International Joint Ventures Handbook · PDF fileJoint Venture Agreement.....60 4. Company...
Transcript of International Joint Ventures Handbook · PDF fileJoint Venture Agreement.....60 4. Company...
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DDIISSCCLLAAIIMMEERR:: The material in this book is designed to provide general information only. It is not offered asadvice on any particular matter, whether it be legal, procedural or other, and it should not be taken as such.The precedent documents included in this book have not been prepared with any particular transaction inmind. Baker & McKenzie, the editors and the contributing authors expressly disclaim all liability to anyperson in respect of the consequences of anything done or omitted to be done wholly or partly in relianceupon the whole or part of the contents of this book. No reader should act or refrain from acting on thebasis of any matter contained in this book without seeking specific professional advice on the particularfacts and circumstances at issue. References in this book to “Baker & McKenzie” include Baker & McKenzieInternational and its member law firms, including Baker & McKenzie, LLP.
Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordancewith the common terminology used in professional service organizations, reference to a “partner” meansa person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” meansan office of any such law firm.
International Joint Ventures HandbookEditors’ Note
EDITORS’ NOTEBaker & McKenzie was founded in 1949. For more than 60 years, Baker & McKenzie hasprovided sophisticated advice and legal services to many of the world’s most dynamic andsuccessful organizations. With a network of 4,000 locally qualified, internationally experiencedlawyers in 42 countries, Baker & McKenzie has expertise in all of the disciplines that are typicallyrelevant to a joint venture transaction. Working in experienced inter-disciplinary teams to adviseon corporate, securities, tax, antitrust/competition, commercial, intellectual property, finance,employment, employee benefits, IT, environmental, real property, trade and other complianceand regulatory matters, Baker & McKenzie is in a unique position to assist companies in planningand implementing joint venture transactions and to deliver integrated solutions which take intoaccount all relevant business and legal factors.
This handbook is intended to help clients (lawyers and non-lawyers) understand the breadth anddepth of business and legal considerations associated with international joint venture transactionsand suggests some ways to navigate the joint venture journey. This handbook is organizedprimarily in checklist and questionnaire format with the goal of helping the reader gather andassess key information that impacts the various stages of joint venture planning. It is writtenprimarily from the perspective of the foreign or “non-local” party entering into a new jurisdiction.
This handbook is not a comprehensive treatise. It seeks only to provide a framework for thosecontemplating a joint venture relationship and it focuses on equity joint ventures where theparties participate through equity in a joint venture vehicle for the purpose of conducting businesstogether. Further, this handbook does not attempt to provide a detailed discussion of theplanning and execution of business acquisition and disposition transactions, even though manyof those elements will be present in the joint venture context, particularly when one or bothparties will be contributing an existing business to the venture. Baker & McKenzie publishesother handbooks, including the “Related Publications” listed below, that look at other transactionsin greater depth.
Related PublicationsCross-Border Transactions Handbook – a guide to major legal issues to consider whenembarking on a cross-border transaction.
Post-Acquisition Integration Handbook – a guide to major legal issues to consider whenintegrating an existing and newly acquired business operating in the same field, to save costs,develop synergies and generate value for shareholders.
Rapid Dispositions Handbook – an organized collection of practical know-how, specificallyrelevant to a situation where a company wishes to dispose of a business or undertake a disposalprogram.
International Joint Ventures HandbookEditors’ Note
Acquiring Companies and Businesses in Europe – a country-by-country introduction tothe main legal issues to consider when contemplating an acquisition in Europe.
Guide to Mergers and Acquisitions in Asia Pacific – a country-by-country introduction tothe main legal issues to consider when contemplating an acquisition in Asia Pacific.
A Legal Guide to Doing Business in the United States of America – an overview ofseveral areas of US law that are of interest for non-US companies who either plan to enter theUS market or already conduct business in the United States. Some editions are focused oninvesting companies from particular jurisdictions (including Austria, Germany and Switzerland).
For further details on any of the information contained in this handbook or to obtain copies ofany of the related publications listed above, please contact your Baker & McKenzie contactpartner. Further details on the firm, our people and our practice may be found atwww.bakermckenzie.com.
TABLE OF CONTENTSSECTION 1 OVERVIEW ........................................................................................1
1. Basic Considerations....................................................................22. Understanding the Different Approaches ..................................3
Exhibit 1(a) - Transaction Continuum..........................................4Exhibit 1(b) - Comparison of Typical Contractual
Joint Venture, Equity Joint Venture and Establishment of Wholly-Owned Subsidiary ........................5
SECTION 2 DILIGENCE........................................................................................91. Local Risk Assessment ................................................................92. Compatibility Assessment ............................................................9
Exhibit 2(a) - Local Risk Assessment Checklist........................11Exhibit 2(b) - Compatibility Assessment Checklist ..................16
SECTION 3 STRUCTURE ..................................................................................211. Note on Tax Strategies ..............................................................212. Jurisdiction in Which to Organize the Vehicle ..........................22
Exhibit 3(a) - Example Entity Forms ..........................................233. Capital and Financial Interests..................................................294. Equity Participation ....................................................................345. Management Control ................................................................356. Director and Officer Liability ......................................................35
Exhibit 3(b) - Equity Participation Considerations....................37Exhibit 3(c) - Management Control Considerations ................38
SECTION 4 EXIT AND TERMINATION ..............................................................411. Transfer of Interests ..................................................................422. Sale or Dissolution ....................................................................443. Intellectual Property Considerations ........................................444. Non-Competition ........................................................................455. Other Transition Issues ..............................................................46
SECTION 5 OTHER KEY CONSIDERATIONS ....................................................471. Dispute Resolution ....................................................................472. Methods for Contributing Assets ..............................................483. Non-Competition Provisions ......................................................504. Competition/Antitrust Law ........................................................51
International Joint Ventures HandbookTable of Contents
5. Foreign Ownership Restrictions ................................................546. Employee Transfers and Benefits..............................................55
SECTION 6 DOCUMENTATION ..........................................................................591. Confidentiality Agreement ........................................................592. Term Sheet..................................................................................593. Joint Venture Agreement............................................................604. Company Formation Documents ..............................................605. Ancillary Agreements..................................................................60
Exhibit 6(a) - Sample Mutual Confidentiality Agreement ........62Exhibit 6(b) - Sample Term Sheet..............................................76Supplement A to Term Sheet - Commentary
and Alternative Provisions ..................................................82Supplement B to Term Sheet - Sample
Exit Rights Provisions ..........................................................95Exhibit 6(c) - Joint Venture Issues Checklist ............................97
Appendix A Overview of D&O Duties and Liabilities in Foreign Entities....111
Appendix B Overview of Applicable US Laws Impacting D&O Liability......123
International Joint Ventures HandbookTable of Contents
International Joint Ventures HandbookSection 1 – Overview
1Baker & McKenzie
SECTION 1 OVERVIEWA corporate alliance may take many forms, from a purely contractual relationshipto a jointly owned entity. It may involve transferring an existing business to thejoint control of the parties or indirectly acquiring an existing business from anotherparty, in which case organizing the venture will involve elements of a disposition oracquisition, or both. Alternatively, an alliance may only involve license agreements,joint marketing agreements, affiliate revenue sharing agreements or other types ofagreements in which the parties agree to pursue a set of common goals. Thishandbook focuses on “equity joint ventures” in which a foreign partner and a localpartner participate through equity in a joint venture vehicle for the purpose ofconducting business together in a particular jurisdiction (often an emerging market).
The following is a generalization of the typical corporate transactions and wherejoint ventures fit along this continuum:
There are, however, endless ways in which a joint venture can be structured thatdefy the simple categories shown above. For example, even though the partiesmay set up an equity joint venture, it may be the case that substantial (if not all)contributions are made via arm’s-length commercial agreements. Each opportunitythus will have its own characteristics which suggest a particular strategy, and rarelyis there a single “right” or “wrong” approach.
This handbook considers the different stages of the equity joint venture deal process,from evaluation of the initial opportunity and potential partner, through high levelstructure planning, evaluation of specific legal issues including exit and terminationrights, and drafting the necessary transaction documents.
Outsourcing Corporate Alliances Traditional M&A Greenfield
(Non-Equity) (Equity)
ContractServices
Contractual Joint Ventures
Non-ControllingAcquisition
<50%
Equity JointVenture
ControllingAcquisition
>50%
FullAcquisition
Establishmentof Wholly-
OwnedSubsidiary
/ \
licensing,supply,
distribution
resourcesharing
International Joint Ventures HandbookSection 1 – Overview
2 Baker & McKenzie
1. Basic ConsiderationsAmong the reasons commonly cited for entering into a joint venture are:
• Fast entry into local markets;
• Low market entry costs;
• Strong local player (e.g., established customer base, market presence,production capacity, complimentary technology, employee base,distribution chain, and political savvy);
• Economical long-term resource commitment with shared risks;
• Diminished political risk (e.g., government interference,nationalization, political volatility); and
• No suitable acquisition targets or greenfield projects (e.g., establishmentof wholly-owned subsidiary) due to cost, local cultural resistance,foreign ownership restrictions, and other factors.
Potential downsides and risks include:
• Cultural differences between parties from different jurisdictions canlead to significant misunderstandings and inefficiencies;
• Misalignment or divergence of strategies can result in losses and afailure to achieve overall business objectives;
• Operational problems, whether the result of strategic differences,production issues, management control issues or otherwise, can limitthe effectiveness of the venture;
• Lack of trust between the parties can limit cooperation;
• Decision-making and dispute resolution processes can be lengthy andcostly, depending upon what mechanisms are agreed in the jointventure documentation and what practices have evolved during the lifeof the joint venture in this respect;
• Service and contribution agreements, which are often seen as ancillaryto the relationship, can create a crushing dependency of the jointventure on a particular party even though an equity joint venture maybe established with the overarching goal of giving the joint venturesome measure of independence from the participants; and
• Buy-out upon termination can be expensive or difficult.
That said, a joint venture may be the appropriate investment arrangement in theparticular circumstances, and, like any investment arrangement, the potentialdownsides and risks can be managed through careful diligence, thoughtful planningand appropriate documentation.
2. Understanding the Different ApproachesAt the outset of any cooperative arrangement, the parties must determine theappropriate form to regulate their relationship in light of their respective goals andstrategies. For example, in addition to establishing an equity joint venture, theparties should consider whether any of the following types of arrangements wouldbe appropriate in light of their respective commercial objectives:
• a supply agreement for goods or services;
• a distribution or agency agreement;
• a license or franchise agreement;
• a research and development or cooperation agreement;
• a 100% acquisition; or
• establishment of a wholly-owned subsidiary without participation fromanother party.
The Transaction Continuum shown in Exhibit 1(a) depicts generally the levels ofcommitment, integration and control generally associated with these different typesof relationships, and how transaction complexities can vary.
International Joint Ventures HandbookSection 1 – Overview
3Baker & McKenzie
International Joint Ventures HandbookSection 1 – Overview
Exhibit 1(a) Transaction Continuum
The Comparison chart in Exhibit 1(b) compares in greater detail the basiccharacteristics of a contractual joint venture, equity joint venture and theestablishment of a wholly-owned subsidiary, as three broad categories ofinternational investment. We note that, for those participants who believe thatthe creation of contractual collaboration is sufficient and appropriate for theopportunity under consideration, local laws may impact on the relationship inany event, and imply obligations between the parties on the basis of agency orpartnership as a matter of law which the parties themselves have not expresslyaddressed. As such, it will be beneficial for any potential participant to considerthe possible effect of local laws even at the high level planning stage.
4 Baker & McKenzie
Outsourcing Corporate Alliances Traditional M&A Greenfield
(Non-Equity) (Equity)
ContractServices
Contractual Joint Ventures
Non-ControllingAcquisition
<50%
Equity JointVenture
ControllingAcquisition
>50%
FullAcquisition
Establishmentof Wholly-
OwnedSubsidiary
/ \
licensing,supply,
distribution
resourcesharing
Increasing Degree of Commitment
Increasing Degree of Integration
Increasing Degree of Control
Transaction Complexity
5Baker & McKenzie
International Joint Ventures HandbookSection 1 – Overview
Cont
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International Joint Ventures HandbookSection 1 – Overview
6 Baker & McKenzie
Cont
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Baker & McKenzie
7Baker & McKenzie
International Joint Ventures HandbookSection 1 – Overview
Cont
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sas
sets
SECTION 2 DILIGENCEOnce a party has decided to proceed with a joint venture in a foreign jurisdiction,it will be necessary to conduct diligence in connection with the transaction andthe potential partner. If the transaction involves the contribution of an existingbusiness to the venture, the diligence exercise likely will share many of the samecharacteristics as a diligence exercise carried out in a traditional business acquisitionor disposition transaction – e.g., financial, business and legal diligence with respectto the business being contributed. In the international joint venture context, thediligence exercise should also focus on risks that are unique to doing business inthe relevant local market as well as on assessing potential compatibility withprospective partners.
1. Local Risk AssessmentAn international joint venture implies an ongoing relationship in a market that maybe unfamiliar to at least one of the parties. Especially where the joint venture willconduct business in an emerging market, the diligence exercise should thus includean assessment of the particular risks that are unique to that local market, includingpolitical, business, legal, and cultural risks. The Local Risk Assessment Checklist inExhibit 2(a) is designed to assist the analysis of these types of risks.
2. Compatibility AssessmentA joint venture also implies a degree of cooperation between the parties.An important aspect of the joint venture diligence exercise should thus bean evaluation of factors that may indicate compatibility between the prospectiveparties to assess the prospects of a successful joint venture. The CompatibilityAssessment Checklist at Exhibit 2(b) is intended to identify specific operationaland non-operational areas for review in this regard. This checklist can also be usedto help monitor the relationship throughout the life cycle of the joint venture. Bearin mind, however, that:
• Many of these factors can only be assessed through frank discussionsbetween the parties;
Baker & McKenzie 9
International Joint Ventures HandbookSection 2 – Diligence
• The parties may not be forthcoming until they know the transaction islikely to proceed; and
• Cultural sensitivities may impact the level and nature of the diligenceexercise.
A compatibility assessment is thus often easier said than done. Nevertheless, it iscritical to include in the diligence process the persons who will ultimately be involvedin the management of the joint venture so they can begin to develop a workingrelationship and head off potential problems early in the joint venture’s life cycle.
The information and tools included in this section are not intended to be static, andthe levels of importance of the individual factors will undoubtedly vary dependingon the particulars of the party proposing to enter into the joint venture, and itsobjectives for the specific opportunity.
10 Baker & McKenzie
International Joint Ventures HandbookSection 2 – Diligence
11Baker & McKenzie
International Joint Ventures HandbookSection 2 – Diligence
Exhi
bit 2
(a)
Loca
l Ris
k As
sess
men
t Che
cklis
t
Polit
ical
and
Bus
ines
s R
isks
Ris
kIs
sue
Poss
ible
Sol
utio
ns
Stab
ility
of L
ocal
Gov
ernm
ent
•Is
the
loca
l gov
ernm
ent s
tabl
e (e
.g.,
mat
ure
dem
ocra
cy,
repr
esen
tativ
e po
litic
al p
artie
s, c
ivili
an c
ontro
ls, f
ree
pres
s,no
rece
nt h
isto
ry o
f dic
tato
rshi
p)?
•On
e w
ay to
ass
ess
stab
ility
is to
exa
min
e co
untr
y st
udie
spr
epar
ed b
y go
vern
men
t age
ncie
s, in
clud
ing
thos
e of
the
USDe
part
men
t of S
tate
(http
://w
ww.
stat
e.go
v/) a
nd th
e CI
A W
orld
Fact
Boo
k (h
ttps:
//w
ww.
cia.
gov/
), as
wel
l as
loca
l new
spap
ers.
•M
inim
ize c
apita
l inv
estm
ent (
rese
rve)
in th
e jo
int v
entu
re e
ntity
.•
Del
ay u
ntil
stab
ility
incr
ease
s.
Corr
uptio
n an
dAn
ti-Co
rrup
tion
Regu
latio
n•
Is c
orru
ptio
n co
mm
on?
•If
so, c
an th
e jo
int v
entu
re e
ffect
ivel
y op
erat
e its
bus
ines
sw
ithou
t par
ticip
atin
g in
cor
rupt
ion?
•On
e w
ay to
ass
ess
corr
uptio
n is
to c
onsu
lt Tr
ansp
aren
cyIn
tern
atio
nal’s
Cor
rupt
ion
Perc
eptio
n In
dex
(http
://w
ww.
trans
pare
ncy.o
rg/)
.•
Esta
blis
h an
d im
plem
ent a
mea
ning
ful c
ompl
ianc
e pr
ogra
mth
at c
onta
ins
stric
t int
erna
l pol
icie
s ag
ains
t cor
rupt
pra
ctic
es.
This
requ
ires
effe
ctiv
e co
mm
unic
atio
n to
the
join
t ven
ture
’sem
ploy
ees,
as
wel
l as
on-g
oing
mon
itorin
g.•
Incl
ude
appr
opria
te re
pres
enta
tions
and
cov
enan
ts in
the
join
t ven
ture
agr
eem
ent a
nd im
pose
pen
altie
s th
at a
lign
the
join
t ven
ture
par
ties
in th
e ou
tcom
e.•
Cond
uct p
rivat
e in
vest
igat
ion
of th
e po
tent
ial p
artn
er a
nd k
eyem
ploy
ees.
Curr
ency
Ris
k•
Is th
e lo
cal c
urre
ncy
conv
ertib
le?
•If
the
curr
ency
can
not b
e co
nver
ted
dire
ctly,
do
alte
rnat
ive
mea
ns o
f con
vers
ion
exis
t?•
Is th
e cu
rren
cy m
arke
t (or
cur
renc
y sy
stem
) sta
ble?
•D
o th
e ex
chan
ge c
ontro
l/cu
rren
cy la
ws
of th
e ju
risdi
ctio
nre
stric
t the
pay
men
t of d
ivid
ends
or m
ovem
ent o
f cap
ital?
Doe
s th
e jo
int v
entu
re e
ntity
form
rest
rict t
he p
aym
ent o
fdi
vide
nds?
Are
ther
e an
y w
ays
to o
verc
ome
the
rest
rictio
ns?
•H
edge
cur
renc
y ris
k w
ith d
eriv
ativ
es.
•Ob
tain
exe
mpt
ions
as
a co
nditi
on to
inve
stm
ent.
•Co
nduc
t joi
nt v
entu
re in
con
vert
ible
cur
renc
y.
12 Baker & McKenzie
International Joint Ventures HandbookSection 2 – Diligence
Baker & McKenzie
Ris
kIs
sue
Poss
ible
Sol
utio
ns
Loca
l Bus
ines
s Ri
sks
•Is
the
loca
l eco
nom
y st
able
? Is
it p
ossi
ble
that
the
loca
lgo
vern
men
t will
face
fina
ncia
l cris
is?
•Co
uld
man
ufac
turin
g co
sts,
incl
udin
g la
bor c
osts
, inc
reas
edr
astic
ally
?•
Are
labo
r uni
ons
gene
rally
pow
erfu
l in
the
coun
try?
•Is
loca
l con
sum
er b
ehav
ior/
pref
eren
ce s
usce
ptib
le to
dra
stic
chan
ge?
•Ar
e th
ere
exis
ting
or p
oten
tial l
ocal
com
petit
ors
to w
hom
the
loca
l gov
ernm
ent c
an g
ive
spec
ial p
rivile
ges?
•Bu
y in
sura
nce
polic
ies
for c
ount
ry ri
sks.
•As
sess
loca
l bus
ines
s ris
ks in
det
ail a
nd u
se re
alis
tic o
rm
odes
t dis
coun
t rat
es.
•Ve
ntur
e w
ith p
oliti
cally
sav
vy lo
cal p
artn
er.
•W
ork
with
loca
l bus
ines
s, la
bor a
nd p
oliti
cal l
eade
rs to
obt
ain
inve
stm
ent a
nd o
ther
loca
l sup
port
.
Lega
l Ris
ks
Ris
kIs
sue
Poss
ible
Sol
utio
ns
Rule
of L
aw•
Doe
s th
e ta
rget
cou
ntry
hav
e w
ell-e
stab
lishe
d ru
les
of la
w in
gene
ral o
r do
offic
ials
hav
e si
gnifi
cant
dis
cret
ion
with
resp
ect
to in
terp
reta
tion
and
enfo
rcem
ent?
•Se
lect
gov
erni
ng la
w a
nd d
ispu
te re
solu
tion
foru
m o
f aju
risdi
ctio
n w
ith w
ell-d
evel
oped
and
flex
ible
lega
l sys
tem
.
Enfo
rcea
bilit
y of C
ontra
ctua
lSa
fegu
ards
in Jo
int V
entu
reDo
cum
ents
•Is
the
choi
ce o
f law
and
foru
m v
alid
and
enf
orce
able
?•
Are
pena
lty c
laus
es v
alid
and
enf
orce
able
?•
Is a
n in
junc
tion
orde
r to
enfo
rce
cont
ract
ual r
ight
s av
aila
ble?
Can
loca
l cou
rts
enfo
rce
spec
ific
perfo
rman
ce?
•Ar
e lo
cal c
ourt
s pr
ejud
iced
tow
ards
loca
l com
pani
es?
•Ar
e ju
dgm
ents
of l
ocal
cou
rts
pred
icta
ble?
•Ho
w lo
ng w
ill it
usu
ally
take
to o
btai
n an
d en
forc
e a
judg
men
t?•
Doe
s th
e lo
cal g
over
nmen
t hav
e st
rict e
nfor
cem
ent
proc
edur
es?
•Is
the
loca
l cou
ntry
par
ty to
inte
rnat
iona
l tre
atie
s fo
r the
enfo
rcem
ent o
f for
eign
mon
ey ju
dgm
ents
and
arb
itral
awa
rds?
•Pr
ovid
e fo
r arb
itrat
ion
in th
e jo
int v
entu
re a
gree
men
t.•
Sele
ct g
over
ning
law
and
foru
m o
f a ju
risdi
ctio
n w
ithw
ell-d
evel
oped
and
flex
ible
lega
l sys
tem
.
13Baker & McKenzie
International Joint Ventures HandbookSection 2 – Diligence
Ris
kIs
sue
Poss
ible
Sol
utio
ns
Sele
ctio
n of
Ent
ity•
Iden
tify
avai
labl
e co
rpor
ate
form
s fo
r joi
nt v
entu
res
(e.g
.,co
rpor
atio
n, li
mite
d lia
bilit
y co
mpa
ny, p
artn
ersh
ip)
•W
hich
of t
hese
ent
ity ty
pes
is c
usto
mar
ily/n
orm
ally
use
d fo
rjo
int v
entu
res?
•
Whi
ch o
f the
se o
ffer g
reat
est f
lexi
bilit
y of
man
agem
ent?
•D
oes
loca
l law
requ
ire a
min
imum
cap
ital c
ontri
butio
n?Ar
eco
ntrib
utio
ns in
-kin
d al
low
ed?
Are
con
tribu
tions
sub
ject
to a
n in
depe
nden
t val
uatio
n?•
Can
the
corp
orat
e fo
rm p
ay d
ivid
ends
at a
ny ti
me
or a
re th
ere
any
timin
g re
stric
tions
? C
an d
istri
butio
ns b
e m
ade
out o
fca
pita
l or o
nly
out o
f pro
fits?
Are
ther
e m
anda
tory
rese
rves
?•
Are
inte
rest
s in
the
part
icul
ar k
ind
of e
ntity
ass
igna
ble?
Are
limita
tions
on
the
right
to a
ssig
n/tra
nsfe
r (su
ch a
sre
quiri
ng m
anag
emen
t con
sent
, rig
ht o
f firs
t ref
usal
, or r
ight
of fi
rst o
ffer)
lega
l and
bin
ding
?•
Doe
s a
mem
ber h
ave
any
right
to w
ithdr
aw a
nd h
ave
itsin
tere
st re
deem
ed b
y th
e co
mpa
ny?
Can
mem
bers
dis
solv
eth
e co
mpa
ny in
cas
e of
dea
dloc
k? Is
an
agre
emen
tco
ncer
ning
suc
h a
with
draw
al o
r dis
solu
tion
bind
ing
and
enfo
rcea
ble?
•D
oes
the
loca
l ent
ity p
rovi
de li
mite
d lia
bilit
y to
its
equi
tyow
ners
? W
hat i
s th
e ris
k of
“pi
erci
ng th
e co
rpor
ate
veil?
”•
Doe
s th
e lo
cal c
ount
ry o
r the
cou
ntry
whe
re th
e pa
rty/
entit
yis
loca
ted
reco
gniz
e th
e co
rpor
ate
form
as
a pa
ss-th
roug
hen
tity
for t
ax p
urpo
ses?
Are
ther
e an
y lim
itatio
ns o
n su
chre
cogn
ition
? W
ill c
ontri
butio
ns to
the
corp
orat
e fo
rm b
e ta
xed?
•Is
the
corp
orat
e fo
rm w
ell-r
ecog
nize
d in
the
loca
l bus
ines
sco
mm
unity
for t
he ty
pe o
f bus
ines
s be
ing
cont
empl
ated
?
•If
ther
e is
no
corp
orat
e fo
rm s
uita
ble
for a
join
t ven
ture
,co
ntra
ctua
l arr
ange
men
ts w
ithou
t est
ablis
hing
a c
orpo
rate
form
can
be
a so
lutio
n (e
.g.,
join
t mar
ketin
g, d
istri
butio
n or
supp
ly a
rran
gem
ent,
licen
sing
arr
ange
men
t).•
To re
duce
the
risk
of d
irect
liab
ility
of t
he e
quity
ow
ners
,co
nsid
er in
terp
osin
g ho
ldin
g co
mpa
nies
.•
See
hand
book
Sec
tion
3 (S
truct
ure)
for a
dis
cuss
ion
ofpo
tent
ial c
orpo
rate
form
s.
