit plan to fail if – and not if – an exit takes place. This clause defines the relationship between profit sharing and capitalization. The ratio in which the profit is to be distributed must be specified in the joint venture agreement. This clause should also specify the profit distribution policy and the amount of profits to be transferred to the reserves. It should also set out the provisions for the assumption of losses A joint venture agreement is the heart and soul of any joint venture. It shall define the object and purpose of the joint undertaking. Not only does it also provide for the structure, rights and obligations of the parties, how the business is to be conducted, profit-sharing ratios, dispute resolution, etc.
These statements are essential because they make it easier for the parties to decide whether or not to enter into the joint venture. Therefore, they must also be laid down in the Joint Undertaking Agreement. Not only are the measures to be taken in the event of misrepresentation or breach of this warranty also mentioned in the Contract. The atmosphere is understandable, but also very problematic. First, the simple truth is that all joint ventures end. While some, like Dow Corning, Fuji Xerox or Bosch Siemens, can last half a century or more, the median lifespan of joint ventures is now ten years (higher for asset joint ventures, lower for corporate joint ventures), according to our ongoing analysis. Second, the termination of a joint venture is not synonymous with the failure of a joint venture. If you think back 10 years, the BlackBerry was ubiquitous in business and half of the phones in the world ran on Symbian, American automakers revolved around bankruptcy and miles away from products like the Volt, consumers still rented DVD of blockbusters, and big names like DuPont, Kraft, Aetna and Monsanto were independent companies. As business strategies evolve, it is inevitable that joint ventures designed to support an old strategy will no longer make sense, resulting in the exit of an otherwise obsolete company. But only 24% of the joint ventures in our data are resolved or liquidated upon termination – a truer sign of failure. And third, many of the results are ugly – but especially when legal agreements are vague about when and how to pull the plug.
So what should a negotiator do? BEST PRACTICES FOR DEVELOPING YOUR EXIT STRATEGYAfter compiling and disassembling hundreds of joint ventures during our collective career, we have identified five best practices for negotiators trying to structure a joint venture exit clause: The joint venture agreement is one of the most important documents of a joint venture. It lays down the structure, the rights and obligations of the parties, the functioning of the joint venture, the confidentiality clauses and, above all, the distribution of profits, etc. The clause must explain in detail what the purpose of the joint venture is and in which territory the company is to be managed. Technical details must also be mentioned in this clause. Joint ventures are a strategic partnership between companies to manage a business or project or achieve a business objective. Joint ventures can have different types and forms, they can be based on a contract or on equity. It ensures that there is a mutual consensus between the parties on what a particular term means. It is highly recommended in joint venture agreements, especially if the company involves a high level of technical work. The clause may also provide that information disclosed for the purposes of the joint venture may not be used for personal purposes. In addition, confidentiality must be maintained even after the end of the Joint Undertaking or an agreed period for maintaining confidentiality after the end of the Joint Undertaking may be specified. However, this binding approach is somewhat rare and can be problematic, as the use of an independent expert is better suited to solving factual issues than to make complex business judgments. .