14 Baker & McKenzie
International Joint Ventures HandbookSection 2 – Diligence
Ris
kIs
sue
Poss
ible
Sol
utio
ns
Inte
llect
ual P
rope
rty
•D
oes
the
loca
l gov
ernm
ent h
ave
wel
l-est
ablis
hed
inte
llect
ual
prop
erty
law
s an
d ar
e th
ey re
gula
rly e
nfor
ced?
•Ar
e cr
oss-
bord
er tr
ansf
ers
of in
telle
ctua
l pro
pert
y by
assi
gnm
ent o
r lic
ensi
ng s
ubje
ct to
gov
ernm
ent r
evie
w/c
ontro
l?•
Wha
t are
the
man
dato
ry ru
les
rega
rdin
g em
ploy
ee o
wne
rshi
pin
inve
ntio
ns (e
.g.,
in s
ome
coun
tries
, inv
ento
rs a
re e
ntitl
ed to
a ce
rtai
n le
vel o
f com
pens
atio
n fo
r suc
cess
fully
exp
loite
din
vent
ions
whi
ch m
ay in
crea
se in
telle
ctua
l pro
pert
yde
velo
pmen
t cos
ts)?
•D
oes
loca
l law
pro
hibi
t or l
imit
the
right
of a
con
tribu
tor t
ore
ceiv
e an
aut
omat
ic a
ssig
nmen
t or l
icen
se-b
ack
ofim
prov
emen
ts m
ade
by a
lice
nsee
(i.e
., th
e jo
int v
entu
re)?
•D
oes
loca
l law
requ
ire th
at in
telle
ctua
l pro
pert
y de
velo
ped
usin
g go
vern
men
tal f
unds
/spo
nsor
ship
rem
ain
unde
r the
owne
rshi
p of
a lo
cal e
ntity
? (T
his
coul
d im
pact
inte
llect
ual
prop
erty
ow
ners
hip
upon
term
inat
ion
or e
xit.)
•D
oes
loca
l law
requ
ire th
at a
trad
emar
k ca
n on
ly b
ere
gist
ered
by
an e
ntity
loca
ted
and/
or d
oing
bus
ines
s lo
cally
?
•Im
plem
ent a
bus
ines
s st
ruct
ure
whe
re p
ropr
ieta
ry in
form
atio
nw
ill n
ot b
e di
sclo
sed
to th
e lo
cal p
arty
.•
Esta
blis
h an
d im
plem
ent s
trict
inte
rnal
con
fiden
tialit
y po
licie
sfo
r the
join
t ven
ture
ent
ity.
•Fa
ctor
into
on-
goin
g co
ntrib
utio
ns a
nd d
istri
butio
ns a
nyre
quire
d co
mpe
nsat
ion
aris
ing
as a
resu
lt of
em
ploy
ee-o
wne
din
vent
ions
.•
Esta
blis
h th
e jo
int v
entu
re in
a ju
risdi
ctio
n w
ith fa
vora
ble
inte
llect
ual p
rope
rty
law
s.
Antit
rust
•D
oes
the
loca
l gov
ernm
ent h
ave
wel
l-dev
elop
ed a
ntitr
ust
regu
latio
ns a
nd a
re th
ey re
gula
rly e
nfor
ced?
•Re
ques
t a n
o-ac
tion
lette
r fro
m lo
cal a
ntitr
ust a
utho
ritie
s.•
Choo
se a
join
t ven
ture
stru
ctur
e th
at w
ill n
ot v
iola
teap
plic
able
ant
itrus
t reg
ulat
ions
.
Fore
ign
Inve
stm
ent L
aws
•D
o in
vest
men
ts b
y a
fore
ign
pers
on re
quire
prio
r app
rova
lof
any
gove
rnm
enta
l aut
horit
ies?
•D
oes
loca
l law
allo
w a
fore
ign
pers
on to
ow
n a
maj
ority
ofth
esh
ares
in a
com
pany
?
•Fo
reig
n pa
rty
redu
ces
inve
stm
ent t
o le
ss th
an m
ajor
ity,
and
obta
ins
cont
rol o
ver t
he jo
int v
entu
re th
roug
h sh
ares
with
spec
ial v
otin
g po
wer
or t
hrou
gh s
peci
al c
ontra
ctua
lar
rang
emen
ts.
Regu
latio
n (L
icen
sing
)•
Are
fore
ign
com
pani
es a
llow
ed to
hav
e a
licen
se to
do
busi
ness
with
out t
he p
artic
ipat
ion
of th
e lo
cal p
arty
? •
If th
e m
ajor
ity o
f sha
res
in th
e jo
int v
entu
re a
re o
wne
d by
afo
reig
n co
mpa
ny, i
s th
e jo
int v
entu
re a
llow
ed to
hav
e su
cha
licen
se?
•Fo
reig
n pa
rty
redu
ces
inve
stm
ent t
o le
ss th
an m
ajor
ity,
and
obta
ins
cont
rol o
ver t
he jo
int v
entu
re th
roug
h sh
ares
with
spec
ial v
otin
g po
wer
or t
hrou
gh s
peci
al c
ontra
ctua
lar
rang
emen
ts.
Acco
untin
g &
Com
plia
nce
•D
oes
loca
l cor
pora
te la
w s
peci
fy a
ccou
ntin
g ru
les
for t
hepa
rtic
ular
ent
ity ty
pes
or a
re th
e pa
rtie
s fre
e to
cho
ose?
Isth
ere
any
limita
tion
on th
e ab
ility
of t
he n
on-lo
cal p
arty
tore
quire
the
use
of it
s ow
n ac
coun
ting
stan
dard
s?•
Are
any
spec
ific
com
plia
nce
requ
irem
ents
of t
he n
on-lo
cal
part
y ac
cept
able
loca
lly?
•Is
the
finan
cial
repo
rtin
g of
the
join
t ven
ture
sub
ject
to th
ere
quire
men
t tha
t one
or b
oth
part
ies
mai
ntai
n ad
equa
tein
tern
al c
ontro
ls?
•Re
quire
the
join
t ven
ture
ent
ity to
ado
pt a
ccou
ntin
gst
anda
rds
that
are
as
clos
e as
pos
sibl
e to
the
non-
loca
lpa
rty’
s (e
.g.,
sam
e fis
cal y
ear).
•Re
quire
fina
ncia
l sta
tem
ents
to b
e pr
epar
ed in
acc
orda
nce
with
US
GAA
P or
oth
er a
pplic
able
acc
ount
ing
stan
dard
s.•
Reta
in p
erso
nnel
at t
he jo
int v
entu
re w
ho a
re v
erse
din
appl
icab
le s
ecur
ities
and
acc
ount
ing
requ
irem
ents
with
resp
ect t
o in
tern
al c
ontro
ls o
ver f
inan
cial
repo
rtin
g.
15Baker & McKenzie
International Joint Ventures HandbookSection 2 – Diligence
Cultu
ral R
isks
Ris
kIs
sue
Poss
ible
Sol
utio
ns
Lang
uage
/Soc
iety
•W
hat i
s th
e pr
imar
y la
ngua
ge s
poke
n by
peo
ple
in th
eco
untr
y? H
ow p
reva
lent
is th
e us
e of
Eng
lish?
•W
hat i
s th
e pr
edom
inan
t rel
igio
n in
the
coun
try?
•Ar
e in
tera
ctio
ns b
etw
een
mem
bers
of s
ocie
ty b
ased
upo
nw
ealth
? Cl
ass?
Rac
e? P
edig
ree?
Sen
iorit
y?
•Cu
ltura
l brie
fing
for t
he n
on-lo
cal p
arty
repr
esen
tativ
esne
gotia
ting
the
join
t ven
ture
.•
Cultu
ral t
rain
ing
prog
ram
for e
xpat
riate
em
ploy
ees
of th
eno
n-lo
cal p
arty
.•
Cultu
ral t
rain
ing
prog
ram
(inc
ludi
ng c
omm
unic
atio
ns tr
aini
ng,
prob
lem
-sol
ving
and
cul
tura
l aw
aren
ess)
for l
ocal
em
ploy
ees.
•H
ire lo
cal m
anag
er to
repr
esen
t the
non
-loca
l par
ty in
the
join
t ven
ture
.•
Appo
int j
oint
ven
ture
team
repr
esen
tativ
es w
ho id
eally
spe
akth
e lo
cal l
angu
age
or o
ther
wis
e ar
e lo
cally
trai
ned.
•Re
gula
r tra
inin
g pr
ogra
ms
on p
ract
ices
and
sta
ndar
ds o
f the
non-
loca
l par
ty.
•H
old
mee
tings
freq
uent
ly in
the
loca
l jur
isdi
ctio
n an
d in
the
hom
e ju
risdi
ctio
n of
the
non-
loca
l par
ty (e
.g.,
boar
d m
eetin
gs,
busi
ness
mee
tings
, em
ploy
ee re
treat
s).
Busi
ness
/Cul
tura
lPr
actic
es•
Do p
eopl
e co
mm
unic
ate
with
eac
h ot
her e
xplic
itly
or im
plic
itly?
•Is
com
mon
com
mun
icat
ion
com
bativ
e or
frie
ndly
?•
Wha
t are
the
impo
rtan
t dos
and
don
’ts o
f doi
ng b
usin
ess
inth
e lo
cal j
uris
dict
ion?
Sha
king
han
ds?
Smili
ng?
Han
ding
out
busi
ness
car
ds?
Bein
g ea
rly/l
ate?
Tre
atin
g m
en a
nd w
omen
diffe
rent
ly?
Tipp
ing
in a
bar
/res
taur
ant?
View
of F
orei
gn C
ount
ries
•Is
ther
e an
ant
i-for
eign
(e.g
., an
ti-Am
eric
an) s
entim
ent i
nth
eco
untr
y?•
Has
suc
h a
sent
imen
t his
toric
ally
exi
sted
in th
e co
untr
y?W
hat a
re th
e ke
y hi
stor
ical
eve
nts
of th
e co
untr
y in
volv
ing
the
non-
loca
l par
ty’s
hom
e co
untr
y? I
nvol
ving
the
Unite
d St
ates
?•
Wha
t is
the
leve
l of i
nflu
ence
of f
orei
gn b
usin
ess,
cul
ture
,en
tert
ainm
ent,
etc.
in th
e lo
cal c
ount
ry?
16 Baker & McKenzie
International Joint Ventures HandbookSection 2 – Diligence
Exhi
bit 2
(b)
Com
patib
ility
Ass
essm
ent C
heck
list
Ope
ratio
nal C
onsi
dera
tions
Ris
kIs
sue
Dis
cuss
ion
Alig
nmen
t of G
oals
•Ar
e th
e go
als
of th
e po
tent
ial j
oint
ven
ture
par
ties
com
plem
enta
ry a
nd a
ligne
d to
war
d th
e su
cces
s of
the
join
tven
ture
?
This
ana
lysi
s re
quire
s th
e co
llect
ion
of th
e go
als
of e
ach
part
y,us
ually
obt
aine
d th
roug
h fra
nk d
iscu
ssio
ns b
etw
een
the
part
ies.
This
dat
a m
ust t
hen
be c
ompa
red
and
care
fully
con
side
red.
In
som
e in
stan
ces,
goa
ls m
ay b
e co
mpl
emen
tary
and
a p
rosp
ectiv
ejo
int v
entu
re p
arty
may
iden
tify
oppo
rtun
ities
for a
ligni
ng g
oals
.In
oth
er c
ases
, a p
rosp
ectiv
e pa
rty
may
det
erm
ine
that
its
goal
san
d th
e go
als
of th
e po
tent
ial p
artn
er a
re n
ot a
ligne
d.
Busi
ness
Cul
ture
s•
Are
the
busi
ness
cul
ture
s of
the
pote
ntia
l joi
nt v
entu
re p
artie
sco
mpa
tible
? F
acto
rs to
con
side
r inc
lude
:-
How
doe
s th
e po
tent
ial p
artn
er m
ake
deci
sion
s(e
.g.,
empl
oyee
em
pow
erm
ent o
r rig
id to
p-do
wn
styl
e)?
-Ar
e re
sults
rew
arde
d?-
How
muc
h va
lue
does
the
pote
ntia
l par
tner
pla
ce o
nlif
esty
le (e
.g.,
valu
ing
empl
oyee
s as
peo
ple
as w
ell a
sw
orke
rs)?
Busi
ness
cul
ture
can
pla
y a
key
role
in s
ever
al a
spec
ts o
f bus
ines
spr
oces
s, in
clud
ing
fost
erin
g in
nova
tion,
dec
isio
n-m
akin
gan
dris
k-ta
king
. In
form
atio
n as
to a
par
ty’s
bus
ines
s cu
lture
can
be
glea
ned
from
fran
k di
scus
sion
s no
t onl
y be
twee
n th
e pr
ospe
ctiv
em
anag
ers
of th
e jo
int v
entu
res,
but
, ide
ally,
als
o w
ith th
e ra
nkan
d fil
e em
ploy
ees.
Out
side
cons
ulta
nts,
inclu
ding
hum
an re
sour
cean
d ot
her b
usin
ess
cons
ulta
nts,
may
be
able
to a
ssis
t with
this
asse
ssm
ent.
Thi
s in
form
atio
n m
ay th
en b
e co
mpa
red
to th
eno
n-lo
cal p
arty
’s b
usin
ess
cultu
re a
nd fo
rmal
bus
ines
s pr
oces
ses
to d
eter
min
e th
e le
vel o
f com
patib
ility.
The
Loc
al R
isk
Asse
ssm
ent
Chec
klis
t in
EExxhhii
bbiitt 22
((aa)) c
onta
ins
addi
tiona
l dis
cuss
ion
rega
rdin
gge
nera
l cul
tura
l ris
ks th
at m
ay b
e pr
esen
t in
the
loca
l jur
isdi
ctio
nth
at c
ould
impa
ct th
e su
cces
s of
the
join
t ven
ture
.
Fina
ncia
l Res
ourc
es•
Will
the
part
ies
be a
ble
to m
eet t
he fu
ndin
g ne
eds
of th
e jo
int
vent
ure?
Part
ies
that
are
not
stro
ng fi
nanc
ially
may
lack
the
reso
urce
sto
com
mit
to a
suc
cess
ful j
oint
ven
ture
ope
ratio
n. P
artie
s th
atar
e st
rong
fina
ncia
lly m
ay b
e be
tter a
ble
to m
eet t
heir
fund
ing
and
oper
atio
nal c
omm
itmen
ts to
the
join
t ven
ture
. Th
e fin
anci
alst
reng
th o
f the
pot
entia
l par
tner
may
be
dete
rmin
ed th
roug
hpu
blic
ly av
aila
ble
info
rmat
ion,
cre
dit c
heck
s an
d fro
m o
ther
sou
rces
supp
lied
by th
e po
tent
ial p
artn
er.
This
info
rmat
ion
shou
ld a
lso
be u
sed
to c
raft
appr
opria
te re
quire
men
ts a
nd p
rote
ctio
ns w
ithre
spec
t to
on-g
oing
cap
ital c
ontri
butio
ns.
17Baker & McKenzie
International Joint Ventures HandbookSection 2 – Diligence
Ris
kIs
sue
Dis
cuss
ion
Oper
atio
nal S
avvy
•D
oes
the
pote
ntia
l par
tner
hav
e th
e de
sire
d op
erat
iona
l and
perfo
rman
ce c
apab
ilitie
s?In
form
atio
n ab
out o
pera
tiona
l and
per
form
ance
cap
abili
ties
may
be d
eriv
ed th
roug
h re
view
s of
a p
oten
tial p
artn
er’s
stre
ngth
in it
spa
rtic
ular
mar
kets
, an
anal
ysis
of t
he p
artn
er’s
pot
entia
l mar
ket
wea
knes
ses
and
the
part
ner’s
his
toric
al o
pera
ting
and
finan
cial
perfo
rman
ce. T
his
info
rmat
ion
may
be
iden
tifie
d th
roug
h in
terv
iew
san
d di
scus
sions
with
key
man
ager
s, b
usin
ess
clien
ts a
nd a
ssoc
iate
sof
the
pote
ntia
l joi
nt v
entu
re p
artn
er.
A re
view
of a
pot
entia
lpa
rtne
r’s o
pera
tiona
l sav
vy s
houl
d al
so ta
ke in
to c
onsi
dera
tion
the
com
petit
ive
envi
ronm
ent i
n th
e m
arke
ts in
whi
ch it
doe
sbu
sine
ss.
It is
als
o he
lpfu
l to
cons
ider
the
exte
nt o
f the
pot
entia
lpa
rtne
r’s e
xper
ienc
e in
coo
pera
tive
arra
ngem
ents
of t
he s
ort
cont
empl
ated
, or w
ith s
imila
r par
tner
s (e
.g.,
othe
r mul
tinat
iona
ls).
Lead
ersh
ip C
omm
itmen
t •
Will
the
part
ies
com
mit
the
nece
ssar
y in
tern
al le
ader
ship
toth
e su
cces
s of
the
join
t ven
ture
?Th
is in
clud
es a
n an
alys
is o
f the
pro
spec
tive
party
’s o
wn
lead
ersh
ipsu
ppor
t for
any
par
ticul
ar jo
int v
entu
re a
nd th
e le
ader
ship
supp
ort
of th
e po
tent
ial p
artn
er.
This
ana
lysis
sho
uld
incl
ude
iden
tific
atio
nof
the
lead
ers
from
eac
h pa
rty
that
are
com
mitt
ed to
the
join
tve
ntur
e’s
succ
ess
(incl
udin
g th
eir t
itles
and
role
s w
ithin
thei
rre
spec
tive
orga
niza
tions
), th
e de
gree
to w
hich
any
per
form
ance
eval
uatio
ns o
f the
se in
divi
dual
s w
ill b
e tie
d to
the
succ
ess
of th
ejo
int v
entu
re (i
.e.,
inte
rnal
acc
ount
abili
tyfo
r the
join
t ven
ture
), an
dth
e ro
le th
at th
ese
indi
vidu
als
will
pla
y in
the
join
t ven
ture
.
Busi
ness
Pla
n•
Do
the
part
ies
have
a c
lear
and
wel
l-dev
elop
ed b
usin
ess
plan
for t
he jo
int v
entu
re?
A cl
ear a
nd w
ell-d
evel
oped
bus
ines
s pl
an th
at a
ligns
the
goal
sof
the
pote
ntia
l par
ties
is v
alua
ble
in g
uidi
ng th
e pa
rtie
s to
war
da
succ
essf
ul re
latio
nshi
p. T
he k
ey d
ata
elem
ent f
or th
is a
naly
sis
is th
e pr
elim
inar
y dr
aft b
usin
ess
plan
and
its
rela
tions
hip
to th
ego
als
of th
e pa
rtie
s. I
n m
any
inst
ance
s, p
oten
tial p
artie
s w
ill be
hesi
tant
to e
xpen
d co
nsid
erab
le re
sour
ces
deve
lopi
ng a
det
aile
dbu
sine
ss p
lan
befo
re b
elie
ving
that
the
vent
ure
will
pro
ceed
.At
a m
inim
um, h
owev
er, t
he p
artie
s sh
ould
agr
ee o
n th
e ba
sic
outli
ne o
f the
fund
amen
tals
of t
he b
usin
ess
plan
, inc
ludi
ngec
onom
ic in
tere
sts
with
resp
ect t
o pr
ofits
(i.e
., di
strib
utio
ns v
s.re
inve
stm
ent i
n th
e jo
int v
entu
re),
befo
re a
gree
ing
to m
ove
forw
ard
toge
ther
as
busi
ness
par
tner
s.
18 Baker & McKenzie
International Joint Ventures HandbookSection 2 – Diligence
Non
-Ope
ratio
nal C
onsi
dera
tions
Ris
kIs
sue
Dis
cuss
ion
Repu
tatio
n•
Doe
s th
e po
tent
ial p
artn
er h
ave
a go
od re
puta
tion
in th
e lo
cal
and
glob
al b
usin
ess
com
mun
ity?
A pr
ospe
ctiv
e pa
rty
shou
ld c
onsi
der t
he o
bvio
us p
oten
tial
dow
nsid
es o
f alig
ning
itse
lf w
ith d
isre
puta
ble
busi
ness
es a
ndbu
sine
ss p
ract
ices
, par
ticul
arly
if th
e re
latio
nshi
p w
ith th
edi
srep
utab
le b
usin
ess
coul
d da
mag
e it
or it
s br
and
imag
e in
the
loca
l or w
orld
mar
ket.
Info
rmat
ion
abou
t bus
ines
s re
puta
tion
may
be
iden
tifie
d th
roug
h pu
blic
pre
ss re
leas
es a
s w
ell a
sth
roug
h in
terv
iew
s an
d di
scus
sion
s w
ith b
usin
ess
clie
nts
and
asso
ciat
es o
f the
pot
entia
l joi
nt v
entu
re p
artn
er.
In a
dditi
on,
enga
ging
a p
rivat
e in
vest
igat
ion
firm
can
pro
vide
add
ition
alin
sigh
t.
Lega
l Com
plia
nce
•W
hat i
s th
e po
tent
ial p
arty
’s le
gal t
rack
reco
rd?
Not
onl
y sh
ould
the
pros
pect
ive
part
y in
quire
as
to th
e po
tent
ial
part
ner’s
trac
k re
cord
for l
egal
com
plia
nce
and
the
proc
esse
san
d pr
oced
ures
that
the
pote
ntia
l par
tner
has
in p
lace
for e
nsur
ing
com
plia
nce
with
app
licab
le la
ws,
but
it s
houl
d al
so c
onsi
der t
hege
nera
l leg
al c
ompl
ianc
e la
ndsc
ape
for t
he ju
risdi
ctio
n in
whi
chth
e jo
int v
entu
re m
ay o
pera
te (e
.g.,
esta
blis
hed
rule
s of
law,
effe
ctiv
e an
d co
nsis
tent
enf
orce
men
t of t
hose
law
s an
dso
phis
ticat
ion
of ju
dici
al s
yste
m).
Thi
s in
form
atio
n is
ofte
nob
tain
ed th
roug
h tra
ditio
nal d
ue d
ilige
nce
requ
ests
and
sea
rche
sof
pub
licly
ava
ilabl
e lit
igat
ion
reco
rds.
Ongo
ing
Dis
pute
s•
Wha
t is
the
natu
re a
nd e
xten
t of a
ny o
ngoi
ng le
gal d
ispu
tes
that
invo
lve
the
pote
ntia
l par
tner
?W
hile
dis
pute
s in
volv
ing
the
pote
ntia
l par
tner
(eve
n if
unre
late
dto
the
pote
ntia
l joi
nt v
entu
re) m
ay n
ot d
irect
ly im
pact
its
repu
tatio
n or
com
plia
nce
hist
ory,
sign
ifica
nt d
ispu
tes
may
dist
ract
lead
ersh
ip a
ttent
ion
from
the
succ
ess
of th
e jo
int v
entu
re.
Lega
l dis
pute
s m
ay b
e id
entif
ied
thro
ugh
publ
ic re
porti
ng s
ourc
esor
from
dire
ct in
quiry
of a
ppro
pria
te p
erso
nnel
with
in th
e po
tent
ial
part
ner.
Orga
niza
tiona
lCo
mpa
tibili
ty•
Is th
e po
tent
ial p
artn
er s
truct
ured
and
org
aniz
ed to
inte
ract
prop
erly
?Th
e pr
ospe
ctiv
e pa
rty
shou
ld a
sses
s th
e po
tent
ial p
artn
er’s
orga
niza
tion
and
stru
ctur
e in
ligh
t of i
ts o
wn
orga
niza
tion
and
stru
ctur
e to
det
erm
ine
whe
ther
per
sonn
el w
ith s
imila
rre
spon
sibi
litie
s w
ithin
thei
r ow
n or
gani
zatio
ns w
ill b
e w
orki
ngan
d co
mm
unic
atin
g on
sim
ilar l
evel
s at
the
join
t ven
ture
. Th
isin
form
atio
n is
ofte
n ob
tain
ed th
roug
h tra
ditio
nal d
ue d
ilige
nce
requ
ests
and
inte
rvie
ws
with
man
agem
ent.
19Baker & McKenzie
International Joint Ventures HandbookSection 2 – Diligence
Ris
kIs
sue
Dis
cuss
ion
Geo
grap
hic
Stab
ility
•H
ow s
tabl
e is
the
polit
ical
, bus
ines
s an
d le
gal l
ands
cape
inth
e re
leva
nt ju
risdi
ctio
ns?
The
Loca
l Ris
k As
sess
men
t Che
cklis
t in
EExxhhii
bbiitt 22
((aa)) i
s de
sign
ed to
assi
st th
e an
alys
is o
f var
ious
pol
itica
l, bu
sine
ss a
nd le
gal r
isks
that
coul
d im
pact
the
succ
ess
of a
join
t ven
ture
. Th
is in
form
atio
nsh
ould
be
anal
yzed
with
resp
ect t
o th
e po
tent
ial p
artn
er’s
hom
eju
risdi
ctio
n an
d w
ith re
spec
t to
the
juris
dict
ion
in w
hich
the
join
tve
ntur
e en
tity
will
oper
ate.
Thi
s in
form
atio
n m
ay b
e id
entif
ied
thro
ugh
publ
ic s
ourc
es o
r may
be
iden
tifie
d th
roug
h no
n-pu
blic
sour
ces
avai
labl
e to
the
pote
ntia
l par
ty.
Bake
r & M
cKen
zie
also
mai
ntai
ns “
doin
g bu
sine
ss”
mem
oran
da fo
r man
y ju
risdi
ctio
ns,
whi
ch m
ay b
e us
eful
in a
naly
zing
geo
grap
hic
cons
ider
atio
ns.
Baker & McKenzie 21
International Joint Ventures HandbookSection 3 – Structure
SECTION 3 STRUCTUREOnce a party has decided to proceed with a joint venture with a particular partner,the next step is to determine how the joint venture should be structured. Thereare a number of business, legal and tax considerations that any prospective partyshould take into account in this regard. First, a party will need to consider whatcorporate structure it should use in order to own its interest in the joint venture.It will also need to consider what type of equity ownership and management controlit should have. This section provides an overview of the considerations with respectto the jurisdiction in which to organize the vehicle (and general entity forms fromwhich to choose), capital and financial interests, equity participation, managementcontrol, and director and officer liability.
1. Note on Tax StrategiesA detailed discussion of tax planning strategies is outside the scope of this handbook;however, it is essential to involve tax specialists and seek their input at the earlieststages of joint venture planning. Some of the key tax areas to consider whenplanning a joint venture structure include the following taxes and duties applicableto the future business (which are common to most jurisdictions):
• Income/profit taxes;
• Value added tax (VAT)/sales tax;
• Real and personal property taxes;
• Employee-related taxes;
• Customs duties;
• Tax holidays;
• Withholding taxes;
• Double taxation treaties; and
• Marketplace transfer pricing regulations applicable for goods andservices.
22 Baker & McKenzie
International Joint Ventures HandbookSection 3 – Structure
2. Jurisdiction in Which to Organize the VehicleFor tax efficiency, initial consideration should be given to the jurisdiction wherethe direct jointly owned entity should be organized. For example, it may well bebeneficial from a tax perspective for the parties to form an entity outside thejurisdiction in which the joint venture operates (such as a Delaware limited liabilitycompany, a British Virgin Islands company, or other entity formed in a low taxcommon law jurisdiction), which will then own the local joint venture operatingentity.
In many cases, however, the parties will create a new local joint venture entity.Under this scenario, the prospective party will need to consider what entity formis appropriate to the particular joint venture. The chart in Exhibit 3(a) highlightsthe characteristics of three potential entity forms that a party may consider.
Exhibit 3(a) Example Entity Forms
Baker & McKenzie 23
International Joint Ventures HandbookSection 3 – Structure
Entity Type Characteristics
Corporation • Limited liability• Double taxation• Flexibility in equity structure (e.g., joint venture parties typically could cause shares
to be issued with preferred allocation of profits, preferred return, preference upondissolution or other special features)
• Local corporate formalities (e.g., some jurisdictions require a company to file auditedaccounts, which can be costly to prepare and result in a loss of confidentiality)
• Strong identity (the corporate form is generally familiar to potential lenders, customersand employees, and local corporate laws are generally well-established)
• Similar non-US entities: Brazil: SA (Sociedade por Ações); Germany: AG(Aktiengesellschaft); Japan: KK (Kabushiki Kaisha); Netherlands: NV (NaamlozeVennootschap)
Limited LiabilityCompany
• Limited liability• Often flow-through treatment• Flexibility in equity structure (see above)• Local corporate formalities (see above)• Strong identity (although the LLC is a relatively new entity form in the United States,
its US popularity is increasing and it shares many of the same advantages of beinga stand-alone entity as does a corporation; in many non-US jurisdictions, the localequivalent of an LLC has been permissible and common for many decades)
• Similar non-US entities: Brazil: Ltda (Sociedade por Quotas de ResponsabiliadadeLimitada); China: WFOE (wholly foreign owned enterprise); Germany: GmbH(Gesellschaft mit beschränkter Haftung); Japan: GDK (Godo Kaisha); Netherlands: BV (Besloten Vennootschap)
Partnership • Unlimited liability for a general partnership (both joint venture partners would havejoint and unlimited liability for any liabilities incurred by the joint venture, excludingonly those situations where one of the joint venture partners did not act with eitherexpress or implied authority to bind the joint venture)
• Typically flow-through treatment• Fewer corporate formalities (the joint venture would in most circumstances not need
to make local law filings, e.g., the reporting of financials or reporting of changes inofficers and directors)
• Lack of corporate identity (it is relatively rare to find a joint venture organized asa partnership unless the partners to the general partnership are special purposecompanies with limited liability)
• Consider limited partnership (a limited partnership would allow the non-local partnerto retain limited liability while the local joint venture partner could act as generalpartner with unlimited liability; however, this entity form would preclude the non-localpartner from taking any role in the management of the joint venture. Thus, the partiescould form a jointly owned general partnership in which the management provisionsare laid out)
• Similar non-US entities: Germany: GmbH & Co. KG (limited partnership with a limitedliability entity as the general partner); Japan: YSJK (Yugen sekin jigyo Kumiai – variantof US LLP); Netherlands: VOF (Vennootschap ondar firma – general partnership);CV (Commanditaire vennotschap – limited partnership)
24 Baker & McKenzie
International Joint Ventures HandbookSection 3 – Structure
A prospective party might also consider acquiring a portion of its joint venturepartner’s interest in an existing entity, thereby inheriting the corporate form ofthe existing entity. Under this scenario, the prospective party should perform duediligence to assess and plan for liabilities it might assume by acquiring part of theexisting entity.
Regardless of whether the joint venture vehicle is a newly formed entity or anexisting entity, from the non-local party’s perspective the joint venture vehicleshould be organized, if possible, in a jurisdiction in which: (i) there is a well-testedcorporate law regime, (ii) specific performance is available as a remedy (this isparticularly important with respect to enforcing provisions in the joint ventureagreement on equity transfers), and (iii) the parties are able to limit the potentialliabilities of the representatives who sit on the joint venture board.
Holding Company Outside of Local JurisdictionBecause these criteria will not be met in many developing countries, a prospectiveparty should consider establishing a holding company in a well-established legaljurisdiction, utilizing a joint venture agreement governed by the laws of thejurisdiction in which the holding company is established, and operating the jointventure through a company that is wholly owned by the holding company.If a holding company structure is not possible, the prospective party could considerusing an escrow for the parties’ shares in the joint venture vehicle and an irrevocableproxy to guarantee the non-local party’s rights with respect to equity transfers.A simple diagram of a holding company structure is:
Holding company structure
JV party
JV (localjurisdiction)
JV party
HoldCo (taxefficient entity)
The following threshold questions should be asked in considering whether a holdingcompany structure is appropriate:
• Is 100% foreign ownership (i.e., by the holding company) of a local entity(i.e., the joint venture operating entity) permitted under local law andpractice of the jurisdiction in which the joint venture will operate?
• Is it possible to address favorably any significant practical disadvantages,such as obtaining investment control clearance or any permits required tooperate the business, which are presented by 100% foreign ownership?
• Are local nationals or local entities (i.e., the local joint venture party)permitted to own part or all of a foreign entity (i.e., the holdingcompany)?
If the answer to these questions is “yes,” the prospective party might be able tonegotiate for a vehicle outside the jurisdiction where the joint venture will conductits business if that local jurisdiction does not have a well-tested legal regime.Although any holding company structure will be informed largely by the tax positionof the parties, common law jurisdictions (e.g., the United States, Canada and thecomponent jurisdiction of the United Kingdom) tend to offer greater flexibility incapital structure, management structure, transfers of interests and dissolution ascompared to civil law jurisdictions (e.g., Continental European jurisdictions).
Directly Owned Entity In the Local JurisdictionIf it is not possible to establish a joint venture vehicle outside the jurisdiction wherethe joint venture will conduct its business, the prospective party will need to examinethe different local entity types and available flexibility with respect to tax, equity,management, transfers of interest, and accounting/auditing issues in the jurisdictionin which the joint venture will operate. A simple diagram of a direct ownershipstructure is:
Direct ownership structure
Baker & McKenzie 25
International Joint Ventures HandbookSection 3 – Structure
JV party JV party
JV(local
jurisdiction)
26 Baker & McKenzie
International Joint Ventures HandbookSection 3 – Structure
The following are among the questions that should be asked when determining theappropriateness of a given local entity type:
EEnnttiittyy TTyyppee
• What are the available entity types in the local jurisdiction? Are theysimilar to a US corporation, limited liability company, partnership orhybrid of the foregoing?
• Which of these entity types may legally be used for a business of thekind contemplated for the joint venture? Which are normally/commonlyused (as a matter of local practice) for the kind of business contemplatedfor the joint venture?
• Which types of entities provide limited liability for the equity owners?
TTaaxx
• What tax rates will be applicable to the joint venture vehicle?
• What other taxes will be applicable to the non-local party as a foreignshareholder in the joint venture vehicle (e.g., withholding or othertaxes on dividends, royalties, or payment for products or services)?Do applicable double taxation treaties reduce these taxes?
• What are the rules permitting deduction and set-off of losses andexpenses?
EEqquuiittyy
• How is the equity interest in the joint venture vehicle determined(e.g., by number of shares or units, or by specified percentages)?
• If equity participation is expressed in shares or units, to what extent isit possible to have shares or units with special preferences, such thatsome shares or units carry a preferred allocation of profits, preferredreturn or a preference on dissolution?
• Are there restrictions on majority ownership by a non-resident entity?Is the non-local party in any way prohibited from owning a majorityinterest? Are shares/units of the same class capable of being held bymore than one person?
• May the voting power of each share/unit be different from one voteper share/unit? May the entity have non-voting shares/units?
• If it is possible to express the equity interest of the parties inpercentage terms:
– May a party’s share of profits be different from its share of assetson dissolution?
– May there be special allocations of profits to one or another party(including a preferred return to one party)?
– May a party’s voting percentage be different from its percentageinterest in profits or asset distributions on dissolution?
MMaannaaggeemmeenntt
• May the parties manage the entity directly, without directors, managersor officers? If so, must one vote attach to each share/unit or is itpossible to vary the number of votes that attach to the shares/units?
• Are there any matters for which a supermajority vote is required asa matter of law?
• Are the parties free to agree on a requirement of unanimity orsupermajority for certain specified decisions? Are these types ofprovisions specifically enforceable as opposed to merely legal andbinding?
• What notice and quorum requirements apply to board/shareholdermeetings? What will happen if a quorum does not exist? Will it bepossible to hold meetings on short notice or to take actions by writtenresolution? Must meetings be held within the local jurisdiction?
• Is it customary or possible to utilize a board of directors? If so, maythe parties each appoint a specified number of directors? If so, is itpossible to have two (or more) classes of directors, each with the samevoting power but each class appointed by one of the joint ventureparties? If not, is it mandatory that each joint venture party have avote for director equal to its number of shares/units? Are there anyresidency or nationality requirements for directors or officers?
Baker & McKenzie 27
International Joint Ventures HandbookSection 3 – Structure
28 Baker & McKenzie
International Joint Ventures HandbookSection 3 – Structure
• Is it possible for the joint venture parties to adopt a voting agreementpursuant to which they agree to vote for the individual directorsnominated by the other party? Is such an agreement specificallyenforceable (i.e., would a court step in and appoint a director nominatedby a party even if the other party refused to vote for the director)?May directors grant proxies?
• Is a two-tier board with supervisory and managing levels appropriateor applicable under local law?
• Is it permissible or mandatory for the joint venture vehicle to haveofficers (i.e., persons given a specific function in the conduct of theday-to-day business of the entity, with specified powers)? If so, howare officers appointed (e.g., by the board of directors)?
• Does local law require information with respect to the names andauthority of officers and directors to be filed publicly?
• Are limitations on the authority of an officer or director valid andbinding on third parties? Is there a way under local law to notify thirdparties of any such limitations (e.g., commercial register)?
• What are the rules with respect to removing officers and directors?Can a party revoke its own appointment, or is a shareholder or boardvote required?
TTrraannssffeerrss ooff IInntteerreessttss
• Are interests in this kind of entity transferable? If so, how is a transferaccomplished (e.g., delivery of a certificate, recordation on the entity’sregister)?
• Are complete prohibitions on transfers and assignments valid? If not,are limitations on the right to transfer/assign (e.g., right of first refusalor requiring shareholder or management consent) legal and binding?Are these types of restrictions binding on third parties? Are thereany formal requirements for these restrictions to be binding, such asa notation on a certificate or a notation in the commercial register?
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International Joint Ventures HandbookSection 3 – Structure
• If transfer restrictions are binding on third parties, are both the entityand the other party nonetheless required to recognize any rights inan assignee/transferee if interests are transferred in violation of sucha restriction?
• Does an assignee/transferee who has acquired an interest in violationof a restriction nonetheless have economic rights as against the entity(e.g., rights to profit and/or asset distributions)?
• Does a party have any right to withdraw and have its interest redeemedby the entity? If so, how is the redemption price determined?
AAccccoouunnttiinngg//AAuuddiittiinngg
• Does local law require the entity to name a statutory (or other)auditor or commissaire? What are the specific functions of this office?Is any financial information required to be publicly filed?
• Does local corporate law specify accounting rules for the entity or arethe joint venture parties free to choose themselves?
• Are there any limitations (including requirements that may be imposedby local lenders) on the ability of the non-local party to require theuse of its own accounting standards? Do the non-local party’saccounting and auditing standards conform to relevant local law?
3. Capital and Financial InterestsFundamental to the establishment of a joint venture is identifying the contributionsthat the parties will make to the venture. These contributions may be both tangibleand intangible and the parties will have to agree on their respective valuations. Thenature and value of these contributions will in turn be reflected in some manner inthe degree of ownership of each of the parties in the joint venture. Further, whileownership will typically reflect each party’s financial interest in the venture, it alsois likely to impact the degree of control over the venture by each party and themanagement structure through which that control will be exercised.
Capital ContributionsSubject to local law considerations, the parties’ contributions may be in a varietyof forms, including cash, tangible property (including real property) know-how orother intellectual property, and other intangibles. In some cases, one or anotherof the parties will be contributing a going concern to be continued by the jointventure. The following questions should be considered with respect to capitalcontributions in connection with the proposed joint venture structure:
• Are there restrictions under local law on the percentage amount thatcan be owned by a non-resident?
• May a joint venture party’s share of profits be different from its shareof assets on dissolution?
• May there be special allocations of profits to one or another party(including a preferred return to one party)?
• May a party’s voting percentage be different from its percentageinterest in profits or asset distributions on dissolution?
• Are there any minimum capital requirements? Does a capitalcontribution need to be registered with any governmental authorities?
• Are there any rules or restrictions on in-kind contributions(e.g., contributions of assets necessary to conduct the business of thejoint venture)? Is there a required ratio under local law of cash versusin-kind contributions? What type of valuation is required for in-kindcontributions (e.g., by independent firm or governmental authorities)?
• How, and when, are in-kind contributions to be valued? Will one partyconduct due diligence on in-kind contributions of the other party?Will the contributing party give any representations and warrantieswith respect to assets being contributed?
• Are any third party consents or notices required for any in-kindcontributions?
• If assets are being contributed and those assets are located in a separatejurisdiction, is a separate conveyancing document required under thelaws of that jurisdiction?
30 Baker & McKenzie
International Joint Ventures HandbookSection 3 – Structure
• Are any transfer taxes or duties applicable to in-kind-contributions?
• Can the entity be capitalized through loans? Does local law regulatedebt-to-equity levels? Are there any tax or other advantages tofunding through debt rather than equity, or vice versa?
• Will the joint venture business require ongoing funding (e.g., forworking capital, expansion)? If so, will each party be required tocontribute to future calls for funding pro rata to its initial investment?Will the commitment to fund be capped or open-ended? What shouldhappen if any ongoing funding obligation is not met?
• What are the requirements for reducing capital (e.g., approval ofcommercial court)?
Ongoing Financing NeedsIf a joint venture is sufficiently capitalized and is organized as a stand-alone entity,it may be able to obtain financing on its own to meet its ongoing operational needs.Frequently, however, substantial financing will have to depend upon the support ofthe parties themselves, including in the form of additional capital contributions.If the parties are to provide loan financing in addition to capital contributions,it should be determined at the outset. As an alternative, the parties may preferto have the joint venture obtain financing locally but supported by the parties’guarantee. Financial institutions will generally prefer that these guarantees bejoint and several, that is, that each party be responsible for the full amount of anyloans issued in reliance on the guarantees. On the other hand, if the parties havediffering financial standing, this may as a practical matter more significantly exposethe stronger party in the event that the joint venture fails. In a US joint venturebetween US and non-US parties, the US party or parties may feel more exposedsimply because it will be easier for the financial institution to enforce the guaranteein the United States. In this case, the parties may wish to negotiate for several (andnot joint) guarantees, under which each party is responsible only for its pro ratashare of any financing of the venture.
Profit DistributionIn addition to planning for the financing needs of the joint venture, the parties alsomust address their plans with respect to profit distribution. As a threshold matter,
Baker & McKenzie 31
International Joint Ventures HandbookSection 3 – Structure
the parties should agree on whether, and to what extent, profits will be reinvestedin the business of the joint venture. This goes to the parties’ overall goals for enteringinto the relationship and it should be assessed during the diligence phase. Beyondthat, tax planning will be a crucial element for structuring the joint venture ina way that enables the parties to extract profits in an economically efficient manner.The following questions should be considered in this regard:
• What are the rules for declaring dividends and distributing profits?If the parties have developed a plan for the payment of dividends, doestheir plan conform to relevant local law? For example, are the partiesfree to determine when voluntary distributions can be made and bywhom? Are there tax or regulatory constraints on the distribution ofprofits? Will it be necessary to establish a special structure for theeffective distribution of profits (e.g., an income access structure)?
• Can distributions be made out of capital or only out of profits underlocal law? Are there requirements for mandatory reserves?
• Is it possible to provide for “special allocations” of profits (e.g., allocationof profits from one aspect of the business to one of the parties ina ratio different from the allocation of profits from another aspect ofthe business)?
ConsolidationFinancial Accounting. Parties to a joint venture frequently need or at least wantto be able to treat their interest in the venture on a consolidated basis for financialaccounting purposes. The accounting rules relating to consolidation vary fromcountry to country.
In the United States, it is ordinarily necessary for a party to a joint venture to“control” the venture in order to consolidate under generally accepted accountingprinciples. Control is generally present where the party owns more than 50%of the voting shares or equivalent equities in the joint venture. A more difficultsituation arises where the ownership of the joint venture is split 50/50. Here, it issometimes possible for a party to be considered in “control” by having the right todecide something of considerable importance without the agreement of the otherparty (e.g., the right to appoint or remove the majority of the board of directorsor other governing body, or the power to direct their votes). The nuances of
32 Baker & McKenzie
International Joint Ventures HandbookSection 3 – Structure
determining whether control is present are beyond the scope of this handbook butit is vital that parties contemplating a venture take these issues into account as earlyas possible.
Consolidation is particularly important to a party contributing a business to theventure. If the contributing party can consolidate, it can report the financial resultsof the venture on a line-item-by-line-item basis. Thus, the party’s share of the sales,costs and earnings of the venture will be reported as part of the sales, costs andearnings of the party. If the results cannot be reported on a consolidated basis, onlythe net profit can be reported.
Tax. Separate from the analysis of consolidation for financial accounting purposes iswhether the joint venture entity can be included in a consolidated income tax filing.Subject to certain limitations, advantages of filing consolidated tax returns forUS federal income tax purposes include the following:
• offsetting operating losses of the joint venture against the controllingparty’s profits;
• offsetting capital losses of the joint venture against the controllingparty’s capital gains;
• avoidance of tax on distributions from the joint venture to thecontrolling party;
• deferral of income on transactions between the joint venture and thecontrolling party; and
• use by the controlling party’s corporate group of the excess of thejoint venture’s foreign tax credit over its limitation.
Disadvantages of filing consolidated tax returns for US federal income tax purposesinclude the following:
• deferral of losses on transactions between the controlling party and thejoint venture;
• additional bookkeeping required to keep track of deferred transactionsbetween the controlling party and the joint venture;
• possible elimination of foreign tax credits because of a lack of foreignincome on the part of the joint venture; and
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International Joint Ventures HandbookSection 3 – Structure
34 Baker & McKenzie
International Joint Ventures HandbookSection 3 – Structure
• possible accumulated earnings tax liability when the consolidatedaccumulated earnings and profits of the group exceed the minimumcredit amount.
Internal Controls Over Financial ReportingThe Sarbanes-Oxley Act of 2002, together with its related regulatory reforms,significantly changed the corporate governance practices not only of US publiccompanies, but also of non-US companies with securities that are listed, traded orotherwise registered in the United States. Often of particular concern in the jointventure context are the rules that require maintenance of internal control overfinancial reporting that conforms to US accounting and securities law standards.In particular, Section 404 of the Sarbanes-Oxley Act requires each annual report ofa public company to include a report by management on the company’s internalcontrol over financial reporting. Section 404 also requires the company’s auditorsto attest to, and report on, management’s assessment of the effectiveness of thecompany’s internal control over financial reporting. Careful diligence and on-goingmonitoring are typically necessary to assess the risk of a particular target or jointventure party with respect to Sarbanes-Oxley compliance.
Even in situations where the US company does not consolidate or otherwise controlthe joint venture vehicle, internal control issues still arise to varying degrees,depending on such factors as the level of the US company’s ownership, the materialityof the investment to the US company, and the level of control that the US companyexerts. For example, where a US company is a minority partner in a joint venture,it may not need to expressly certify and obtain an audit report with respect to theinternal controls of the joint venture, but it will need to do so with respect to itsown financial statements and various line items which contain financial informationwith respect the joint venture. Accordingly, a joint venture party who is subject tothe Sarbanes-Oxley Act will typically need to ensure that the joint venture maintainsan appropriate level of internal control over financial reporting.
4. Equity ParticipationWhen determining how a joint venture will be controlled, a prospective party mustconsider both the equity interest that each joint venture party will own in the jointventure, and what each joint venture party’s role will be in the management anddecision-making of the joint venture.
Baker & McKenzie 35
International Joint Ventures HandbookSection 3 – Structure
There are generally three options for structuring the equity ownership of a jointventure: (1) 50/50 equity ownership split between the prospective party and itsjoint venture counterpart; (2) the prospective party owning a majority equity interest;and (3) the prospective party owning a minority equity interest. The EquityParticipation Considerations chart in Exhibit 3(b) compares these options.
5. Management ControlManagement of a joint venture will typically consist of a board of directors (orsimilar body) that makes extraordinary decisions on behalf of the joint venture aswell as a slate of officers or managers who oversee the day-to-day business of thejoint venture. Typically, the level of management control held by a joint ventureparty will correspond to its level of equity ownership. However, subject to any locallaw limitations, it is possible for joint venture parties to establish a managementstructure in whatever form they think is most beneficial, even if the allocation ofmanagement control does not correspond with each joint venture party’s equityinterest.
There are generally three options for structuring the management of a joint venture:(1) 50/50 management control; (2) non-local party with a stronger managementrole; (3) non-local party with a weaker management role. The Management ControlConsiderations chart in Exhibit 3(c) compares these options. A prospective partyshould individually analyze each joint venture to determine what managementstructure best suits its particular set of circumstances.
6. Director and Officer LiabilityAnother area to consider when determining the structure of the joint venture is thepotential exposure to liabilities at the director and officer level, particularly wherethe parties envision a joint venture vehicle in a foreign jurisdiction.
Although, as a general matter, the duties of a director of a foreign entity are similarin many respects to those of a US corporate director, the exact nature and scope ofthose duties and liabilities may vary depending on the laws of the country in whichthe joint venture entity is incorporated. Individuals who are asked to serve as adirector of a foreign entity should familiarize themselves with the broad range ofissues that they are likely to face while serving in that capacity in any given country
and should be prepared to address them, if and when they arise. They should remainfully informed of the company’s activities and monitor the company’s compliancewith the legal requirements of that jurisdiction.
Appendix A – Overview of D&O Duties and Liabilities in Foreign Entitiesprovides a brief overview of the duties, risks and potential civil and criminalliabilities of a director of a non-US entity.
Likewise, several US laws, including the Foreign Corrupt Practices Act, moneylaundering, trade and investment sanctions, export controls and anti-boycottregulations could impact the joint venture and expose the joint venture, its directorsand a US joint venture party to liability. Appendix B - Overview of ApplicableUS Laws Impacting D&O Liability briefly summarizes these laws.
36 Baker & McKenzie
International Joint Ventures HandbookSection 3 – Structure
37Baker & McKenzie
International Joint Ventures HandbookSection 3 – Structure
Exhi
bit 3
(b)
Equi
ty P
artic
ipat
ion
Cons
ider
atio
ns
50/5
0N
on-lo
cal p
arty
maj
ority
Non
-loca
l par
ty m
inor
ity
•Eq
ual i
ncen
tives
: Thi
s ow
ners
hip
stru
ctur
e gi
ves
each
join
t ven
ture
par
ty a
n eq
ual f
inan
cial
ince
ntiv
e to
max
imiz
e th
e su
cces
s of
the
join
tve
ntur
e.•
Prob
lem
atic
for d
issi
mila
r joi
nt v
entu
re p
artie
s:Th
is o
wne
rshi
p st
ruct
ure
can
be p
robl
emat
icw
here
two
join
t ven
ture
par
ties
are
not m
atch
edin
term
s of
cul
ture
, fin
ancia
l stre
ngth
or c
apab
ilitie
s.To
forc
e di
ssim
ilar j
oint
ven
ture
par
ties
into
aneq
ual o
wne
rshi
p ar
rang
emen
t cou
ld re
sult
ina
grea
t dea
l of c
onfli
ct.
•P o
tent
ially
mor
e w
ork
for t
he p
artie
s: A
50/5
0st
ruct
ure
coul
d m
ean
mor
e in
tens
e w
ork
and
agr
eate
r tim
e co
mm
itmen
t for
bot
h jo
int v
entu
repa
rtie
s, a
s co
mpa
red
to a
maj
ority
or m
inor
itysi
tuat
ion,
in o
rder
to k
eep
a w
orka
ble
bala
nce
betw
een
the
join
t ven
ture
par
ties.
•M
aint
ain
cont
rol:
By o
wni
ng a
maj
ority
of t
hejo
int v
entu
re, t
he n
on-lo
cal p
arty
can
bet
ter
impl
emen
t its
bus
ines
s pl
an a
nd s
trate
gy fo
rth
ejo
int v
entu
re.
•Co
ntr o
l exp
osur
e of
inte
llect
ual p
rope
rty
and
know
-how
: Thi
s st
ruct
ure
can
help
pre
vent
the
prem
atur
e ex
posu
re o
f tec
hnol
ogic
al o
r oth
erkn
ow-h
ow to
the
loca
l par
ty a
nd m
ight
pre
vent
the
loca
l par
ty fr
om g
aini
ng a
com
petit
ive
adva
ntag
e in
the
join
t ven
ture
’s in
dust
ry.
•M
a y re
sult
in la
ck o
f mot
ivat
ion
by lo
cal j
oint
vent
ure
partn
er:
Whe
re m
ultin
atio
nal c
orpo
ratio
nsm
aint
ain
cont
rol o
ver a
join
t ven
ture
, the
y of
ten
have
a te
nden
cy to
run
the
join
t ven
ture
as
asu
bsid
iary
cor
pora
tion.
The
dis
adva
ntag
e of
this
appr
oach
is th
at th
e m
ultin
atio
nal c
orpo
ratio
nco
uld
lose
the
expe
rtise
of i
ts lo
cal j
oint
ven
ture
part
ner a
nd ru
n th
e ris
k th
at th
e lo
cal j
oint
vent
ure
part
ner w
ill lo
se it
s m
otiv
atio
n to
max
imiz
e th
e su
cces
s of
the
join
t ven
ture
. On
ewa
yto
coun
tera
ctth
is p
robl
em is
to re
inve
st th
epr
ofits
bac
k in
to th
e jo
int v
entu
re, w
hich
can
resu
lt in
incr
ease
d go
odw
ill a
nd le
ss c
once
rnab
out t
he d
eval
uatio
n of
the
loca
l cur
renc
y.
•Co
nsid
er re
stric
tions
on
fore
ign
inve
stm
ent:
Acqu
isiti
on ta
rget
s m
ay n
ot b
e av
aila
ble
in a
coun
try
and
som
e co
untri
es re
stric
t the
leve
lof
equi
ty o
wne
rshi
p by
a n
on-re
side
nt e
ntity
;th
eref
ore,
the
non-
loca
l par
ty m
ay h
ave
noch
oice
but
to h
old
a m
inor
ity in
tere
st in
som
eju
risdi
ctio
ns.
•Al
low
s fo
r pas
sive
inve
stm
ent:
Thi
s st
ruct
ure
allo
ws
for t
he n
on-lo
cal p
arty
to te
st o
ut a
mar
ket
ofte
n w
ith a
low
er in
itial
inve
stm
ent o
f cap
ital
and
othe
r res
ourc
es.
•M
a y re
sult
in p
rem
atur
e ex
posu
re o
f int
elle
ctua
lpr
oper
ty a
nd k
now
-how
: Th
is s
truct
ure
mig
htin
crea
se th
e ris
k of
pre
mat
ure
expo
sure
of
tech
nolo
gica
l or o
ther
kno
w-h
ow to
the
loca
lpa
rty
and
poss
ibly
lead
to th
e lo
calp
arty
gai
ning
a co
mpe
titiv
e ad
vant
age
in th
e jo
int v
entu
re’s
indu
stry
.•
Loss
of c
ontr o
l: O
ne im
port
ant d
isad
vant
age
ofth
is s
truct
ure
is th
at th
e no
n-lo
cal p
arty
wou
ldlo
se a
sig
nific
ant a
mou
nt o
f con
trol o
ver t
heop
erat
ions
of t
hejo
int v
entu
re.
How
ever
, the
rear
e so
me
stra
tegi
es b
yw
hich
the
non-
loca
l par
tyco
uld
incr
ease
its
equi
ty o
wne
rshi
p in
a jo
int
vent
ure
or o
ther
wis
e pr
otec
t its
min
ority
inte
rest
,in
clud
ing
the
follo
win
g:—
right
to tr
igge
r the
sal
e of
the
join
t ven
ture
upon
am
ater
ial b
reac
h by
the
loca
l joi
ntve
ntur
e pa
rty
—rig
ht to
pur
chas
e ad
ditio
nal s
hare
s—
put o
ptio
n—
drag
-alo
ng ri
ghts
—
man
agem
ent c
ontro
l or o
ther
righ
ts to
app
oint
key
man
ager
ial p
erso
nnel
38 Baker & McKenzie
International Joint Ventures HandbookSection 3 – Structure
Exhi
bit 3
(c)
Man
agem
ent C
ontr
ol C
onsi
dera
tions
50/5
0N
on-lo
cal p
arty
str
onge
r con
trol
Non
-loca
l par
ty w
eake
r con
trol
•Eq
ual i
ncen
tives
: A 5
0/50
man
agem
ent s
truct
ure
can
max
imize
trus
t and
mut
ual c
once
rn b
etwe
entw
o jo
int v
entu
re p
artie
s be
caus
e ea
ch w
ill ha
ve a
neq
ual v
oice
in th
e m
anag
emen
t of t
he jo
int
vent
ure.
•D
eadl
ock :
Thi
s m
anag
emen
t stru
ctur
e re
lies
heav
ily o
n co
oper
atio
n be
twee
n th
e tw
o jo
int
vent
ure
part
ies.
How
ever
, the
re is
a p
ossi
bilit
yth
at th
e jo
int v
entu
re p
artie
s m
ay re
ach
a de
adlo
ckon
par
ticul
ar is
sues
. Th
ere
are
cert
ain
corp
orat
ego
vern
ance
mec
hani
sms
that
can
be
craf
ted
tohe
lp b
reak
a d
eadl
ock
if on
e ar
ises
, inc
ludi
ngth
e fo
llow
ing:
—gi
ve c
hairm
an o
f the
boa
rd a
tieb
reak
ing
vote
—gi
ve in
depe
nden
t, no
n-ex
ecut
ive
dire
ctor
atie
brea
king
vot
e—
refe
r dea
dloc
k m
atte
rs to
an
inde
pend
ent
third
par
ty (e
.g.,
an in
dust
ry e
xper
t or
arbi
trato
r) fo
r res
olut
ion
—re
fer d
eadl
ock
mat
ters
to th
e jo
int v
entu
repa
rtie
s’ re
spec
tive
seni
or m
anag
emen
t to
atte
mpt
reso
lutio
n—
trigg
er b
uy-s
ell o
ptio
n•
Allo
ws
for l
ocal
exp
ertis
e: S
harin
g co
ntro
l with
its
loca
l joi
nt v
entu
re p
artn
er c
an a
ssis
t the
non
-loca
lpa
rty
in le
arni
ng fr
om th
e ex
perie
nce
of it
s lo
cal
join
t ven
ture
par
tner
with
resp
ect t
o th
e lo
cal
busin
ess
and
econ
omic
clim
ate
as w
ell a
s un
fam
iliar
bure
aucr
atic
circ
umst
ance
s (e
.g.,
loca
l sys
tem
sof
labo
r man
agem
ent a
nd re
gula
tory
aut
horit
ies)
.
•M
ay b
e re
quire
d fo
r pur
pose
s of
con
solid
atio
n:A
dom
inan
t man
agem
ent r
ole
mig
ht b
e re
quire
dfo
r pur
pose
s of
est
ablis
hing
“fin
anci
al c
ontro
l”of
the
join
t ven
ture
in o
rder
for t
he n
on-lo
cal
party
to in
clud
e th
e jo
int v
entu
re o
n a
cons
olid
ated
basi
s in
its
finan
cial
sta
tem
ents
. •
Ma y
be
adva
ntag
eous
to th
e jo
int v
entu
re:
Ther
eis
som
e em
piric
al e
vide
nce
that
a jo
int v
entu
rew
ill b
e m
ore
succ
essf
ul w
here
one
par
ty h
asdo
min
ant c
ontro
l bec
ause
the
join
t ven
ture
will
be ru
n w
ith o
ne v
oice
, one
bus
ines
s st
rate
gy a
ndon
e m
anag
emen
t sty
le.
•Co
nsid
er th
e e x
pens
e of
mai
ntai
ning
con
trol:
Mai
ntai
ning
con
trol o
ver a
join
t ven
ture
can
be
very
exp
ensi
ve, e
spec
ially
whe
re th
e jo
int v
entu
reis
geo
grap
hica
lly d
ista
nt fr
om th
e do
min
ant j
oint
vent
ure
part
y, an
d ca
n in
clud
e th
e fo
llow
ing
cost
s: p
rovi
ding
the
tech
nolo
gy fo
r the
join
tve
ntur
e, p
rovi
ding
all
supp
ort n
ot o
ther
wis
eco
vere
d by
a c
ontra
ct b
etw
een
the
non-
loca
lpa
rty
and
the
loca
l par
ty, a
nd m
aint
aini
ngex
patri
ate
man
ager
s fo
r the
join
t ven
ture
.•
Cons
ider
app
oint
ing
loca
l man
ager
s: O
ne w
ayfo
r a m
ultin
atio
nal c
orpo
ratio
n to
reta
in a
hig
hle
vel o
f con
trol a
nd o
vers
ight
is to
mai
ntai
nco
ntro
l of t
he b
oard
of d
irect
ors
as w
ell a
ssp
ecifi
cally
del
inea
ted
mat
ters
, but
app
oint
loca
lm
anag
ers
to ru
n th
e da
y-to
-day
ope
ratio
ns o
f the
join
t ven
ture
.
•Al
low
s fo
r loc
al e
xper
tise:
It c
an b
e be
nefic
ial
tole
t the
loca
l par
ty m
aint
ain
cont
rol o
ver t
hem
anag
emen
t of t
he jo
int v
entu
re w
here
the
loca
lpar
ty le
nds
grea
ter c
ritic
al re
sour
ces
and
rele
vant
bus
ines
s an
d in
dust
ry e
xper
tise
to th
ejo
int v
entu
re.
•T r
ustin
g th
e lo
cal j
oint
ven
ture
par
tner
: Un
der
this
man
agem
ent s
truct
ure,
the
non-
loca
l par
ty,
havi
ng le
ss m
anag
eria
l con
trol o
ver t
he jo
int
vent
ure,
wou
ld re
ly h
eavi
ly o
n th
e di
scre
tion
and
man
agem
ent d
ecis
ions
of i
ts lo
cal p
artn
er.
Ther
efor
e, it
is im
port
ant f
or th
e no
n-lo
cal p
arty
to k
now
its
loca
l joi
nt v
entu
re p
artn
er a
ndm
aint
ain
ahi
gh le
vel o
f tru
st in
the
join
t ven
ture
part
ner.
•Co
nsid
er p
r ovi
ding
for a
vet
o rig
ht:
The
non-
loca
lpa
rty s
houl
d co
nsid
er re
ques
ting
that
it b
e pr
ovid
edw
ith v
eto
powe
r with
resp
ect t
o sp
ecifi
cally
delin
eate
d“e
xtra
ordi
nary
” de
cisi
ons
—e.
g., t
heis
suan
ce o
f add
ition
al s
hare
s by
the
join
t ven
ture
or th
e sa
le o
f a s
ubst
antia
l por
tion
of th
e jo
int
vent
ure’
s as
sets
.•
Cons
ider
pr o
vidi
ng fo
r cum
ulat
ive
votin
g:By
prov
idin
g fo
r cum
ulat
ive
votin
g, th
e no
n-lo
cal
part
y w
ould
incr
ease
its
abili
ty to
impa
ctde
cisi
ons
of th
e bo
ard
of d
irect
ors.
39Baker & McKenzie
International Joint Ventures HandbookSection 3 – Structure
50/5
0N
on-lo
cal p
arty
str
onge
r con
trol
Non
-loca
l par
ty w
eake
r con
trol
•Co
nsid
er ro
le o
f man
agem
ent:
Thi
s m
anag
emen
tst
ruct
ure
can
be b
enef
icia
l whe
re tw
o jo
int
vent
ure
part
ies
brin
g di
ffere
nt s
kills
to th
e jo
int
vent
ure
—e.
g., o
ne p
arty
brin
gs m
anuf
actu
ring
tech
nolo
gy a
nd e
xper
tise
and
the
othe
r par
tybr
ings
kno
wle
dge
of, a
nd a
cces
s to
, loc
al m
arke
ts.
Unde
r thi
s sc
enar
io, e
ach
party
cou
ld b
e re
spon
sible
for c
erta
in d
ecis
ions
and
mig
ht e
ven
have
sol
ede
cisi
on-m
akin
g au
thor
ity fo
r tho
se d
ecis
ions
.H
owev
er, t
he jo
int v
entu
re a
gree
men
t cou
ldpr
ovid
e th
at c
erta
in k
ey d
ecis
ions
requ
ireap
prov
al b
y bo
th p
artie
s.•
Cons
ider
loca
l la w
rest
rictio
ns:
Cons
ider
whe
ther
loca
l law
requ
ires
supe
rmaj
ority
app
rova
ls u
nder
cert
ain
circ
umst
ance
s, p
rovi
des
for s
peci
ficen
forc
emen
t for
vot
ing
arra
ngem
ents
bet
wee
njo
int v
entu
re p
artie
s, re
quire
s a
“one
sha
re, o
nevo
te”
stru
ctur
e, re
quire
s a
chai
rman
of t
he b
oard
of d
irect
ors,
or p
rovi
des
for a
ny o
ther
requ
irem
ents
or l
imita
tions
on
the
man
agem
ent
stru
ctur
e of
a jo
int v
entu
re.
Whe
re lo
cal l
awdo
es n
ot a
llow
for d
epar
ture
s fro
m a
“on
e sh
are,
one
vote
” st
ruct
ure,
con
side
r hav
ing
the
join
tve
ntur
e ag
reem
ent g
over
ned
in a
juris
dict
ion
whi
ch d
oes.
Thi
s w
ill a
llow
gre
ater
flex
ibili
tyin
deci
ding
how
the
join
t ven
ture
sho
uld
bego
vern
ed.
•Co
nsid
er p
rovi
ding
for a
vet
o rig
ht:
The
non-
loca
lpa
rty
may
con
side
r pro
vidi
ng th
e lo
cal p
arty
with
veto
pow
er w
ith re
spec
t to
spec
ifica
lly d
elin
eate
d“e
xtra
ordi
nary
” de
cisi
ons
—e.
g., t
he is
suan
ce o
fad
ditio
nal s
hare
s by
the
join
t ven
ture
or t
he s
ale
of a
sub
stan
tial p
ortio
n of
the
join
t ven
ture
’s a
sset
s.•
Cons
ider
pr o
vidi
ng fo
r cum
ulat
ive
votin
g:In
orde
r to
max
imiz
e th
e lo
cal p
arty
’s in
cent
ive,
cons
ider
pro
vidi
ng fo
r cum
ulat
ive
votin
g, w
hich
wou
ld in
crea
se th
e lo
cal p
arty
’s a
bilit
y to
impa
ctde
cisi
ons
of th
e bo
ard
of d
irect
ors.
•Co
nsid
er lo
cal l
a w re
stric
tions
: Th
ese
are
gene
rally
the
sam
e co
nsid
erat
ions
as
thos
ede
scrib
ed u
nder
the
50/5
0 ap
proa
ch.
•Hi
gher
resp
onsi
bilit
y : W
ith “c
ontro
l” th
e no
n-lo
cal
party
wou
ld li
kely
hav
e a
high
er le
vel
ofre
spon
sibi
lity
with
resp
ect t
o, e
.g.,
impr
oper
cond
uct o
f the
join
t ven
ture
ent
ity.
•Co
nsid
er a
ppoi
ntin
g ke
y m
anag
emen
t per
sonn
el:
If th
e no
n-lo
cal p
arty
doe
s no
t mai
ntai
n m
ajor
ityco
ntro
l ove
r the
join
t ven
ture
’s b
oard
of d
irect
ors,
itco
uld
cons
ider
app
oint
ing
key
man
agem
ent
pers
onne
l tha
t will
be
invo
lved
in th
e da
y-to
-day
man
agem
ent o
f the
join
t ven
ture
suc
h as
a fi
nanc
ial
cont
rolle
r. T
his
appr
oach
can
incr
ease
itspa
rtic
ipat
ion
and
influ
ence
in th
e jo
int v
entu
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SECTION 4 EXIT AND TERMINATIONWhere the joint venture is intended to have a fixed duration or a specific andlimited purpose, termination issues are often dealt with early in the negotiations.Where the joint venture is intended as a long-term relationship, however, the partiesmay be reluctant to discuss terminating their relationship while negotiating thejoint venture documentation. Nevertheless, it is always possible that one or bothof the parties will wish to no longer participate in the joint venture for somereason. Further, studies suggest that the average alliance lasts between four andseven years, with very few lasting more than 15 years.1
Even where the termination provisions of the joint venture agreement are notstrictly followed (especially where the joint venture has been in existence for manyyears), they nevertheless provide a context within which the parties can negotiatean appropriate exit. Accordingly, careful attention should be paid to draftingappropriate termination provisions in the joint venture agreement.
Generally speaking, when the parties contemplate a long-term relationship,a prospective party’s first choice for an exit mechanism is often the transfer of thejoint venture interests, then the sale of the entire company, and then the dissolutionof the company. These topics, as well as various post-termination and transitionissues, are addressed in checklist format in the remainder of this Section. In addition,the Sample Term Sheet included as Exhibit 6(b) includes provisions and detailedcommentary with respect to many of these issues.
Under each of the topics listed below, consider the extent not only to which theprospective party desires a particular right, but also the extent to which it wouldbe willing to permit the local partner to have the reciprocal right. If the non-localparty is unwilling to grant a particular right to the local partner, it will be difficultto obtain that right for itself.
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1 Alison Maitland, Joint ventures: Getting out without getting hurt, Financial Times, October 10, 2002.
1. Transfer of InterestsThe broad categories for the transfer of interests are: third party transfers, transfersto a joint venture party or to the joint venture vehicle itself, and withdrawal or exit.The following questions should be asked with respect to any transfer of interest:
• What bases for the right to transfer are enforceable under local law?
– Deadlock?
– Failure to reach certain milestones?
– Change in control of a party to the joint venture?
– Completion of a particular project?
– Expiration of initial lock-in (e.g., 10 years)?
– Insolvency of a party to the joint venture?
– Voluntary desire to terminate?
– Material breach?
– Failure to agree on capital expenditures for more than e.g., 3 consecutive years?
– Other?
• In the event of a withdrawal from or sale to the joint venture vehicle,would the joint venture vehicle have the financial resources to be ableto pay cash up front for the exiting party’s interest?
• Are interests in this kind of entity assignable? If so, how is an assignmentaccomplished (e.g., delivery of a certificate, recordation in a publicregister, other formal process)?
• Are complete prohibitions on assignment and transfer valid?
• If not, what transfer restrictions are enforceable under local law?
– Management consent?
– Other party’s consent?
– Right of first offer?
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– Right of first refusal?
– Other?
• Are these transfer restrictions binding on third parties?
• Are there any formal requirements for these restrictions to be bindingagainst the joint venture parties or third parties, such as a notation ona certificate or a notation in the commercial register?
• If transfer restrictions are binding on third parties, are both the jointventure vehicle and the joint venture parties nonetheless required torecognize any rights in an assignee/transferee if interests aretransferred in violation of the restrictions?
• Does an assignee/transferee who has acquired an interest in violationof a restriction nonetheless have economic rights as against the jointventure vehicle (e.g., rights to profit and asset distributions)?
• Are there local law rules on how the interests are to be valued, or arethe parties free to determine a mechanism? Price-to-earnings ratio?Discounted cash flow analysis? Net asset test? An offer from a bonafide third party? A valuation by an independent expert?
• Will partial transfers be permitted, or will the exiting party be requiredto sell (or the remaining party be required to buy) all of the exitingparty’s shares?
• Will the parties permit intra-group transfers without prior consentfrom the other joint venture party? Or without triggering any rightsin the other joint venture party (e.g., right of first refusal)?
• Will the minority party have tag-along rights?
• Will the majority party have drag-along rights?
• Will the parties have buy-sell rights?
• Should the obligations of the exiting joint venture party be required tobe assumed by a transferee (e.g., guarantees)?
• Should any loans payable by the exiting joint venture party be requiredto be paid upon exit or should they be required to be assumed bya transferee?
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• Consider including a provision in the joint venture agreement requiringthe parties to refinance (e.g., reinsertion of capital/reinvestment intothe joint venture), whether by agreement or as required by local law,and, in the event a party fails to do so, the joint venture may beterminated by the other party.
2. Sale or DissolutionIf it is not possible for one joint venture party to purchase the other party’s interests,then, in general, the next best approach may be to provide for a sale of the jointventure company as a going concern. This will tend to maximize shareholder value;however, the most significant risk is a competitor taking over the joint venture.In connection with the sale or dissolution of the joint venture, consider thefollowing questions:
• What are the local law mechanics for the sale of the joint venturevehicle?
• How will the value of the business be determined?
If a sale is not possible (or not desirable), dissolution or liquidation of the vehiclemight allow the parties to recover all or part of their investment.
• What are the local law mechanics for terminating the venture,followed by dissolution? Followed by liquidation?
• What are the local law mechanics of an auction sale?
• How will the value of the business be determined?
3. Intellectual Property ConsiderationsWhen negotiating the termination provisions of the joint venture agreement, theparties should establish what will happen upon termination to their respectiveintellectual property, as well as the intellectual property developed during the termof the joint venture. The following issues should be addressed:
• The joint venture should be required to change its corporate name ifthe name includes the trademark or brand of the exiting joint ventureparty. A time limit should be established for this requirement.
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Consideration should also be given to whether, and on what terms,the joint venture would be permitted to continue using the trademarkor other intellectual property of the exiting joint venture party.
• The joint venture agreement should address what happens to theintellectual property developed by the parties during the course ofthe joint venture. For example, the parties may each be free to use andexploit this “joint” intellectual property after the termination of thejoint venture.
• The joint venture agreement should address the effect of terminationon any intellectual property license agreements between the jointventure and the exiting joint venture party. If the joint venture entitysurvives (e.g., because the exiting party has exercised its put rights),the other party will want to make sure that the exit does not destroythe viability of the business itself. If a long-term joint venture iscontemplated the parties could provide that the license survives butthen becomes a royalty-bearing license (if it is not already structuredthat way). If the license does survive, the parties may want tounderstand in advance, however, whether the scope of any licensedintellectual property, or the contributing party’s retained rights tothat intellectual property, should change upon an exit. These issuesshould be considered closely in conjunction with any non-competitioncommitments applicable to the exiting party as described in thefollowing sub-section.
4. Non-CompetitionIt may be appropriate for the parties to implement a cooling-off period aftertermination of the joint venture, during which the exiting party and the jointventure vehicle agree not to compete. The following questions should be asked:
• What is an appropriate duration of the non-compete?
• Will the territory of the non-compete be limited to the jurisdiction ofthe joint venture entity? Will it cover other jurisdictions in which thejoint venture did business while both parties participated in the jointventure? Will it cover jurisdictions in which the joint venture plans todo business?
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• How should the business to which the non-compete covenant relatesbe defined?
• What scope and duration is enforceable under local law?
• Will the confidentiality provisions of the joint venture agreementcontinue after the termination of the joint venture? If so, for how long?
• What should be the procedure for the return of confidentialinformation upon termination of the joint venture?
The next chapter of this handbook contains further discussion of non-competearrangements in the joint venture context. In particular, see Section 5.3 (OtherKey Considerations – Non-Competition Provisions).
5. Other Transition IssuesIf one party is permitted to exit the joint venture but the joint venture will continueto operate, the remaining party may want to secure transition services from theexiting party. This will depend upon the extent of the exiting party’s contributionsto the joint venture (e.g., services, assets, employees) and whether a transition periodis needed to minimize business interruptions. The specific transition services maybe difficult to anticipate at the time of entry into the joint venture, in which casethe parties may need to negotiate a transition services agreement in connection withthe exit. In this regard, the parties may agree at the time of entry into the jointventure that an exiting party will agree to provide transition services to be mutuallyagreed by the parties at the time of exit. The following questions should be asked:
• What services are required from the exiting joint venture party? Whatare the fees for these services? What is the duration of the transitionperiod?
• What agreements are appropriate to document the provision oftransition services?
• Will any consents from or notices to third parties (e.g., customers)be required due to a change of control in the joint venture?
• What other issues arise as a result of the termination of the joint venturethat require the cooperation of the exiting party and remaining partyin order to ensure a smooth transition for the joint venture business?
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International Joint Ventures HandbookSection 5 – Other Key Considerations
SECTION 5 OTHER KEY CONSIDERATIONSThis section contains discussion and checklists of other key considerations that shouldbe addressed by any prospective party during the joint venture process. This sectionassumes that a decision has already been made to establish an equity joint venture(i.e., a jointly-owned vehicle), as opposed to entering into a contractual joint venture(i.e., a contract under which the parties agree to the terms of their commercialrelationship without any sharing of profits and losses).
1. Dispute ResolutionDespite careful evaluation of the potential joint venture partner and detailedformulation of the business plan and other key commercial terms, the parties willinevitably have differences of opinion concerning some aspects of the operation ofthe venture. Accordingly, the joint venture agreement should provide a thoughtfulmechanism for resolving disputes before they threaten to impact the long-termprospects of the relationship. The following questions should be asked in this regard:
• If the parties cannot agree on an issue which is fundamental to thejoint venture, how should matters be resolved? Specifically, in whatcircumstances will deadlock arise:
– on all material issues?
– on certain issues determined by the parties when the jointventure is established?
– on issues designated as deadlock issues by one of the parties at thetime they arise?
• Will deadlock issues be referred to the respective chief executiveofficers of the parties in the first instance? Will alternative mechanismsto resolve deadlock be used, such as:
– the joint venture chairman’s tie-breaking vote?
– reference to an independent director?
– reference to an independent third party?
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• Will different deadlock issues be resolved by different methods?Should an alternative dispute resolution procedure be developed?
• What rights will a party have on a deadlock? For example, will a partybe able:
– to require the termination of the joint venture and either awinding up or sale?
– to exercise a “buy-sell” option requiring the other party to sell orpurchase its interest in the joint venture?
Generally speaking, the parties will prefer issue resolution by senior managementpersonnel, as most joint venture disputes concern business issues, not legal issues.Since arbitration awards are often easier to enforce than foreign court judgments,the parties may wish to consider that the joint venture documentation provide forarbitration in the event that senior management is unable to resolve disputes. Thefollowing questions should be asked in this regard:
• Where will the non-local party most likely want to enforce the variousprovisions of the joint venture agreement?
• What are the standard dispute resolution practices for joint ventures inthe local jurisdiction? Is it appropriate from a local perspective to holdarbitration outside the local jurisdiction?
• Is there an advantage to the non-local party to have arbitration in oroutside of the jurisdiction where the joint venture vehicle is organized?
• How can the party holding relevant intellectual property best enforceits rights?
• How can the parties best enforce the confidentiality and non-competecovenants?
2. Methods for Contributing AssetsWhen the parties are contributing assets to the joint venture they will need toconsider precisely how to make those contributions.
Intellectual PropertyFrom the intellectual property perspective, it may be a no-brainer as to whetherone or both parties possess the relevant intellectual property, but it is a separatequestion to decide how that intellectual property is contributed – e.g., by way oflicense or assignment.
License. With a license the contributing party maintains control of the asset andcan insist on a right to terminate the license in the event of a breach by the jointventure. A license may make particular sense where the contributing party alsouses the intellectual property outside the scope of the joint venture and wherethe contributing party does not have sufficient control over the management anddirection of the joint venture. The contributing party also maintains control overthe prosecution and maintenance of the intellectual property registration and isoften the only party that can enforce the intellectual property rights against thirdparty infringers.
Assignment. With an assignment, by contrast, the joint venture controls the asset.This can help ensure that the joint venture is not at the mercy of the contributingparty for its intellectual property rights (and the proper maintenance of thoserights). If the joint venture will have marketing rights, ownership is helpful inthat it encompasses the right to sue third party infringers without the need to jointhe contributing party as a plaintiff in the action (thus mitigating the contributingparty’s own potential exposure). This structure may be a natural choice wherethe joint venture is formed upon the divestiture by the contributing party ofa subsidiary or stand-alone business unit, or where most of the creative talentassociated with the intellectual property will be transitioned to the joint venture.In addition, by owning outright its key assets, the joint venture may be a moreviable entity where, for example, the exit strategy is an IPO or other scenariowhere the parties may ultimately become passive participants over time.
Bear in mind, however, that these are rarely mutually exclusive choices and therewill likely be a need for both assignments and licenses as part of the final dealdocuments. If a contribution is made by license, for example, the contributor maywant an assignment of any improvements made by the joint venture or other party.If a contribution is made by an assignment, then one or both of the participantsmay want a license-back if for no other reason than to ensure their continuedfreedom to operate.
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Other assets Similar issues arise with respect to contributions of any real property which thejoint venture will occupy to conduct its operations. If one party is to contributereal property, will that contribution be made by way of a sale, lease or license, andwill any parent or other guarantee be required in connection with the paymentof any related purchase price or lease/license payments or satisfaction of othercontractual obligations?
Likewise, even where it is clear which party will be providing human resourcesto an equity joint venture, that contribution can be in the form of a transferof employees, secondment, or services agreement. Section 5.6 (Other KeyConsiderations – Employee Transfers and Benefits) discusses employee transferissues in greater detail.
3. Non-Competition ProvisionsIn most joint ventures, it will be understood that the parties will engage in otherbusiness activities. In fact, the joint venture may represent a relatively small part ofthe overall activities of a given party. Competing with the joint venture is anentirely different matter, however, and it is not at all unusual for joint ventureagreements to prohibit competition.
These prohibitions may take a variety of forms. In certain cases, it would beintended that the joint venture engage broadly in a given line of business, in whichcase the parties may be prohibited from engaging at all in that line of business. Allopportunities within the scope of that business will be reserved to the joint venture.On the other hand, if the joint venture is intended to have a more limited objective,the parties may merely be prohibited from directly competing with those definedactivities. The joint venture agreement may also provide that no party may solicitbusiness, or even do business, with a customer or client of the joint venture orseek to employ anyone that has been employed by the joint venture, all subject toappropriate time periods. There may also be restrictions on the parties’ ability touse or disclose any confidential information regarding the venture.
In the United States, the enforceability of non-competition agreements, generally,depends to a large extent on the reasonableness of the restrictions. Althoughnon-competition standards vary from jurisdiction to jurisdiction, it is generallyconsidered reasonable to restrict direct competition at least within the geographic
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area and range of business activities in which the joint venture actually engages.If the joint venture involves an acquisition, a non-competition undertaking may beenforced even more broadly since the undertaking will be seen as a means of insuringthat the joint venture will receive the full benefit of the acquired business. Again,however, these laws vary from jurisdiction to jurisdiction, and it is important toinvolve local counsel in assessing the enforceability and impact of non-competeprovisions which the parties seek to impose.
4. Competition/Antitrust LawRegardless of whether the parties intend to directly impose non-competitionprovisions, they will be required to assess and comply with relevant competitionor antitrust laws with respect to the formation of the joint venture.
Regulatory FilingsMost equity joint ventures will be required to file a notice with appropriategovernment agencies if the parties are substantial and the size of the ventureexceeds a certain amount. For example, in the US if the joint venture involvesan acquisition of assets or voting securities, the formation of a for-profit jointventure may require a filing with the US antitrust agencies. Since a filing is likelyto be required prior to closing and implementation of the venture, it is importantto determine all regulatory requirements prior to closing and to consider whetherthe joint venture is likely to raise any competitive concerns.
The following questions should be asked in this regard with respect to filingrequirements with antitrust or competition authorities:
• Which competition law(s) will apply to the joint venture (e.g., national,regional, local)?
• Are there any filing requirements for the joint venture and, if so,in which countries or jurisdictions?
• Are the relevant thresholds met?
• If the relevant thresholds are met, are there any available exemptions?
• If there are no available exemptions, are the parties required to makea filing or give notification before or after the closing or implementation
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of the joint venture? What is the relevant waiting period or likelytime frame before the parties can expect to receive approval fromthe authorities?
• What are the specific documentary requirements for the relevantfilings or notifications?
• What are the relevant standards of review by the relevant authorities?
• Are any industry-specific approvals required? Are any sensitiveindustries involved such that governmental approval or notification(e.g., Exon-Florio in the United States) is advisable?
Impact on CompetitionEven if no regulatory filing is required, a joint venture between competitors orpotential competitors can trigger antitrust or competition law concerns. In thatevent, it is important to consider the structure of the venture, its purpose, themarket in which it competes, and any competitive restrictions that it imposeson the parties. The fundamental question in any joint venture or collaborationbetween competitors is whether the parties intend a genuine joint venture(i.e., their operations are integrated and financial risks are shared) in which casethe venture is likely to be viewed as procompetitive, or only a sham arrangementwhose principal purpose is price fixing, territorial or customer allocation, controlof production, or other anticompetitive purpose.
Although joint ventures vary significantly, most involve one or more businessactivities (e.g., production, marketing, sales, research and development, or groupbuying). Of these, the most likely to cause competitive harm and therefore tobe challenged on antitrust or competition grounds is a marketing and sales jointventure, particularly if there is little integration or economic risk-sharing tojustify any restraints on price or territories. On the other hand, joint venturesinvolving production, research and development or purchasing are typically moreprocompetitive in that their purpose is usually to lower prices, improve quality,enhance service or create a new product. Generally, these ventures do not presentan antitrust or competitive risk so long as neither the venture nor the parties tothe venture have a large market share or a dominant market position in the marketin which the venture competes.
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In addition, any competitive restrictions must be limited to the joint venture andnot extend beyond the joint venture. Thus, parties to a production joint venturemay jointly set the price for the products produced by the venture but not theprice of products outside the venture. Similarly, parties to a co-developmentagreement may restrict research on the products that are the subject of theagreement but not with respect to other unrelated products.
Accordingly, the following questions should be answered at least with respect toa US joint venture regardless of whether there is a regulatory filing:
• What is the business purpose of the joint venture?
• Is the joint venture between competitors or potential competitors?If so, what are the respective market shares of the parties, and what isthe projected market share of the venture?
• Will the parties to the venture be allowed to compete with theventure? If not, what is the extent of the covenant not-to-compete?
• What is the term of the venture? Can either of the parties terminatethe venture?
• What is each party contributing to the venture?
• Are the parties going to share the profits and losses of the venture?If so, on what basis?
• What are the likely consumer benefits resulting from the venture? Isthe venture likely to reduce prices, improve quality, enhance serviceor create any new products or services? If so, how is this likely to beaccomplished?
• To what extent will the venture be able to set prices, divide territoriesor customers or otherwise restrict the parties to the venture fromcompeting?
• Have the parties agreed to any restrictions beyond the scope of theventure? If so, what are these restrictions?
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• Have either of the parties or the venture itself been the subject of anyprior investigation, review or enforcement action by an antitrust orcompetition authority or a defendant in antitrust litigation by a privateparty?
5. Foreign Ownership RestrictionsIt is important for a multinational corporation, as the non-local joint venture party,to understand the restrictions under relevant local law and practice on its ability toown, manage and otherwise participate in the joint venture business. The followingthreshold questions should be asked in this regard:
• Are there any foreign investment law approvals or licenses requiredfor the non-local party’s participation in the joint venture vehicle? Ifso, how long does the approval procedure take and what are theapplication requirements? (In this regard, note that even a minorityforeign investment may require foreign investment law approval.)
• Are there any central bank or exchange control requirements for thenon-local party’s participation in the joint venture vehicle? For itsexpatriation of profits? For any payments by the joint venture vehicle tothe non-local party for products, services or management fees?
• Will the local party contribute real property to the joint venture? Arethere any restrictions on ownership by the joint venture vehicle of realproperty, taking into consideration the non-local party’s participationin the joint venture vehicle? Is the real property owned by thegovernment?
• Will the non-local party be contributing intellectual property orknow-how to the joint venture? Are there any restrictions on itsability to do so? For example, are there any tax implications orexchange control restrictions on royalty payments from the jointventure vehicle to the non-local party for use of the know-how?
• Will it be possible to enforce and protect the non-local party’sintellectual property rights in the local jurisdiction?
6. Employee Transfers and BenefitsWhen two companies engage in a joint venture, there are a number of significantemployee, management, and employee benefit issues that result. The majority ofemployee transfer issues will flow from the structure of the transaction, namely,how the joint venture is established and from which joint venture party theemployees will come. These issues should be addressed early in negotiation stagebecause they can greatly impact the timing of the formation of the joint venture.The following are the types of questions that should be asked in this regard:
Employee Transfer Issues• Who are the employees who will be employed by (that is, directed
and controlled by) the joint venture?
• How will the employees transfer to the joint venture? Corporatespin-off? Offer/Acceptance? Automatic transfer of employment?Right of employees to oppose automatic transfer?
• Are any approvals or consultations required to transfer employees tothe joint venture? If so, which party is obligated to secure them?
• Are employee notices required prior to transfer? If so, which party isobligated to provide them? Are there any minimum statutory periodsfor employee notices/employee oppositions?
• Is employee consent required to transfer the employees to the jointventure?
• What terms and conditions of employment will apply to the jointventure employees?
• Are employment contracts required for some or all joint ventureemployees?
• Does seniority transfer?
• Are joint venture employees entitled to severance/terminationindemnities or change in control payments when transferring to thejoint venture? If so, who is liable for payment?
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• What happens to employees who do not transfer to the joint venture?If they are terminated, are they entitled to severance? If so, who is liable?
• Will joint venture employees be subject to restrictive covenants(e.g., non-competition, non-disclosure)? Note that existingagreements may not protect the rights and interests of the co-venturer,so new agreements may be required. What is enforceable in the localjurisdiction?
• Will any expatriates transfer to the joint venture? If so, who will betheir employer? Will they be tax-equalized or tax-protected? Whatemployee benefits will they receive? How can the non-local party bestminimize the expatriate’s and its own tax liabilities?
• Will the managers be employees of the joint venture vehicle, or willthey be retained as consultants? What are the tax and employment lawimplications of each type of relationship?
• What are the employment, immigration and tax law implications ofusing seconded employees?
Employee Benefits Issues• What employee benefits will cover the joint venture employees?
– Retirement plans?
– Incentive plans?
– Equity compensation plans?
– Health and other welfare benefit plans?
– Pension plans?
• Will the joint venture establish its own plans or will employees remainin existing plans?
• If the joint venture establishes its own plans, will there be a transfer ofassets/liabilities to the joint venture plans?
• Will the joint venture retirement plans be fully funded? If so, at whatfunding level?
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• Will the joint venture employees have the same/similar/substantiallysimilar employee benefits as they enjoyed prior to transfer to the jointventure?
• Will the joint venture replicate the employee benefit plans the jointventure employees participated in prior to transfer?
• Will the joint venture plans be in place at the commencement of thejoint venture?
• Will current employee benefit plans need to cover the joint ventureemployees during a transition period?
• If the joint venture employees participated in equity compensationplans prior to transfer, will the joint venture create a new equitycompensation plan for those employees? If so, will equity of the jointventure or one of the joint venture parties be used?
• Will the joint venture need transitional services (e.g., payroll,HR administration, benefits administration, and so forth)? If so,for how long and at what cost to the joint venture?
• Will the joint venture employees receive service credit under the jointventure plans for their service prior to transfer to the joint venture?
• What steps are required to establish plans for the joint ventureemployees? How long will these steps take?
Local Legal Regulations• What local rules apply to the transfer of employees to the joint
venture (e.g., in the United Kingdom, the Transfer of Undertakings(Protection of Employment) Regulations 1981 or “TUPE”)? Will anyother termination, transfer or relocation laws (e.g., in the United States,the Worker Adjustment and Retraining Notification Act or “WARNAct”) have an effect on the joint venture?
• What local rules apply to the employment relationship (e.g., statutoryseverance, wrongful dismissal)?
• Are there any collective labor agreements that cover the joint ventureemployees?
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• Will the joint venture have one or more works councils?
• What non-discrimination, workplace safety, privacy, and other similarrules apply to protect the joint venture employees?
• Are restrictive covenants (e.g., non-competition, non-disclosure)enforceable against employees or former employees?
• What is the role, strength and influence of the unions, if any?
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International Joint Ventures HandbookSection 6 – Documentation
SECTION 6 DOCUMENTATIONAs the potential joint venture participants assess the business and legal issues that arelikely to have a significant impact on the joint venture and decide whether and underwhat terms to proceed with the venture, it will be necessary to memorialize theirunderstandings and responsibilities at various stages of the process and to ultimatelyexecute binding agreements governing the formation, operation and managementof the joint venture.
This section includes model documents, checklists and accompanying discussionof material issues designed to assist in successfully negotiating and drafting the jointventure documents.
At the highest level, the following are the documents which one would expect tobe entered into and the general issues which they typically address:
1. Confidentiality AgreementAt the outset of discussions, it will be in the parties’ interests to ensure that theirdiscussions (and any due diligence information that they may disclose to each other)are kept completely confidential. Exhibit 6(a) contains a sample mutualconfidentiality agreement. Note that in relation to the standard provision whichentitles a party to make a disclosure when securities laws require it to do so, it maybe worth checking what securities laws apply to any local joint venture party andestablishing the circumstances when a disclosure is required under those laws.
2. Term SheetA term sheet generally contains a statement of the proposed key terms of thetransaction and it is intended to serve as the basis for negotiating the joint ventureagreement. Exhibit 6(b) contains a sample term sheet accompanied by twosupplements containing detailed commentary. A letter of intent is sometimes usedin place of or in addition to a term sheet, but either document can be drafted tocontain the appropriate provisions. Care should be taken in relation to any statementsof obligation to negotiate in good faith, and in particular to the governing lawwhich may apply to the term sheet or letter of intent, since in some jurisdictions
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an “agreement to agree” may be enforceable and a duty to negotiate in good faithcould be triggered not only upon entering into a term sheet or letter of intent, butalso with respect to the negotiation of the term sheet or letter of intent itself.
3. Joint Venture AgreementThe joint venture agreement is the core document to be executed between theparties which will govern the formation of the joint venture vehicle and any applicableconditions precedent, the running of the joint venture vehicle, its funding anddistribution policies, transferability of shares, termination and exit. This documentwill vary considerably depending on the objectives of the parties and, accordingly,is not included in this handbook. However, Exhibit 6(c) contains a general issueschecklist to consider when establishing a joint venture, including items that aretypically addressed in the joint venture agreement.
4. Company Formation DocumentsThese will vary considerably depending on where the joint venture vehicle is tobe formed and, for that reason, are not included in this handbook. Considerationshould be given to the relationship between the rules established in any charterdocuments, and the obligations set out in the joint venture agreement.
5. Ancillary AgreementsThe parties will often need to enter into various ancillary documents to enable thejoint venture to conduct its business. Again these documents will vary dependingon the precise nature of the deal and templates are not included in this handbook.Typically, they will include the following:
• IP assignments/licenses. It would be unusual for the parties not tocontribute a certain amount of intellectual property to the jointventure vehicle to enable it to exploit the parties’ combined resources.These documents will need to address what, if anything, will happento the intellectual property assigned or licenses granted in the event oftermination of the joint venture.
• Secondment agreements. Often, these will be standard templatesto cover any employees of either party who are agreed to be secondedto the joint venture vehicle. These agreements should also addresssuch matters as the ownership of any intellectual property developedduring the course of the secondment.
• Services and supply agreements. These will cover the sourcing ofany required services and products required by the joint venture fromeither party.
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Exhibit 6(a) Sample Mutual Confidentiality Agreement
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement (the “Agreement”) is dated [date] and is byand between [company name], a [jurisdiction] [form of entity], and[company name], a [jurisdiction] [form of entity]. In this Agreement,the party disclosing its Confidential Information (as defined below), is referredto as the “Disclosing Party,” and the party receiving Confidential Information isreferred to as the “Investigating Party.”
Preliminary Statement
Each party desires to share certain of its Confidential Information with the otherparty in connection with a possible transaction (the “Transaction”).
Agreement
The parties, intending to be legally bound, agree as follows:
1. Confidential Information
(a) “Confidential Information” means all non-public information ofthe Disclosing Party disclosed or made available to the InvestigatingParty or any of the directors, officers, employees, agents,consultants, advisors, legal counsel or accountants (collectively,“Representatives”) of the Investigating Party, regardless of theform or manner of disclosure, including:
(i) all information relating to the Disclosing Party’s tradesecrets (including all information that applicable law definesas “trade secrets”);
(ii) all information concerning products, product specifications,data, formulae, compositions, designs, sketches, photographs,graphs, drawings, samples, inventions, discoveries, ideas,know-how, past, current, and planned research anddevelopment, current and planned methods and processes,client or customer lists and files, current and anticipated
client or customer requirements, vender and supplier listsand files, price lists,1 market studies, business plans andbusiness opportunities;
(iii) all information concerning [computer hardware,]software that was developed or modified by or for theDisclosing Party (including object and source codes),databases, data modules or structures, algorithms,[mask works, circuit layouts] and computer systemarchitectures;2
(iv) all information concerning the Disclosing Party’s businessand affairs, assets, liabilities, historical and current financialstatements, financial projections and budgets, forecasts,historical, current and projected sales, capital spending,budgets, strategic plans, marketing and advertising plans,publications, agreements, the names and backgrounds of keypersonnel, personnel training techniques and materials andthe names, contact information and any other informationrelating to an identified or identifiable natural person;
(v) all third-party confidential information in the possession ofthe Disclosing Party;
(vi) all information relating to the ability to finance the Transaction;and
(vii) all notes, analyses, compilations, studies, summaries,interpretations and other material prepared by the InvestigatingParty or its Representatives to the extent they contain, arebased on or refer to, in whole or in part, any informationdescribed in (i) through (vi) above (collectively, “Notes”).
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______________________
1 If the parties are competitors, applicable antitrust/competition laws should be considered beforethey disclose pricing or other confidential market information to each other.
2 Include “computer hardware” only if the Disclosing Party views information about it as sensitive,e.g., if the Disclosing Party manufactures computer hardware. Include “mask works” and “circuitlayouts” if the Disclosing Party produces microchips.
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(b) The term “Confidential Information” does not include anyportions of such information:
(i) that become generally available to the public, other than asa result of disclosure by the Investigating Party or any of itsRepresentatives; or
(ii) that becomes available to the Investigating Party ona non-confidential basis from a source (other than theDisclosing Party or its Representatives) which, to theInvestigating Party’s knowledge after due inquiry, is notprohibited from disclosing such information to theInvestigating Party by a legal, contractual or fiduciaryobligation to the Disclosing Party.3
(c) Any trade secrets of the Disclosing Party will also be entitled toall of the protections and benefits under applicable trade secretslaw and any other applicable law. If any information that theDisclosing Party deems to be a trade secret is found by a courtof competent jurisdiction not to be a trade secret for purposes ofthis Agreement, the information nonetheless will be consideredConfidential Information for purposes of this Agreement unlessit falls within the exception described in Section 1(b).
______________________
3 The following alternative to 1(b)(ii) requires the Investigating Party to inform the DisclosingParty of otherwise “Confidential Information” that is or becomes available to it. It may beappropriate to seek this type of an undertaking from the Investigating Party where, for example,the Disclosing Party and Investigating Party are close competitors and have serious questions orconcerns about what information each may claim to already be available:
that were, are or become available to the Investigating Party on a non-confidential basis priorto being made available by the Disclosing Party, but only if (A) the source of such informationis not bound by a duty of confidentiality, and (B) the Investigating Party provides the DisclosingParty with written notice of such prior possession either (1) prior to the execution anddelivery of this Agreement or (2) if the Investigating Party later becomes aware of (throughdisclosure to the Investigating Party or otherwise through the Investigating Party’s work onthe Transaction) any aspect of the Confidential Information of which the Investigating Partyhad prior possession, promptly upon the Investigating Party becoming aware of such aspect.
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2. Restricted Use and Nondisclosure
(a) The Investigating Party agrees that the Investigating Party andits Representatives (i) will keep the Confidential Informationconfidential and (ii) without limiting the foregoing, will notdisclose the Confidential Information to any person (includingcurrent or prospective financing sources) except with the specificprior written consent of the [insert names or titles] of theDisclosing Party (collectively, the “Disclosing Party Contacts”and individually, the “Disclosing Party Contact”) or except asexpressly otherwise permitted by the terms of this Agreement ora Definitive Agreement (as defined in Section 8). It is understoodthat the Investigating Party may disclose Confidential Informationonly to those of the Investigating Party’s Representatives whorequire such material for the purpose of evaluating the Transaction,and who are informed by the Investigating Party of the confidentialnature of the Confidential Information and the obligations of thisAgreement. The Investigating Party and its Representatives willnot use any of the Confidential Information for any reason orpurpose other than to evaluate and negotiate the Transaction.
(b) The Investigating Party will enforce the terms of this Agreementas to its Representatives and will take all steps (including allaction the Investigating Party would take to protect its own tradesecrets and confidential information) necessary to cause them tocomply with this Agreement and thereby prevent their disclosureof the Confidential Information, except as permitted by thisAgreement. If an unauthorized use or disclosure occurs, theInvestigating Party will immediately notify the Disclosing Partyand take, at the Investigating Party’s expense, all steps (includingavailable actions for seizure and injunctive relief) necessary torecover the Confidential Information and prevent its subsequentunauthorized use or dissemination. If the Investigating Party fails totake these steps in a timely and adequate manner, the DisclosingParty may take them in its own or in the Investigating Party’sname and at the Investigating Party’s expense.
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3. Nondisclosure of Transaction
Except as expressly permitted by a Definitive Agreement, neither theInvestigating Party nor its Representatives will, without prior writtenconsent of the Disclosing Party Contact, disclose to any person the termsor existence of this Agreement, the fact that the Confidential Informationhas been made available to the Investigating Party or the InvestigatingParty’s Representatives, the fact that discussions or negotiations aretaking place concerning a Transaction, or any of the terms, conditions,or other facts with respect thereto; provided, however, that theInvestigating Party and its Representatives may disclose suchinformation to those of the Investigating Party’s Representatives whorequire such information for purposes of assisting with the Transaction.
4. Legal Compulsion to Disclose Confidential Information
If the Investigating Party or any of its Representatives become legallycompelled (including pursuant to any rule or regulation promulgatedby any securities regulation authority or any securities exchange) tomake any disclosure that is prohibited or otherwise constrained by thisAgreement, then the Investigating Party or such Representative, as thecase may be, will give the Disclosing Party immediate written noticeof such requirement so that it may seek a protective order or otherappropriate relief, or waive compliance with the nondisclosure provisionsof this Agreement. Subject to the foregoing, the Investigating Party orsuch Representative may make only such disclosure that, in the writtenopinion of counsel reasonably acceptable to the Disclosing Party, it islegally compelled or otherwise required to make to avoid standingliable for contempt or suffering other material censure or penalty;provided, however, that the Investigating Party and its Representatives mustuse reasonable efforts to obtain reliable assurance that confidentialtreatment will be accorded any Confidential Information so disclosed.
5. Disclosing Party Contact
The Disclosing Party will determine, in its sole discretion, whatinformation, properties and personnel it wishes to make available tothe Investigating Party. All requests by the Investigating Party or itsRepresentatives for Confidential Information, meetings with
Disclosing Party personnel or Representatives, inspections ofDisclosing Party properties, and discussions or questions regardingprocedures will be made exclusively to a Disclosing Party Contact.The Investigating Party and its Representatives will not initiate anycommunications with any director, officer or employee of the DisclosingParty (other than a Disclosing Party Contact) without the prior writtenconsent of a Disclosing Party Contact.
6. Return of Confidential Information
If either party notifies the other party that it does not wish to proceedwith the Transaction, then the Investigating Party will, within fivebusiness days of such notification, (a) deliver to the Disclosing PartyContact all documents and other materials constituting ConfidentialInformation, other than Notes, in the possession or under the controlof the Investigating Party or the Investigating Party’s Representatives,and (b) destroy all Notes, without retaining a copy of any such material.Alternatively, if the Disclosing Party Contact so requests or gives hisor her prior written consent to the Investigating Party’s request, theInvestigating Party will destroy all documents and other materialsconstituting Confidential Information in the possession or underthe control of the Investigating Party or the Investigating Party’sRepresentatives, including all copies that are stored in an electronic orother medium and are retrievable in perceivable form. An appropriate4
officer of the Investigating Party must certify any such destruction tothe Disclosing Party in writing, and a list of the destroyed documentsand materials must accompany the certification.
7. Attorney Work Product and Attorney-Client Privilege
The Investigating Party acknowledges that the Disclosing Party may beentitled to the protections of the attorney work-product doctrine,attorney-client privilege or similar protections or privileges with
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______________________
4 Many drafters find it cumbersome at such an early stage in the transaction to name a specificofficer in charge of certifying the destruction of documents. The Disclosing Party should notbe comfortable accepting the certification of “any officer,” however. The word “appropriate” isintended to signal that the officer must be one who had first-hand knowledge of or supervisoryresponsibility for the destruction.
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respect to certain of the Confidential Information. The Disclosing Partyis not waiving, and will not be deemed to have waived or diminished,any of its attorney work-product protections, attorney-client privilegesor similar protections or privileges as a result of the disclosure of suchConfidential Information to the Investigating Party in connection withthe Transaction. The parties (a) share a common legal and commercialinterest in such Confidential Information, (b) are or may become jointdefendants in proceedings to which such Confidential Informationrelates, and (c) intend that such protections and privileges remainintact should either party become subject to any actual or threatenedproceeding to which such Confidential Information relates.
In furtherance of the foregoing, the Investigating Party will not claimor contend, in proceedings involving either party, that the DisclosingParty waived the protections of the attorney work-product doctrine,attorney-client privilege or similar protections or privileges as a resultof the disclosure of Confidential Information to the Investigating Partyin connection with the Transaction.5
8. No Obligation to Negotiate Definitive Agreement
The Disclosing Party reserves the right, in its sole discretion, to rejectany and all proposals made by the Investigating Party or the InvestigatingParty’s Representatives with regard to a Transaction and to terminatediscussions and negotiations with the Investigating Party and theInvestigating Party’s Representatives at any time. No contract providingfor a Transaction will be deemed to exist unless and until a definitiveagreement, if any, with respect to a Transaction (a “Definitive
______________________
5 Jurisdictions vary in their application of the attorney work-product doctrine and the attorney-client privilege, and some apply them quite narrowly, if at all. A court may ignore this provision,particularly if a third party is claiming waiver of the attorney-client privilege or if the transactionnever closes. Therefore, even with a provision like this in the Confidentiality Agreement, counselfor the Disclosing Party should monitor the disclosure of any information that may be protected.
When the Investigating Party is contemplating acquiring the target business, it will want thework-product protection and attorney-client privilege preserved if it ultimately purchases thetarget business. If, however, the Investigating Party is or may become adverse to the DisclosingParty in litigation involving information to be disclosed, counsel to the Investigating Party mayseek to eliminate this provision.
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Agreement”) has been executed and delivered, and the parties waiveany claims (including breach of contract claims, but excluding allclaims directly or indirectly based on this Agreement) in connectionwith a Transaction unless and until they enter into a DefinitiveAgreement. Neither party nor their respective Representatives orstockholders will have any legal obligation of any kind with respect toa Transaction by virtue of this Agreement, except to the extentexplicitly set forth herein.
9. No Representations or Warranties
Neither the Disclosing Party nor its Representatives make anyrepresentation or warranty (express or implied) concerning thecompleteness or accuracy of the Confidential Information, exceptpursuant to representations and warranties that may be made to theInvestigating Party in a Definitive Agreement if, when, and as executedand subject to such limitations and restrictions as may be specifiedtherein. The Investigating Party also agrees that if the InvestigatingParty determines to engage in a Transaction, the Investigating Party’sdetermination will be based solely on the terms of such DefinitiveAgreement and on the Investigating Party’s own investigation, analysis,and assessment of the business to be acquired.
10. [Compliance with Securities Laws6
The Investigating Party is aware, and its Representativeswho are apprised of the Transaction will be advised, thatthe securities laws of the United States prohibit any personwho has material, non-public information concerning theDisclosing Party from purchasing or selling securities inreliance upon such information or from communicatingsuch information to any other person or entity undercircumstances in which it is reasonably foreseeable that suchperson or entity is likely to purchase or sell such securitiesin reliance upon such information.]
______________________
6 Include if Disclosing Party is a public company or an affiliate of a public company.
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11. Data Protection and Privacy Restrictions7
The Investigating Party will inform itself about and observe allapplicable data protection and/or privacy requirements in [insertnames of the jurisdictions in which the ConfidentialInformation is located] and any other relevant jurisdictions. TheInvestigating Party will also implement and maintain all such technicaland organizational security measures as may be reasonably available(having regard to technical developments at the time) and as areappropriate in the circumstances to protect Confidential Informationagainst unauthorized or unlawful processing, accidental loss, distributionor damage. In addition, in the event that any Confidential Informationis located in a jurisdiction that restricts the transfer of such informationto other countries or locations, the Investigating Party will maintainsuch information within that jurisdiction only, and will not transfer it toany other country or location in a manner that violates such restrictions.The Investigating Party will indemnify and hold the Disclosing Partyharmless for any damage or expense (including legal fees and costs)resulting from the Investigating Party’s contravention or otherviolation of any applicable data protection and/or privacy laws.8
12. Remedies
The Investigating Party acknowledges that the Disclosing Party wouldbe damaged irreparably if any of the provisions of this Agreement arenot performed in accordance with the specific terms, that the
______________________
7 Include this provision if either party or Confidential Information is located in a jurisdiction thathas or may have applicable data protection or privacy laws (such as the European Union, theUnited States, Switzerland, Hungary, Canada, Argentina and Australia). Also, before disclosing anypersonally identifiable information to the Investigating Party, the Disclosing Party should ensurethat such disclosure does not violate any privacy policy or representation that it has made to theaffected individuals, and should also ensure that such disclosure does not violate any applicabledata protection or privacy law.
8 In many jurisdictions, depending on the particular circumstances, the Disclosing Party could beheld primarily liable for any violations of data protection laws that are caused by the InvestigatingParty. The indemnification clause is intended to help address this issue, but the Disclosing Partyshould closely review how the Investigating Party intends to use and disclose personally identifiableinformation, in particular in circumstances where cross-border transfers might be involved.
Disclosing Party would encounter extreme difficulty in attempting toprove the actual amount of damages suffered by it as a result of theInvestigating Party’s breach and that any breach of this Agreement by theInvestigating Party would not be adequately compensated by monetarydamages alone. Accordingly, the Investigating Party agrees that, inaddition to any other right or remedy to which the Disclosing Partymay be entitled at law or in equity, the Disclosing Party will be entitledto enforce any provision of this Agreement by a decree of specificperformance and to temporary, preliminary and permanent injunctiverelief to prevent any breach or threatened breach of this Agreement,without posting any bond or other security and without the necessityof proving the amount of any actual damage to the Disclosing Partyresulting therefrom.9 In addition, the Investigating Party will indemnifyand hold the Disclosing Party and its stockholders harmless from anydamages, loss, cost or liability (including reasonable legal fees and thecost of enforcing this indemnity) arising out of or resulting from theInvestigating Party’s breach of the terms of this Agreement or anyother unauthorized use or disclosure by the Investigating Party or itsRepresentatives of the Confidential Information.The Disclosing Party’sstockholders have the right to enforce all indemnity obligations of the
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______________________
9 The following subsection could be added where disclosure may be made to employees or agentsof the Investigating Party located in civil law jurisdictions where there is no effective injunctiverelief. Formulation of the penalty would be dictated by the laws of the Investigating Party’sjurisdiction:
“(b) In the event that the Disclosing Party is unable to obtain effective injunctive relief or otherequitable remedy against the Investigating Party in a court of competent jurisdiction, then theInvestigating Party agrees to pay the Disclosing Party a penalty in the amount of [maximumpenalty allowable in jurisdiction in which agreement would be enforced].”
If this subsection is added, then the bold-face language that follows should be added to thegoverning law provision:
“This Agreement will be governed by and construed under the laws of [jurisdiction] withoutregard to conflicts of law principles that would require application of any other law,provided, however, that if the Disclosing Party pursues a remedy pursuantto Section 12(b), then Section 12(b) alone will be governed by and construedunder the laws of the jurisdiction where the Disclosing Party brings the claim.”
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Investigating Party under this Agreement independently of theDisclosing Party.The rights and remedies of the parties to thisAgreement are cumulative and not alternative.
13. Notice
All notices and other communications under this Agreement must be inwriting and are deemed duly delivered when (a) delivered if deliveredpersonally or by nationally recognized overnight courier service (costsprepaid), (b) sent by facsimile with confirmation of transmission bythe transmitting equipment (or, the first business day following suchtransmission if the date of transmission is not a business day) or(c) received or rejected by the addressee, if sent by certified mail,return receipt requested; in each case to the following addresses orfacsimile numbers and marked to the attention of the individual (byname or title) designated below (or to such other address, facsimilenumber or individual as a party may designate by notice to the otherparty):
[Company name]:
Attention: [Disclosing Party Contact]Address: __________________Facsimile No.: ________________
[Company name]:
Attention: [Disclosing Party Contact]Address: __________________Facsimile No.: ________________
14. Entire Agreement
This Agreement constitutes the entire agreement between the partiesand supersedes any prior understandings, agreements or representationsby or between the parties, written or oral, with respect to the subjectmatter of this Agreement. This Agreement may not be amended,supplemented or otherwise modified except by a written agreementexecuted by the party to be charged with the modification.
15. Severability
If any court of competent jurisdiction holds any provision of thisAgreement invalid or unenforceable, the other provisions of thisAgreement will remain in full force and effect. Any provision of thisAgreement held invalid or unenforceable only in part or degree willremain in full force and effect to the extent not held invalid orunenforceable.
16. Waiver
Neither any failure nor any delay by any party in exercising any right,power, or privilege under this Agreement will operate as a waiver ofsuch right, power, or privilege, and no single or partial exercise of anysuch right, power, or privilege will preclude any other or furtherexercise of such right, power, or privilege or the exercise of any otherright, power or privilege.
17. Governing Law [;Jurisdiction; Service of Process]
(a) This Agreement will be governed by and construed under thelaws of [jurisdiction] without regard to conflicts of lawprinciples that would require application of any other law.
[(b) Any action or proceeding arising out of or relating tothis Agreement may be brought in the courts of the Stateof [state], County of [county], or, if it has or can acquirejurisdiction, in the United States District Court for the[district] District of [state], and each of the partiesirrevocably submits to the jurisdiction of each suchcourt in any such action or proceeding and waives anyobjection it may now or hereafter have to venue orconvenience of forum. Process in any action orproceeding referred to in the preceding sentence maybe served on any party anywhere in the world.]
[Alternative to (b): Any action or proceeding arisingout of or relating to this Agreement will be referred toand finally resolved by arbitration under [arbitrationrules], which [arbitration rules] are deemed to be
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incorporated by reference into this Section. Thetribunal will consist of a sole arbitrator. The place ofarbitration will be ______________. The language ofthe arbitration will be English. Process in any sucharbitration proceeding may be served on any partyanywhere in the world [by notice given to the party inaccordance with this Agreement].]10
18. Expenses
[Each party will bear its own expenses incurred inconnection with pursuing or consummating theTransaction, including any broker’s or finder’s fees and allfees and expenses of its Representatives.]11
19. Counterparts
This Agreement may be executed in one or more counterparts,including by means of faxed signature pages, any one of which neednot contain the signature of more than one party, but all suchcounterparts taken together will constitute one and the sameinstrument.
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10 An advantage of arbitration is that disputes over the confidential sale, evaluation and offer processdo not become a matter of public record. Disadvantages include plaintiff’s difficulty in obtaininginjunctive relief and the unavailability of extensive discovery. Arbitration is particularly ill suitedto enforcement of a standstill provision in a public deal.
11 A provision concerning expenses may be advisable if the parties are not going to enter into a letterof intent. If a cost provision is included in the confidentiality agreement, make certain that anycost provisions in subsequent agreements are either consistent with it or explicitly supersede it.
The parties have executed and delivered this Agreement as of the date indicated inthe first sentence.
[Company name]
By: _______________________________[Name][Title]
[Company name]
By: _______________________________[Name][Title]
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Exhibit 6(b) Sample Term Sheet(50/50 Joint Venture – Initial Discussion Draft)
CCoommmmeennttaarryy: This term sheet is intended for use as an initial discussion draft innegotiating a joint venture in which the non-local party initially will take a 50% equityinterest and roughly share management responsibility with the local joint venturepartner. Because this term sheet assumes that all major management decisions willneed to be taken initially with the agreement of both parties, this term sheet does notfocus on which decisions need to be taken by a supermajority versus a simple majority.If the non-local party is able to negotiate a clear path to an increased equity position,care should be taken in considering which decisions will require a supermajority andin establishing an appropriate supermajority threshold. If the non-local party seeksinitially to possess a greater degree of control, the “Majority Position Considerations”in Supplement A to this term sheet (Commentary and Alternative Provisions) shouldbe considered in negotiating the term sheet and subsequent joint venture agreement.If the non-local party initially will take a minority position in the joint venture, the“Minority Position Considerations” in Supplement A to this term sheet similarly shouldbe considered in negotiating the term sheet and subsequent joint venture agreement.This term sheet assumes that the non-local party will not enter into a 50/50 joint venturewithout either (i) a clear path to control or (ii) a clear exit right. See Supplement B tothis term sheet (Sample Exit Rights Provisions) for a discussion regarding exit rights.
TERM SHEET
This Term Sheet summarizes the principal terms with respect to the potentialformation of a joint venture (“JV”). In consideration of the time and expensedevoted and to be devoted by the parties with respect to this transaction, theExpenses provision of this Term Sheet shall be binding on the parties whether ornot the JV is consummated. No other legally binding obligations will be createduntil definitive agreements are executed and delivered by the parties. This TermSheet is not a commitment to invest or to proceed with a transaction, and isconditioned on the completion of due diligence, legal review and documentationthat is satisfactory to the parties. This Term Sheet shall be governed in all respectsby the laws of [jurisdiction].
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Parties: ______________________ (“Non-local Party”) and______________________ (“JV Partner”).
Structure: JV would be established as a [jurisdiction] [form of entity].
Purposes: JV would be organized for the purpose of _______________ (the“Joint Venture Purpose”), and all other activities that are necessary infurtherance of the Joint Venture Purpose. JV would not engage in anyother activity.
Term: The term of JV would be indefinite, unless terminated earlier inaccordance with the definitive written agreement providing for JV(the “Joint Venture Agreement”).
Territory: The geographic scope of JV’s business would be limited to[country/region] (the “Territory”).
Business Plan: The parties would draft and agree on, prior to the formation of JV,a written business plan (the “Business Plan”) for the first [three]years of operation of JV.
Initial CapitalContributionsandOwnership:
Upon establishment of JV, the parties would make the following cashcontributions and have the following membership interests in JV:
Member Cash Contribution Membership Interest
Non-local Party $______________ ___%JV Partner $______________ ___%
AdditionalContributions:
The parties would be obligated to make the following additionalcapital contributions:
Member Amount Timing
Non-local Party $_______________ ______________JV Partner $_______________ ____________________________ $_______________ ______________
Distributions: Distributions would be made to the parties on the following basis:
[_________________________________________________]
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IntellectualProperty:
Any IP licensed or contributed to JV will be licensed or contributedpursuant to a separate IP licensing agreement that would includestandard terms and protections for such IP. Any IP licensed to JV bythe Non-local Party, including any goodwill appurtenant thereto, willremain the exclusive property of the Non-local Party or its licensors.The JV Partner and JV will not have or acquire any rights in or to suchIP except as may be provided in the applicable license or contributionagreement. In the event that the JV Partner or JV have or acquireany rights in or to any of the Non-local Party’s IP, the JV Partner willassign and agree to assign and to cause JV to assign all such rights tothe Non-local Party for no additional consideration. Upondissolution of JV all licensed IP would be returned to the respectivelicensees and all IP owned by JV would be distributed as follows:
[________________________________________________]
Management: JV would be managed by a board of directors (the “Board”)consisting of [four] directors. The Non-local Party and the JVPartner would each appoint [two] directors to the Board (initially____________ and ____________ designated by the Non-localParty, and ____________ and ____________ designated by theJV Partner). The Board would make all decisions with respect to JV,and the parties would not be entitled to vote on any matters in theircapacities as equity holders. All decisions would require a majorityvote of all directors, not just of those in attendance at a meeting. TheBoard would meet at least [monthly] [quarterly]. Each directorwould be entitled to one vote on all matters to be voted upon by theBoard. Any director would be entitled to call a special meeting ofthe Board and 75% of the directors would constitute a quorum for thetransaction of business.
An affirmative vote of a majority of the Board would be required to:
• establish or modify the Joint Venture Purpose;
• establish or modify the Business Plan;
• amend JV’s charter documents;
• appoint and enter into employment agreements with the officers;
• consummate transactions or otherwise make expenditures outsidethe ordinary course of business;
• acquire or divest a business or merge or consolidate with anyother entity;
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Management:(continuation)
• make material loans, borrow material sums, grant securityinterests, or guaranty the debt of third parties;
• approve transactions or other arrangements between or involvingJV and any party or affiliate thereof;
• raise capital from the parties;
• make any distributions to the parties or repurchase any equity ofthe parties;
• appoint or change public accountants;
• admit new parties to JV; or
• liquidate, dissolve, wind up or file voluntary bankruptcyproceedings with respect to JV.
Officers: The day-to-day operations of JV would be run by a [chief executiveofficer] designated by _____________. The Board also wouldappoint a [chief financial] officer designated by ____________.
DeadlockEvents:
If a majority of the Board is not able to agree on any materialbusiness or management issue arising out of the venture during a_____ month period, a deadlock would be deemed to exist(a “Deadlock”). Upon the occurrence of a Deadlock, the partieswould be required to first seek resolution through managementconciliation procedures, and if such procedures do not lead toa resolution either party would have the right to:
• [submit the matter to [binding] arbitration];
• exercise the Buy-Sell Option set forth below;
• [other specified action]
Buy-SellOption:
Under a Deadlock [and [other specified events]], each partywould have the right to exercise a buy-sell option (the “Buy-SellOption”), whereby the exercising party would be required to designatea price at which it would be willing to sell its interest or to purchasethe other party’s interest in JV, and the non-exercising party wouldhave the option to buy or sell such interest at that price.
Baker & McKenzie80
International Joint Ventures HandbookSection 6 – Sample Term Sheet
CommercialAgreements:
JV would enter into the following commercial agreements with[Non-local Party and/or JV Partner], providing reimbursement foragreed upon services and goods provided to JV on the following basis:
• [trademark license agreement]• [patent license agreement]• [sourcing agreement]• [services agreement]
Compliance: The Joint Venture Agreement would include provisions requiring JV tocomply with all Non-local Party compliance requirements, includingthe Sarbanes-Oxley Act of 2002, the Foreign Corrupt Practices Act of1977 [and the Non-local Party code of conduct].
Exit Rights: The Joint Venture Agreement would provide the parties withappropriate rights of exit from JV.
See Supplement B to this term sheet for sample exit rights provisions and relateddiscussion.
Restrictions onCompetition:
Each party and its affiliates would be prohibited from directly orindirectly competing with JV in the Territory during the term of JV[and for ____ years thereafter].
RepresentationsandWarranties:
The Joint Venture Agreement would contain representations andwarranties that are customary for a joint venture transaction.
Conditions toClosing:
The Joint Venture Agreement would contain customary closing conditionsincluding the approval of the Non-local Party’s board of directors forthe transaction and the completion of satisfactory due diligence.
AnticipatedDocumentation:
The Non-local Party would be responsible for preparing first drafts ofthe following documents:
• JV’s charter/formation documents• Joint Venture Agreement• Organizational resolutions of the Board of JV• Contribution agreements (with representations and warranties
appropriate for the contemplated contributions)• Business Plan• [Commercial agreements]• [Loan agreement]• [Other agreements]
The parties have executed and delivered this Term Sheet as of [date].
[Non-local Party]
By:_______________________[Name][Title]
[JV Partner]
By:_______________________[Name][Title]
Baker & McKenzie 81
International Joint Ventures HandbookSection 6 – Sample Term Sheet
GoverningLaw:
The Joint Venture Agreement and other related agreements would begoverned by ___________ law.
DisputeResolution:
The Joint Venture Agreement would provide the parties withappropriate means to resolve disputes.
Expenses: Each party will bear its own expenses incurred in connection withpursuing or consummating the JV, including any broker’s or finder’sfees and all fees and expenses of its directors, officers, employees,agents, consultants, advisors, legal counsel or accountants.
Schedule: The expected time schedule is as follows:
Event Date
First draft of definitive agreements ____________
Approval by boards of directors ____________
Regulatory filings ____________
Signing definitive agreements ____________
Closing date ____________
82 Baker & McKenzie
International Joint Ventures HandbookSection 6 – Supplement A to Term Sheet
Supp
lem
ent A
to T
erm
She
et
Com
men
tary
and
Alte
rnat
ive
Prov
isio
ns
Prov
isio
nG
ener
al C
onsi
dera
tions
Maj
ority
Pos
ition
Con
side
ratio
nsM
inor
ity P
ositi
on C
onsi
dera
tions
Gen
eral
CCoomm
mmeenn
ttaarryy
::50
/50
stru
ctur
e pr
ovid
es b
oth
part
ies
with
max
imum
ince
ntiv
e to
mak
e re
latio
nshi
pw
ork,
but
pro
vide
s lit
tle c
larit
y as
to w
ho w
illco
ntro
l.
CCoomm
mmeenn
ttaarryy
::M
ajor
ity p
ositi
on p
rovi
des
the
Non
-loca
l Par
tyw
ith p
ositi
ve c
ontro
l allo
win
g it
to im
plem
ent
its b
usin
ess
stra
tegi
es w
ith lo
w ri
sk o
f giv
ing
cont
rol o
ver i
ts te
chno
logy
and
oth
er a
sset
sto
the
JV P
artn
er.
The
JV P
artn
er, h
owev
er,
has
a lo
w in
cent
ive
to c
ontri
bute
.
CCoomm
mmeenn
ttaarryy
::M
inor
ity p
ositi
on m
ay a
llow
the
Non
-loca
lPa
rty
to k
eep
its fi
nanc
ial i
nves
tmen
t in
JVre
lativ
ely
low
and
to p
artn
er w
ith a
suc
cess
ful
JV P
artn
er th
at w
ishe
s to
mai
ntai
n co
ntro
l.Th
e N
on-lo
cal P
arty
, how
ever
, wou
ld h
ave
few
right
s to
impl
emen
t its
ow
n bu
sine
ssst
rate
gies
and
may
risk
losi
ng c
ontro
l ove
rits
tech
nolo
gy o
r oth
er c
ontri
bute
d as
sets
toth
e JV
Par
tner
.
Part
ies
CCoomm
mmeenn
ttaarryy
::Th
e id
entit
y of
the
entit
ies
that
ulti
mat
ely
will
hold
JV’
s eq
uity
inte
rest
s w
ill d
epen
d on
ata
x st
ruct
ure
that
the
part
ies
view
as
the
mos
t effi
cien
t. If
the
Non
-loca
l Par
ty o
r the
JV P
artn
er d
oes
not h
old
dire
ctly
the
equi
tyin
tere
sts
in J
V, t
he N
on-lo
cal P
arty
and
/or
the
JV P
artn
er g
ener
ally
will
nee
d to
ent
erin
to e
ither
(i) t
he J
oint
Ven
ture
Agr
eem
ent
(inad
ditio
n to
its
desi
gnat
ed a
ffilia
te h
oldi
ngth
e eq
uity
inte
rest
) or (
ii) a
sep
arat
e gu
aran
tee.
CCoomm
mmeenn
ttaarryy
::Th
e N
on-lo
cal P
arty
, as
the
maj
ority
par
ty,
islik
ely
to c
onso
lidat
e JV
, but
the
choi
ce o
fho
w it
ulti
mat
ely
hold
s its
inte
rest
, and
wha
tty
pe o
f ent
ity to
use
, has
impl
icat
ions
not
onl
yw
ith re
spec
t to
taxe
s, b
ut a
lso
with
resp
ect
toex
posu
re to
liab
ilitie
s, a
bilit
y to
extra
ct p
rofit
s,an
d ho
w to
pro
vide
for t
he jo
int v
entu
re’s
on-g
oing
cap
ital r
equi
rem
ents
, am
ong
othe
ras
pect
s.
CCoomm
mmeenn
ttaarryy
::W
hile
it m
ay n
ot c
onso
lidat
e JV
for t
ax a
ndfin
anci
al p
urpo
ses,
the
Non-
loca
l Par
ty s
houl
dst
ill ca
refu
lly c
onsi
der h
ow it
sho
uld
ultim
atel
yho
ld it
s in
tere
st in
JV,
and
wha
t typ
e of
ent
ityto
use
for t
hat p
urpo
se.
This
has
impl
icat
ions
not o
nly
with
resp
ect t
ota
xes,
but
als
o w
ithre
spec
t to
expo
sure
tolia
bilit
ies,
abi
lity
toex
tract
pro
fits,
and
how
topr
ovid
e fo
r the
join
t ven
ture
’s o
n-go
ing
capi
tal r
equi
rem
ents
,am
ong
othe
r asp
ects
, whe
ther
the
Non
-loca
lpa
rty
hold
s a
maj
ority
or m
inor
ity in
tere
st.
83Baker & McKenzie
International Joint Ventures HandbookSection 6 – Supplement A to Term Sheet
Prov
isio
nG
ener
al C
onsi
dera
tions
Maj
ority
Pos
ition
Con
side
ratio
nsM
inor
ity P
ositi
on C
onsi
dera
tions
Stru
ctur
eCCoo
mmmm
eennttaa
rryy::
JV s
houl
d be
est
ablis
hed,
if p
ossi
ble,
as
anen
tity
and
in a
juris
dict
ion
in w
hich
(i) t
here
isa
wel
l-tes
ted
corp
orat
e la
w re
gim
e,(ii
)spe
cific
-per
form
ance
is a
vaila
ble
asa
rem
edy
(this
is p
artic
ular
ly im
port
ant w
ithre
spec
t to
enfo
rcin
g pr
ovis
ions
in th
e Jo
int
Vent
ure
Agre
emen
t on
equi
ty tr
ansf
ers)
, and
(iii)
the
parti
es a
re a
ble
to li
mit
the
pote
ntia
llia
bilit
ies
of th
e re
pres
enta
tives
who
sit
onth
eJV
Boa
rd.
Beca
use
thes
e cr
iteria
will
not
be m
et in
man
y de
velo
ping
cou
ntrie
s, th
eN
on-lo
cal P
arty
sho
uld
push
from
the
outs
etfo
r a h
oldi
ng c
ompa
ny s
truct
ure
ina
well-e
stab
lishe
d le
gal j
urisd
ictio
n, th
e Jo
int
Vent
ure
Agre
emen
t sho
uld
be g
over
ned
by th
ela
ws o
f the
juris
dict
ion
in w
hich
the
hold
ing
com
pany
ises
tabl
ishe
d, a
nd th
e ac
tual
oper
atio
ns in
the
loca
l com
pany
sho
uld
beru
nth
roug
h an
ope
ratin
g co
mpa
ny th
at is
who
lly-o
wne
d by
the
hold
ing
com
pany
. If
aho
ldin
g co
mpa
ny s
truct
ure
is n
ot p
ossi
ble,
the
Non-
loca
l Par
ty s
houl
d co
nsid
er u
se o
fan
escr
ow fo
r the
par
ties’
sha
res
in JV
and
an
irrev
ocab
le p
roxy
to g
uara
ntee
the
Non-
loca
lPa
rty’s
righ
ts w
ith re
spec
t to
equi
ty tr
ansf
ers.
See
the
rela
ted
hand
book
Sec
tion
3 (S
truct
ure)
for f
urth
er d
iscus
sion.
CCoomm
mmeenn
ttaarryy
::W
ith a
larg
er in
vest
men
t and
/or s
hare
of t
hepr
ofits
and
loss
es, t
he N
on-lo
cal P
arty
’s ta
xex
posu
re is
like
ly to
be
mor
e si
gnifi
cant
inam
ount
. Ho
weve
r, co
nsid
erat
ion
shou
ld b
egi
ven
to a
ny s
truct
ural
issu
es th
at c
ould
adve
rsel
y affe
ct th
e JV
Par
tner
as
the
JV P
artn
erm
ay re
quire
som
e fo
rm o
f com
pens
atio
n to
acce
pt p
oten
tially
adv
erse
tax
cons
eque
nces
.
CCoomm
mmeenn
ttaarryy
::Th
e N
on-lo
cal P
arty
as
the
min
ority
par
tysh
ould
stil
l pur
sue
a ta
x-ef
ficie
nt s
truct
ure
and
shou
ld s
eek
com
pens
atio
n fo
r a ta
xst
ruct
ure
that
adv
erse
ly a
ffect
s it,
whe
ther
inth
e w
ay o
f spe
cial
allo
catio
ns o
r oth
erw
ise.
84 Baker & McKenzie
International Joint Ventures HandbookSection 6 – Supplement A to Term Sheet
Prov
isio
nG
ener
al C
onsi
dera
tions
Maj
ority
Pos
ition
Con
side
ratio
nsM
inor
ity P
ositi
on C
onsi
dera
tions
Purp
oses
CCoomm
mmeenn
ttaarryy
::It
is n
ot u
ncom
mon
to p
rovi
de fo
r a b
road
purp
oses
cla
use
that
per
mits
a jo
int v
entu
reen
tity
to e
ngag
e in
all
activ
ities
per
mis
sibl
eun
der a
pplic
able
law.
How
ever
, a n
arro
wpu
rpos
e cl
ause
may
be
an im
port
ant
prov
isio
n if
the
Non
-loca
l Par
ty w
ishe
s to
use
JV to
con
duct
onl
y a
subs
et o
f the
Non
-loca
lPa
rty’
s bu
sine
ss -
any
broa
deni
ng o
f the
Joi
ntVe
ntur
e Pu
rpos
e w
ould
requ
ire a
men
ding
JV’s
cha
rter
doc
umen
ts, w
hich
may
be
diffi
cult
or ti
me-
cons
umin
g if
neith
er p
arty
hold
s su
ffici
ent v
otes
to e
ffect
suc
h an
amen
dmen
t.
CCoomm
mmeenn
ttaarryy
::A
broa
dly
defin
ed p
urpo
se c
laus
e, in
clud
ing
all a
cts
perm
issi
ble
unde
r app
licab
le la
w,w
ould
allo
w th
e N
on-lo
cal P
arty
to d
irect
JV
topu
rsue
cha
ngin
g bu
sine
ss s
trate
gies
with
out
requ
iring
the
appr
oval
of t
he JV
Par
tner
, unl
ess
othe
rwise
requ
ired
in JV
’s g
over
ning
doc
umen
ts.
How
ever
, if t
he J
oint
Ven
ture
Agr
eem
ent
prov
ides
the
JV P
artn
er w
ith p
oten
tial r
ight
sto
acq
uire
con
trol o
f JV
durin
g th
e N
on-lo
cal
Part
y’s
cont
inue
d pa
rtic
ipat
ion,
the
Non
-loca
lPa
rty
shou
ld c
onsi
der l
imiti
ng th
e st
atem
ent
of p
urpo
se to
ens
ure
that
JV
cann
ot c
ompe
tew
ith th
e N
on-lo
cal P
arty
with
out i
ts c
onse
nt.
CCoomm
mmeenn
ttaarryy
::A
narro
wly
def
ined
pur
pose
cla
use
may
be
part
icul
arly
impo
rtan
t if t
he N
on-lo
cal P
arty
wis
hes
to li
mit
JV’s
con
duct
to o
nly
a su
bset
of th
e N
on-lo
cal P
arty
’s b
usin
ess
- any
broa
deni
ng o
f the
Join
t Ven
ture
Pur
pose
wou
ldre
quire
am
endi
ng JV
’s c
harte
r doc
umen
ts,
whic
h m
ay b
e di
fficu
lt or
tim
e-co
nsum
ing
ifne
ither
par
ty h
olds
suf
ficie
nt v
otes
to e
ffect
such
an
amen
dmen
t. In
this
rega
rd, t
heN
on-lo
cal P
arty
sho
uld
ensu
re th
at a
nybr
oade
ning
of t
he p
urpo
se c
laus
e w
ould
requ
ire th
e am
endm
ent o
f JV’
sch
arte
rdo
cum
ents
and
be
subj
ect t
o a
Non
-loca
lPa
rty
veto
righ
t bas
ed u
pon
Supe
rmaj
ority
votin
g re
quire
men
ts, a
s di
scus
sed
unde
r“M
anag
emen
t” b
elow
.
Term
CCoomm
mmeenn
ttaarryy
::Th
e te
rm n
eed
not b
e in
defin
ite a
nd a
spec
ified
term
for t
he o
pera
tion
of J
V m
ay b
eap
prop
riate
in s
ome
case
s. A
spe
cifie
d te
rmm
ay b
e pa
rtic
ular
ly a
ppro
pria
te w
here
JV
has
a pu
rpos
e th
at w
ill b
e ac
com
plis
hed
with
in a
disc
reet
per
iod
of ti
me
or u
pon
com
plet
ion
ofa
disc
reet
goa
l.
CCoomm
mmeenn
ttaarryy
::Ap
prop
riate
exi
t and
term
inat
ion
prov
isio
nsgo
han
d in
han
d w
ith th
e di
scus
sion
of t
hete
rm.
See
the
rela
ted
hand
book
Sec
tion
4(E
xit a
nd T
erm
inat
ion)
and
Sup
plem
ent B
toth
is te
rm s
heet
(Sam
ple
Exit
Righ
tsPr
ovis
ions
) for
furt
her d
iscu
ssio
n.
CCoomm
mmeenn
ttaarryy
::Ap
prop
riate
exi
t and
term
inat
ion
prov
isio
nsgo
han
d in
han
d w
ith th
e di
scus
sion
of t
hete
rm.
See
the
rela
ted
hand
book
Sec
tion
4(E
xit a
nd T
erm
inat
ion)
and
Sup
plem
ent B
toth
is te
rm s
heet
(Sam
ple
Exit
Righ
tsPr
ovis
ions
) for
furt
her d
iscu
ssio
n.
Terr
itory
CCoomm
mmeenn
ttaarryy
:: Th
e de
finiti
on o
f the
Ter
ritor
y w
ill b
ecr
itica
lto
anal
yzin
g w
heth
er th
ere
are
any
sign
ifica
nt c
ompe
titio
n or
ant
itrus
tis
sues
unde
r loc
al la
w a
nd th
e en
forc
eabi
lity
of th
e no
n-co
mpe
te p
rovi
sion
s.
SSeeee
CCoomm
mmeenn
ttaarryy
uunndd
eerr GG
eenneerr
aallCCoo
nnssiidd
eerraatt
iioonnss
..SSee
ee CCoo
mmmm
eennttaa
rryy uu
nnddeerr
GGeenn
eerraall
CCoonnss
iiddeerr
aattiioo
nnss..
85Baker & McKenzie
International Joint Ventures HandbookSection 6 – Supplement A to Term Sheet
Prov
isio
nG
ener
al C
onsi
dera
tions
Maj
ority
Pos
ition
Con
side
ratio
nsM
inor
ity P
ositi
on C
onsi
dera
tions
Busi
ness
Pla
nCCoo
mmmm
eennttaa
rryy::
A w
ell-d
efin
ed b
usin
ess
plan
can
ser
vese
vera
l pur
pose
s. F
irst,
the
busi
ness
pla
n(in
clud
ing
budg
ets)
can
ens
ure
at th
e ou
tset
that
ther
e is
a m
eetin
g of
the
min
ds b
etw
een
the
part
ies
on s
ever
al k
ey a
spec
ts o
f the
JVin
clud
ing
man
ager
ial a
nd o
pera
tiona
l rol
esan
d re
spon
sibi
litie
s, a
ntic
ipat
ed fi
nanc
ing
need
s, a
nd a
ntic
ipat
ed d
istri
butio
n po
licy.
Seco
nd, t
he b
usin
ess
plan
can
def
ine
cert
ain
“crit
ical
targ
ets.
" If
thes
e cr
itica
l tar
gets
are
not m
et, t
he p
artie
s m
ay h
ave
reco
urse
toce
rtai
n “n
o fa
ult”
exi
t pro
visi
ons.
Fin
ally,
the
busi
ness
pla
n ca
n pr
ovid
e st
abilit
y in
the
even
tof
a d
eadl
ock,
as
JV m
ay c
ontin
ue to
ope
rate
unde
r the
mos
t rec
ent v
ersi
on o
f the
bus
ines
spl
an (w
ith th
e po
ssib
ility
of a
pply
ing
rele
vant
cost
of l
ivin
g ad
just
men
ts) u
ntil
the
dead
lock
has
been
reso
lved
. G
ener
ally,
the
busi
ness
plan
sho
uld
empl
oy a
“ro
lling
” co
ncep
t und
erw
hich
eac
h ye
ar th
e pa
rtie
s m
odify
the
busi
ness
pla
n to
cov
er a
n ag
reed
upo
n pe
riod.
CCoomm
mmeenn
ttaarryy
::Th
e N
on-lo
cal P
arty
may
wis
h to
con
side
rre
quiri
ng a
ppro
val o
f the
bus
ines
s pl
an o
na
bian
nual
or l
onge
r bas
is to
lim
it th
e ne
edto
neg
otia
te w
ith th
e JV
Par
tner
on
an a
nnua
lba
sis.
Pro
visi
ons
rega
rdin
g em
erge
ncy
expe
nditu
res
in e
xces
s of
the
busi
ness
pla
nsh
ould
als
o be
add
ress
ed in
the
Join
tVe
ntur
e Ag
reem
ent.
CCoomm
mmeenn
ttaarryy
::Th
e bu
sine
ss p
lan
can
prov
ide
the
Non
-loca
lPa
rty
with
neg
ativ
e co
ntro
l ove
r the
ope
ratio
nof
JV b
y req
uirin
g th
e No
n-lo
cal P
arty
’s a
ppro
val
of th
e bu
sine
ss p
lan
on a
n an
nual
bas
isan
d/or
for s
igni
fican
t exp
endi
ture
s no
tin
clud
ed in
the
curr
ent b
usin
ess
plan
.
Initi
al C
apita
lCo
ntrib
utio
ns a
ndOw
ners
hip
CCoomm
mmeenn
ttaarryy
:: It
is c
ritic
al th
at th
e pa
rtie
s’ in
itial
cap
ital
cont
ribut
ions
are
spe
lled
out.
If th
e pa
rtie
sar
e m
akin
g in
-kin
d co
ntrib
utio
ns, i
t is
criti
cal
to c
onfir
m w
heth
er th
ere
are
any
requ
irem
ents
unde
r app
licab
le la
w fo
r an
inde
pend
ent
valu
atio
n of
the
cont
ribut
ion.
In
addi
tion,
ifin
-kin
d co
ntrib
utio
ns a
re a
ntic
ipat
ed, i
t is
impo
rtan
t tha
t the
par
ty m
akin
g th
ose
cont
ribut
ions
mak
e ap
prop
riate
repr
esen
tatio
nsan
d wa
rrant
ies.
To
the
exte
ntth
at th
eN
on-lo
cal P
arty
ant
icip
ates
that
it a
nd/o
r the
JV P
artn
er w
ill be
requ
ired
to p
rovid
efin
anci
ngto
the
JV, k
ey te
rms
shou
ld b
e ag
reed
to in
the
term
she
et a
nd re
flect
ed in
the
busi
ness
plan
.
SSeeee
CCoomm
mmeenn
ttaarryy
uunndd
eerr GG
eenneerr
aallCCoo
nnssiidd
eerraatt
iioonnss
..SSee
ee CCoo
mmmm
eennttaa
rryy uu
nnddeerr
GGeenn
eerraall
CCoonnss
iiddeerr
aattiioo
nnss..
86 Baker & McKenzie
International Joint Ventures HandbookSection 6 – Supplement A to Term Sheet
Prov
isio
nG
ener
al C
onsi
dera
tions
Maj
ority
Pos
ition
Con
side
ratio
nsM
inor
ity P
ositi
on C
onsi
dera
tions
Addi
tiona
lCo
ntrib
utio
nsCCoo
mmmm
eennttaa
rryy::
Beca
use
the
busi
ness
pla
nnin
g pr
oces
s m
ayre
quire
a s
ubst
antia
l per
iod
of ti
me,
it m
ay b
ehe
lpfu
l at t
he te
rm s
heet
sta
ge to
add
ress
any
antic
ipat
ed a
dditi
onal
cap
ital c
ontri
butio
ns,
the
timin
g fo
r suc
h co
ntrib
utio
ns, a
nd th
eef
fect
of a
ny fa
ilure
to m
ake
them
.
CCoomm
mmeenn
ttaarryy
::Th
e N
on-lo
cal P
arty
sho
uld
seek
to p
rovi
deth
at it
can
mak
e re
quire
d ad
ditio
nal
cont
ribut
ions
if th
e JV
Par
tner
refu
ses
oris
othe
rwis
e un
able
to m
ake
a re
quire
dco
ntrib
utio
n. T
he N
on-lo
cal P
arty
sho
uld
also
cons
ider
impo
sing
app
ropr
iate
pen
altie
s fo
rfa
iling
to m
ake
addi
tiona
l cap
ital c
ontri
butio
ns,
part
icul
arly
whe
n th
e JV
Par
tner
’s fi
nanc
ial
capa
bilit
ies
are
in q
uest
ion.
The
se c
anin
clud
e th
e rig
ht to
term
inat
e JV
, the
righ
t to
a pr
efer
red
allo
catio
n of
futu
re d
istri
butio
nsan
d th
e rig
ht to
mod
ify o
ther
asp
ects
of t
here
latio
nshi
p.
CCoomm
mmeenn
ttaarryy
::Th
e N
on-lo
cal p
arty
, as
the
min
ority
par
ty,
shou
ld a
lso
rese
rve
the
right
to m
ake
addi
tiona
l con
tribu
tions
if th
e JV
Par
tner
refu
ses
or is
una
ble
to m
ake
the
cont
ribut
ion.
In
addi
tion
to th
e ty
pes
ofpe
nalti
es d
iscu
ssed
und
er th
e m
ajor
itypo
sitio
n co
nsid
erat
ions
, a k
ey p
enal
ty in
the
min
ority
par
ty’s
favo
r is
to in
crea
se it
s co
ntro
lov
er th
e m
anag
emen
t and
ope
ratio
ns o
f JV.
Dis
tribu
tions
CCoomm
mmeenn
ttaarryy
::Th
e pa
rtie
s sh
ould
spe
cify
, to
the
exte
ntpo
ssib
le, t
he p
rinci
ples
that
will
be
appl
ied
inde
term
inin
g w
hat t
o do
with
any
dis
tribu
tabl
epr
ofits
. Fo
r exa
mpl
e, in
the
Join
t Ven
ture
Agre
emen
t, th
e N
on-lo
cal P
arty
may
con
side
rex
plic
itly
defin
ing
“Net
Cas
h Fl
ow”
and
requ
iring
regu
lar d
istri
butio
ns n
et o
f any
requ
ired
tax
paym
ents
.
SSeeee
CCoomm
mmeenn
ttaarryy
uunndd
eerr GG
eenneerr
aallCCoo
nnssiidd
eerraatt
iioonnss
..SSee
ee CCoo
mmmm
eennttaa
rryy uu
nnddeerr
GGeenn
eerraall
CCoonnss
iiddeerr
aattiioo
nnss..
Inte
llect
ual
Prop
erty
CCoomm
mmeenn
ttaarryy
:: Sp
ecia
l atte
ntio
n sh
ould
be
paid
to a
ny IP
that
will
be
cont
ribut
ed o
r lic
ense
d to
JV.
See
the
rela
ted
hand
book
Sec
tions
4.3
(Exi
tand
Ter
min
atio
n-In
telle
ctua
l Pro
pert
yCo
nsid
erat
ions
) and
5.2
(oth
er K
eyCo
nsid
erat
ions
-Met
hods
for C
ontri
butin
gAs
sets
) for
furt
her d
iscu
ssio
n of
key
IP-re
late
d is
sues
.
CCoomm
mmeenn
ttaarryy
::Al
l crit
ical
Non
-loca
l Par
ty IP
sho
uld
besu
bjec
t to
sepa
rate
IP li
cens
ing
agre
emen
tsun
der w
hich
the
Non
-loca
l Par
ty w
ould
reta
inth
e rig
hts
to th
e cr
itica
l IP
in th
e ev
ent o
f ate
rmin
atio
n. T
o th
e ex
tent
that
the
Non
-loca
lPa
rty’
s go
al is
to a
cqui
re lo
cal b
rand
s an
d/or
othe
r int
elle
ctua
l pro
pert
y, it
is im
port
ant t
hat
the
Non
-loca
l Par
ty h
as a
righ
t to
expl
oit
thes
e br
ands
and
or o
ther
inte
llect
ual
prop
erty
upo
n te
rmin
atio
n of
JV.
CCoomm
mmeenn
ttaarryy
::Th
e N
on-lo
cal P
arty
may
exe
rt g
reat
er c
ontro
lov
er J
V op
erat
ions
thro
ugh
sepa
rate
IPlic
ensi
ng a
gree
men
ts.
For e
xam
ple,
with
resp
ect t
o tra
dem
ark
licen
ses,
the
Non
-loca
lPa
rty m
ay re
quire
qua
lity
cont
rol c
omm
itmen
ts,
notic
e an
d co
nsen
t with
resp
ect t
o m
arke
ting
and
prom
otio
nal c
ampa
igns
and
com
plia
nce
with
bra
ndin
g pr
ogra
ms.
The
Non
-loca
l Par
tym
ay u
se ro
yalty
bea
ring
licen
ses
to e
xtra
ctre
venu
e fro
m J
V or
to s
et a
min
imum
busi
ness
gen
erat
ion
com
mitm
ent.
87Baker & McKenzie
International Joint Ventures HandbookSection 6 – Supplement A to Term Sheet
Prov
isio
nG
ener
al C
onsi
dera
tions
Maj
ority
Pos
ition
Con
side
ratio
nsM
inor
ity P
ositi
on C
onsi
dera
tions
Man
agem
ent
CCoomm
mmeenn
ttaarryy
::Th
ese
man
agem
ent p
rovi
sion
s as
sum
e th
atJV
has
onl
y on
e m
anag
emen
t bod
y. If
JV
isre
quire
d by
law
to h
ave
two
man
agem
ent
bodi
es (e
.g.,
boar
d an
d sh
areh
olde
rs m
eetin
g),
it w
ill b
e im
port
ant t
o sp
ecify
whi
ch d
ecis
ions
by la
w m
ust b
e m
ade
by a
dec
isio
n of
the
shar
ehol
ders
(as
oppo
sed
to th
e bo
ard)
and
whe
ther
suc
h de
cisi
ons
mus
t be
mad
e by
asi
mpl
e or
sup
erm
ajor
ity.
To th
e ex
tent
that
JV u
tiliz
es a
hol
ding
com
pany
stru
ctur
e, it
will
be im
porta
nt to
pro
vide
that
JV’s
man
agem
ent
will
con
trol t
he m
anag
emen
t oft
he o
pera
ting
subs
idia
ry.
A si
mpl
e w
ay to
pro
vide
for t
hem
anag
emen
t of a
hol
ding
com
pany
stru
ctur
eis
to p
rovi
de fo
r a m
irror
edm
anag
emen
tst
ruct
ure
at th
e ho
ldin
g co
mpa
ny a
nd o
pera
ting
com
pany
leve
ls.
The
man
agem
ent p
rovi
sion
sm
ust b
e vi
ewed
car
eful
ly in
com
bina
tion
with
the
com
mer
cial
agr
eem
ents
that
the
part
ies
may
ent
er in
to w
ith J
V. I
f the
Non
-loca
l Par
tyde
sires
to c
onso
lidat
e JV
for f
inan
cial r
epor
ting
purp
oses
, it w
ill b
e im
port
ant t
o lo
ok a
t all
ofth
e fa
cts
and
circ
umst
ance
s th
at w
ould
indi
cate
that
the
Non-
loca
l Par
ty h
as “c
ontro
l”of
JV (e
.g.,
abili
ty to
con
trol t
he b
oard
, rig
htto
appo
int k
ey m
anag
ers,
abi
lity
to c
ontro
lop
erat
ions
thro
ugh
com
mer
cial
agr
eem
ents
)to
det
erm
ine
if co
nsol
idat
ion
will
be
poss
ible
.
AAllttee
rrnnaatt
iivvee
PPrroovv
iissiioo
nn::JV
wou
ld b
e m
anag
ed b
y a
boar
d of
dire
ctor
s(th
e “BB
ooaarrdd
”) c
onsi
stin
g of
[[ffiivv
ee]]di
rect
ors.
The
Non
-loca
l Par
ty w
ould
be
entit
led
tode
sign
ate
[[tthhrree
ee]]di
rect
ors
(initi
ally
____
____
____
_, _
____
____
____
, and
____
____
____
_) a
nd th
e JV
Par
tner
wou
ld b
een
title
d to
des
igna
te [[tt
wwoo]]
dire
ctor
s (in
itial
ly__
____
____
___
and
____
____
____
_).
The
Boar
d w
ould
mak
e al
l dec
isio
ns w
ith re
spec
tto
JV
and
the
part
ies
wou
ld n
ot b
e en
title
d to
vote
on
any
mat
ters
in th
eir c
apac
ities
as
equi
ty h
olde
rs.
Exce
pt fo
r mat
ters
requ
iring
a Su
perm
ajor
ity v
ote
as d
escr
ibed
bel
ow,
deci
sion
s w
ould
requ
ire a
maj
ority
vot
e of
all
dire
ctor
s, n
ot ju
st o
f tho
se in
atte
ndan
ce a
ta
mee
ting.
The
Boa
rd w
ould
mee
t at l
east
[[mmoonn
tthhllyy]]
[[qquuaa
rrtteerrllyy
]] . E
ach
dire
ctor
wou
ldbe
entit
led
to o
ne v
ote
on a
ll m
atte
rs to
be
vote
d up
on b
y th
e Bo
ard.
Any
dire
ctor
wou
ldbe
ent
itled
to c
all a
spe
cial
mee
ting
of th
eBo
ard
and
75%
of t
he d
irect
ors
wou
ldco
nstit
ute
a qu
orum
for t
he tr
ansa
ctio
nof
busi
ness
.An
affi
rmat
ive
vote
of 7
5% o
f all
dire
ctor
s(a
“SSuupp
eerrmm
aajjoorr
iittyy”)
of t
he B
oard
wou
ld b
ere
quire
d to
:•
amen
d JV
’s c
hart
er d
ocum
ents
;•
acqu
ire o
r div
est a
bus
ines
s or
mer
ge o
rco
nsol
idat
e w
ith a
ny o
ther
ent
ity;
•m
ake
mat
eria
l loa
ns, b
orro
w m
ater
ial
sum
s, g
rant
sec
urity
inte
rest
s, o
rgu
aran
ty th
e de
bt o
f thi
rd p
artie
s;•
appr
ove
trans
actio
ns o
r oth
erar
rang
emen
ts b
etw
een
or in
volv
ing
JVan
d an
y pa
rty
or a
ffilia
te th
ereo
f;
AAllttee
rrnnaatt
iivvee
PPrroovv
iissiioo
nn::JV
wou
ld b
e m
anag
ed b
y a
boar
d of
dire
ctor
s(th
e “BB
ooaarrdd
”) c
onsi
stin
g of
[[ffiivv
ee]]di
rect
ors.
The
JV P
artn
er w
ould
be
entit
led
to d
esig
nate
[[tthhrree
ee]]di
rect
ors
(initi
ally
___
____
____
__,
____
____
____
_, a
nd _
____
____
____
) and
the
Non
-loca
l Par
ty w
ould
be
entit
led
tode
sign
ate
[[ttwwoo]]
dire
ctor
s (in
itial
ly__
____
____
___
and
____
____
____
_).
The
Boar
d w
ould
mak
e al
l dec
isio
ns w
ithre
spec
t to
JV a
nd th
e pa
rtie
s w
ould
not
be
entit
led
to v
ote
on a
ny m
atte
rs in
thei
rca
paci
ties
as e
quity
hol
ders
. Ex
cept
for
mat
ters
requ
iring
a S
uper
maj
ority
vot
e as
desc
ribed
bel
ow, d
ecis
ions
wou
ld re
quire
am
ajor
ity v
ote
of a
ll di
rect
ors,
not
just
of
thos
e in
atte
ndan
ce a
t a m
eetin
g. T
he B
oard
wou
ld m
eet a
t lea
st [[mm
oonntthh
llyy]] [[qq
uuaarrttee
rrllyy]] .
Each
dire
ctor
wou
ld b
e en
title
d to
one
vot
eon
all
mat
ters
to b
e vo
ted
upon
by
the
Boar
d.An
y di
rect
or w
ould
be
entit
led
to c
all a
spe
cial
mee
ting
of th
e Bo
ard
and
75%
of t
hedi
rect
ors
wou
ld c
onst
itute
a q
uoru
m fo
rth
etra
nsac
tion
of b
usin
ess.
An a
ffirm
ativ
e vo
te o
f 75%
of a
ll di
rect
ors
(a“SS
uuppeerr
mmaajj
oorriittyy
") of
the
Boar
d w
ould
be
requ
ired
to:
•es
tabl
ish
or m
odify
the
Join
t Ven
ture
Purp
ose;
•
esta
blis
h or
mod
ify th
e Bu
sine
ss P
lan;
•am
end
JV’s
cha
rter
doc
umen
ts;
•ap
poin
t and
ent
er in
to e
mpl
oym
ent
agre
emen
ts w
ith th
e of
ficer
s;
•co
nsum
mat
e tra
nsac
tions
or o
ther
wis
em
ake
expe
nditu
res
outs
ide
the
ordi
nary
cour
se o
f bus
ines
s;
88 Baker & McKenzie
International Joint Ventures HandbookSection 6 – Supplement A to Term Sheet
Prov
isio
nG
ener
al C
onsi
dera
tions
Maj
ority
Pos
ition
Con
side
ratio
nsM
inor
ity P
ositi
on C
onsi
dera
tions
Man
agem
ent
(con
tinua
tion)
•ra
ise
capi
tal f
rom
third
par
ties;
•re
purc
hase
any
equ
ity o
f the
par
ties;
•ad
mit
new
par
ties
to J
V; o
r •
liqui
date
, dis
solv
e, w
ind
up o
r file
volu
ntar
y ba
nkru
ptcy
pro
ceed
ings
with
resp
ect t
o JV
.CCoo
mmmm
eennttaa
rryy::
If JV
is g
over
ned
by tw
o m
anag
emen
t bod
ies
(e.g
., th
e bo
ard
and
the
shar
ehol
ders
), th
eun
anim
ous
or s
uper
maj
ority
vot
e of
the
shar
ehol
ders
may
be
requ
ired
to m
ake
mat
eria
l dec
isio
ns re
gard
ing
JV.
•ac
quire
or d
ives
t a b
usin
ess
or m
erge
or
cons
olid
ate
with
any
oth
er e
ntity
;•
mak
e m
ater
ial l
oans
, bor
row
mat
eria
lsu
ms,
gra
nt s
ecur
ity in
tere
sts,
or
guar
anty
the
debt
of t
hird
par
ties;
•ap
prov
e tra
nsac
tions
or o
ther
arra
ngem
ents
bet
wee
n or
invo
lvin
g JV
and
any
part
y or
affi
liate
ther
eof;
•ra
ise
capi
tal f
rom
third
par
ties;
•m
ake
any
dist
ribut
ions
to th
e pa
rtie
s or
repu
rcha
se a
ny e
quity
of t
he p
artie
s;•
appo
int o
r cha
nge
publ
ic a
ccou
ntan
ts;
•ad
mit
new
par
ties
to J
V; o
r•
liqui
date
, dis
solv
e, w
ind
up o
r file
volu
ntar
y ba
nkru
ptcy
pro
ceed
ings
with
resp
ect t
o JV
.CCoo
mmmm
eennttaa
rryy::
If JV
is g
over
ned
by tw
o m
anag
emen
t bod
ies
(e.g
., th
e bo
ard
and
the
shar
ehol
ders
),th
eun
anim
ous
or s
uper
maj
ority
vot
e of
the
shar
ehol
ders
may
be
requ
ired
to m
ake
mat
eria
l dec
isio
ns re
gard
ing
JV.
Offic
ers
CCoomm
mmeenn
ttaarryy
::G
ener
ally,
it is
impo
rtan
t tha
t the
Non
-loca
lPa
rty
agre
e w
ith th
e JV
Par
tner
on
the
role
san
d re
spon
sibi
litie
s of
eac
h pa
rty.
Depe
ndin
gon
the
loca
l law
app
licab
le to
JV,
it m
ay b
epo
ssib
le to
ens
ure
that
cer
tain
offi
cers
hav
ew
ide
disc
retio
n in
var
ious
ope
ratio
nal o
rfin
anci
al a
reas
. Al
thou
gh th
e bu
sine
ss p
lan
will
con
tain
the
basi
c ag
reem
ent o
f the
part
ies
on h
igh-
leve
l bus
ines
s is
sues
, the
offic
ers
of J
V w
ill s
till n
eed
to a
pply
a g
ood
deal
of d
iscr
etio
n w
ith re
spec
t to
the
oper
atio
nal a
spec
ts o
f JV.
CCoomm
mmeenn
ttaarryy
::It
will
like
ly b
e im
port
ant t
o in
volv
e th
e JV
Part
ner i
n ce
rtai
n de
cisi
on-m
akin
g as
pect
s.Th
is is
bene
ficia
l not
onl
y to
fost
er a
coo
pera
tive
spiri
t, bu
t als
o to
inst
ill in
the
JV P
artn
era
sens
e of
resp
onsi
bilit
y an
d ac
coun
tabi
lity
tow
ard
JV.
Acco
rdin
gly,
the
Non
-loca
l Par
tym
ay w
ish
to a
llow
the
JV P
artn
er to
hol
dof
ficer
pos
ition
s w
ith re
spec
t to
the
area
sof
JV b
usin
ess
for w
hich
the
JV P
artn
er is
expe
cted
to b
e re
spon
sibl
e.
CCoomm
mmeenn
ttaarryy
::Th
e N
on-lo
cal P
arty
sho
uld
nego
tiate
for t
herig
ht to
app
oint
a k
ey m
embe
r or m
embe
rsof
the
man
agem
ent t
eam
to p
rovi
de th
eN
on-lo
cal P
arty
with
som
e pa
rtic
ipat
ion
inth
e m
anag
emen
t of J
V an
d to
per
mit
the
Non-
loca
lPar
ty to
acc
urat
ely
mon
itor J
V’s
oper
atio
ns.
89Baker & McKenzie
International Joint Ventures HandbookSection 6 – Supplement A to Term Sheet
Prov
isio
nG
ener
al C
onsi
dera
tions
Maj
ority
Pos
ition
Con
side
ratio
nsM
inor
ity P
ositi
on C
onsi
dera
tions
Dea
dloc
k Ev
ents
CCoomm
mmeenn
ttaarryy
:: G
ener
ally,
dis
pute
s sh
ould
be
esca
late
d as
high
up
the
exec
utiv
e ch
ain
as p
ract
ical
lypo
ssib
le to
enc
oura
ge “
peac
eful
” re
solu
tion,
part
icul
arly
whe
n th
e di
sput
e co
ncer
nsbu
sine
ss is
sues
. Ar
bitra
tion
may
not
be
anap
prop
riate
veh
icle
thro
ugh
whi
ch to
reso
lve
mos
t dea
dloc
ks, w
hich
typi
cally
occ
urbe
caus
e th
e pa
rtie
s ha
ve a
fund
amen
tal
disa
gree
men
t with
resp
ect t
o th
e bu
sine
ss o
rop
erat
ions
of J
V. I
f the
Buy
-Sel
l Opt
ion
is n
otge
nera
lly a
vaila
ble
as a
mec
hani
sm fo
rre
solv
ing
all d
ispu
tes,
a d
eadl
ock
that
pers
ists
for l
onge
r tha
n a
defin
ed p
erio
d of
time
coul
d tri
gger
aBu
y-Se
ll Op
tion.
Alte
rnat
ively,
the
parti
es c
ould
em
powe
rthe
chai
rman
of t
he b
oard
of J
V to
cas
t the
tie-b
reak
ing
vote
, whi
ch e
ffect
ivel
y sh
ifts
cont
rol t
o th
e pa
rty
appo
intin
g th
e ch
airm
an.
Or, t
he p
artie
s co
uld
craf
t a“s
win
g di
rect
or”
prov
isio
nth
at a
llow
s th
em to
app
oint
an
inde
pend
ent d
irect
or w
ho w
ould
cast
atie
-bre
akin
g vo
te.
This
inde
pend
ent
seat
coul
d be
kep
t ope
n an
d fil
led
only
for
alim
ited
time
to b
reak
a d
eadl
ock,
or i
t cou
ldbe
occ
upie
d at
all
times
. De
spite
its
perc
eive
dsi
mpl
icity
, a s
win
g di
rect
or p
rovi
sion
effe
ctiv
ely
shift
s co
ntro
l to
an o
utsi
der
with
resp
ect t
o de
adlo
ck e
vent
s.
AAllttee
rrnnaatt
iivvee
PPrroovv
iissiioo
nn::If
a Su
perm
ajor
ity o
f the
Boa
rd is
not
abl
e to
agre
e on
any
mat
eria
l bus
ines
s or
man
agem
ent
issu
e ar
isin
g ou
t of t
he v
entu
re d
urin
g a
____
_ m
onth
per
iod,
a d
eadl
ock
wou
ld b
ede
emed
to e
xist
(a “
DDeeaadd
lloocckk
”). U
pon
the
occu
rren
ce o
f a D
eadl
ock,
the
part
ies
wou
ldbe
requ
ired
to fi
rst s
eek
reso
lutio
n th
roug
hm
anag
emen
t con
cilia
tion
proc
edur
es, a
nd if
such
pro
cedu
res
do n
ot le
ad to
a re
solu
tion,
eith
er p
arty
wou
ld h
ave
the
right
to:
•[[ss
uubbmm
iitt tthh
ee mm
aattttee
rr ttoo
[[bbiinn
ddiinngg
]]aarr
bbiittrraa
ttiioonn]]
;•
exer
cise
the
Buy-
Sell
Optio
n se
t for
thbe
low
;•
[[ootthh
eerr ss
ppeeccii
ffiieedd
aaccttiioo
nn]]
AAllttee
rrnnaatt
iivvee
PPrroovv
iissiioo
nn::If
a Su
perm
ajor
ity o
f the
Boa
rd is
not
abl
e to
agre
e on
any
mat
eria
l bus
ines
s or
man
agem
ent
issu
e ar
isin
g ou
t of t
he v
entu
re d
urin
g a
____
_ m
onth
per
iod,
a d
eadl
ock
wou
ld b
ede
emed
to e
xist
(a “
DDeeaadd
lloocckk
"). U
pon
the
occu
rren
ce o
f a D
eadl
ock,
the
part
ies
wou
ldbe
requ
ired
to fi
rst s
eek
reso
lutio
n th
roug
hm
anag
emen
t con
cilia
tion
proc
edur
es, a
nd if
such
pro
cedu
res
do n
ot le
ad to
a re
solu
tion,
eith
er p
arty
wou
ld h
ave
the
right
to:
•[[ss
uubbmm
iitt tthh
ee mm
aattttee
rr ttoo
[[bbiinn
ddiinngg
]]aarr
bbiittrraa
ttiioonn]]
;•
exer
cise
the
Buy-
Sell
Optio
n se
t for
thbe
low
;•
[[ootthh
eerr ss
ppeeccii
ffiieedd
aaccttiioo
nn]]
90 Baker & McKenzie
International Joint Ventures HandbookSection 6 – Supplement A to Term Sheet
Prov
isio
nG
ener
al C
onsi
dera
tions
Maj
ority
Pos
ition
Con
side
ratio
nsM
inor
ity P
ositi
on C
onsi
dera
tions
Buy-
Sell
Optio
nCCoo
mmmm
eennttaa
rryy::
If th
e JV
Par
tner
has
stro
ng fi
nanc
ial r
esou
rces
,th
e N
on-lo
cal P
arty
sho
uld
cons
ider
pro
posi
ngth
at th
e pa
rtie
s ha
ve a
Buy
-Sel
l Opt
ion
avai
labl
e ge
nera
lly a
fter a
n in
itial
lock
-in p
erio
d.Th
is m
ay b
e pr
efer
able
bec
ause
, in
prac
tice,
it w
ill p
ossi
ble
for e
ither
par
ty to
forc
ea
Dea
dloc
k in
a tr
ue 5
0/50
arr
ange
men
t.Th
eJV
Par
tner
, how
ever
, lik
ely
will
resi
st th
ege
nera
l ava
ilabi
lity
of a
Buy
-Sel
l Opt
ion
if th
eJV
Partn
er is
in a
sub
stan
tially
wea
ker f
inan
cial
posi
tion.
In
that
cas
e, th
e JV
Par
tner
like
lywo
uld
view
suc
h a
Buy-
Sell
Optio
n as
a c
all
optio
n in
the
Non-
loca
l Par
ty’s
favo
r. If
the
JVPa
rtner
stro
ngly
resi
sts
the
gene
ral a
vaila
bilit
yof
the
Buy-
Sell
Optio
n, m
ore
emph
asis
sho
uld
be p
lace
d on
neg
otia
ting
a pu
t/ca
ll op
tion
atan
agr
eed
valu
atio
n.
CCoomm
mmeenn
ttaarryy
::Ev
en w
here
the
JV P
artn
er is
in a
wea
ker
finan
cial
pos
ition
, the
Non
-loca
l Par
ty s
houl
dco
nsid
er w
heth
er th
e re
med
y of
acq
uirin
g a
100%
inte
rest
in J
V is
an
appr
opria
te re
med
yfo
r all
disp
utes
, par
ticul
arly
if J
V’s
oper
atio
nsar
e he
avily
dep
ende
nt o
n th
e JV
Par
tner
.
CCoomm
mmeenn
ttaarryy
::W
here
the
Non
-loca
l Par
ty is
the
min
ority
party
and
if it
has
stro
nger
fina
ncia
l res
ourc
esth
an th
e JV
Par
tner
, it m
ay b
e ab
le to
use
the
Buy-
Sell
Optio
n as
a s
trate
gic
tool
for r
esol
ving
disp
utes
in it
s fa
vor.
Com
mer
cial
Agre
emen
tsCCoo
mmmm
eennttaa
rryy::
The
Non
-loca
l Par
ty s
houl
d co
nsid
er th
eex
tent
to w
hich
com
mer
cial
agr
eem
ents
suc
has
trad
emar
k an
d pa
tent
lice
nses
, as
wel
l as
sour
cing
and
ser
vice
s ag
reem
ents
, can
be
used
to in
crea
se th
e N
on-lo
cal P
arty
’s d
egre
eof
con
trol i
n JV
. Fu
rther
, con
trol o
ver c
omm
ercia
lag
reem
ents
may
sup
port
an
argu
men
t tha
tth
e N
on-lo
cal P
arty
is a
ble
to c
onso
lidat
e JV
for f
inan
cial
repo
rting
pur
pose
s. B
ear i
n m
ind
that
com
mer
cial
agr
eem
ents
, whi
ch a
reof
ten
seen
as
anci
llary
to th
e re
latio
nshi
p,ca
n cr
eate
a c
rush
ing
depe
nden
cy o
f the
join
t ven
ture
on
apa
rtic
ular
par
ty e
ven
thou
gh a
n eq
uity
join
tven
ture
may
be
esta
blis
hed
with
the
over
arch
ing
goal
of
givi
ng th
e jo
int v
entu
re s
ome
mea
sure
of
inde
pend
ence
from
the
part
icip
ants
.
CCoomm
mmeenn
ttaarryy
::Ke
y co
nsid
erat
ions
for t
he N
on-lo
cal P
arty
will
incl
ude
ensu
ring
appr
opria
te p
rote
ctio
nsov
er it
s in
telle
ctua
l pro
pert
y rig
hts.
See
the
gene
ral c
onsi
dera
tions
dis
cuss
ed a
bove
with
resp
ect t
o In
telle
ctua
l Pro
pert
y.
SSeeee
tthhee
SSaamm
ppllee
EExxiitt
RRiigghh
ttss PP
rroovvii
ssiioonn
ssffoo
llllooww
iinngg
tthhiiss
cchhaa
rrtt..
91Baker & McKenzie
International Joint Ventures HandbookSection 6 – Supplement A to Term Sheet
Prov
isio
nG
ener
al C
onsi
dera
tions
Maj
ority
Pos
ition
Con
side
ratio
nsM
inor
ity P
ositi
on C
onsi
dera
tions
Exit
Righ
tsSSee
ee tthh
ee SSaa
mmppll
ee EExx
iitt RRii
gghhttss
PPrroo
vviissii
oonnss
ffoolllloo
wwiinn
gg tthh
iiss cc
hhaarrtt..
SSeeee
tthhee
SSaamm
ppllee
EExxiitt
RRiigghh
ttss PP
rroovvii
ssiioonn
ssffoo
llllooww
iinngg
tthhiiss
cchhaa
rrtt..SSee
ee tthh
ee SSaa
mmppll
ee EExx
iitt RRii
gghhttss
PPrroo
vviissii
oonnss
ffoolllloo
wwiinn
gg tthh
iiss cc
hhaarrtt..
Rest
rictio
ns o
nCo
mpe
titio
nCCoo
mmmm
eennttaa
rryy::
Cons
ider
able
car
e sh
ould
be
give
n to
the
ultim
ate
defin
ition
of t
he “
Terr
itory
” an
d th
esc
ope
and
natu
re o
f JV’
s bu
sine
ss, w
hich
shou
ld b
e co
nsis
tent
with
the
Join
t Ven
ture
Purp
ose.
Spe
cial
con
side
ratio
n sh
ould
be
give
n as
to w
heth
er s
peci
fic p
erfo
rman
ce w
illbe
ava
ilabl
e w
ith re
spec
t to
a br
each
of t
heno
n-co
mpe
te o
blig
atio
n in
the
juris
dict
ion
ofJV
’s o
pera
tions
. If
spec
ific
perfo
rman
ce is
not a
vaila
ble
in th
e ju
risdi
ctio
n of
ope
ratio
ns,
by u
tiliz
ing
a ho
ldin
g co
mpa
ny s
truct
ure
ina
juris
dict
ion
in w
hich
spe
cific
per
form
ance
is a
vaila
ble,
a b
reac
h of
the
non-
com
pete
oblig
atio
n co
uld
be e
xpre
ssly
dee
med
tobe
am
ater
ial b
reac
h of
the
Join
t Ven
ture
Agre
emen
t thu
s gi
ving
rise
to re
med
ies
unde
r the
Joi
nt V
entu
re A
gree
men
t, w
hich
coul
d in
clud
e sh
iftin
g co
ntro
l of J
V to
the
non-
brea
chin
g pa
rtne
r. T
he p
artie
s sh
ould
also
ens
ure
that
the
non-
com
pete
obl
igat
ions
are
cons
iste
nt w
ith a
pplic
able
com
petit
ion
and
antit
rust
law
s.
CCoomm
mmeenn
ttaarryy
::Th
is is
an
impo
rtan
t con
side
ratio
n no
t onl
ydu
ring
the
life
of J
V, b
ut a
lso
with
resp
ect t
oac
tiviti
es th
at m
ay b
e un
dert
aken
upo
n ex
itor
term
inat
ion
of JV
. Th
e No
n-lo
cal P
arty
sho
uld
be h
esita
nt to
agr
ee to
bro
ad re
cipr
ocal
rest
rictio
nson
com
petit
ion,
par
ticul
arly
whe
reth
e ge
ogra
phic
sco
pe o
f its
gen
eral
bus
ines
sis
gre
ater
than
that
of t
he J
V Pa
rtne
r, or
whe
re it
inte
nds
to e
xpan
d th
e sc
ope
ofits
busi
ness
.
CCoomm
mmeenn
ttaarryy
::Th
e N
on-lo
cal P
arty
sho
uld
seek
to im
pose
tight
rest
rictio
ns o
n th
e JV
Par
tner
’s a
bilit
yto
com
pete
as
a w
ay to
incr
ease
leve
rage
with
resp
ect t
o ot
her J
V op
erat
iona
l asp
ects
.In
add
ition
, whe
re th
e JV
repr
esen
ts a
n in
itial
fora
y int
o a
parti
cula
r mar
ket a
nd th
e No
n-lo
cal
Part
y is
ulti
mat
ely
seek
ing
to e
xpan
d th
atbu
sine
ss (w
ith o
r with
out t
he a
ssis
tanc
e of
the
JV P
artn
er),
the
scop
e an
d du
ratio
n of
any
post
-term
inat
ion
non-
com
pete
cla
use
shou
ld b
e lim
ited
or a
n ap
prop
riate
pay
men
tto
allo
w th
e N
on-lo
cal P
arty
to c
ompe
tefo
llow
ing
term
inat
ion
of th
e JV
sho
uld
befa
ctor
ed in
to a
buy
-out
righ
t.
Repr
esen
tatio
nsan
d W
arra
ntie
sCCoo
mmmm
eennttaa
rryy::
Cert
ain
basi
c re
pres
enta
tions
and
war
rant
ies
shou
ld b
e in
clud
ed in
the
Join
t Ven
ture
Agre
emen
t. If
in-k
ind
cont
ribut
ions
are
antic
ipat
ed, a
sep
arat
e co
ntrib
utio
n ag
reem
ent,
with
app
ropr
iate
repr
esen
tatio
ns a
ndw
arra
ntie
s, s
houl
d be
use
d.
CCoomm
mmeenn
ttaarryy
::In
dem
nific
atio
n pr
ovis
ions
ofte
n go
han
d in
hand
with
repr
esen
tatio
ns a
nd w
arra
ntie
s.W
here
the
JV P
artn
er m
ay n
ot h
ave
the
finan
cial
reso
urce
s to
sat
isfy
cla
ims
for b
reac
hes
ofre
pres
enta
tions
and
war
rant
ies,
the
Non-
loca
lPa
rty
shou
ld c
onsi
der a
ltern
ativ
e re
med
ies,
such
as
right
s to
pre
fere
ntia
l dis
tribu
tions
.
CCoomm
mmeenn
ttaarryy
::Th
e N
on-lo
cal p
arty
sho
uld
seek
to g
ain
addi
tiona
l con
trol o
ver t
he m
anag
emen
t and
oper
atio
ns o
f JV
as a
rem
edy
for b
reac
hes
ofre
pres
enta
tions
and
war
rant
ies.
92 Baker & McKenzie
International Joint Ventures HandbookSection 6 – Supplement A to Term Sheet
Prov
isio
nG
ener
al C
onsi
dera
tions
Maj
ority
Pos
ition
Con
side
ratio
nsM
inor
ity P
ositi
on C
onsi
dera
tions
Cond
ition
s to
Clos
ing
CCoomm
mmeenn
ttaarryy
:: Al
thou
gh th
e No
n-lo
cal P
arty
may
wan
t to
mov
equ
ickl
y fro
m te
rm s
heet
to c
losi
ng, s
uffic
ient
flexib
ility
shou
ld b
e bu
ilt in
to th
e Jo
int V
entu
reAg
reem
ent t
o en
sure
that
all
com
plia
nce
(inclu
ding
filin
gs w
ith a
ppro
pria
te g
over
nmen
tal
auth
oriti
es),
finan
cial
repo
rtin
g an
d bu
sine
sspl
anni
ng is
sues
hav
e be
en re
solv
ed to
the
Non
-loca
l Par
ty’s
sat
isfa
ctio
n pr
ior t
o ke
yst
eps
such
as
clos
ing,
con
tribu
tions
of a
sset
sby
the
Non
-loca
l Par
ty, a
nd e
ffect
iven
ess
ofth
e JV
. as
appr
opria
te.
With
resp
ect t
o du
e di
ligen
ce, i
f the
Non
-loca
lPa
rty is
inve
stin
g in
an
exis
ting
busi
ness
, the
nth
ere
shou
ld b
e a
unila
tera
l due
dilig
ence
revi
ew o
f the
exis
ting
busi
ness
by
the
Non-
loca
lPa
rty.
The
Non-
loca
l Par
ty, h
owev
er, m
ay b
ere
quire
d to
pro
vide
dili
genc
ein
form
atio
nre
gard
ing
any s
igni
fican
t non
cash
con
tribu
tions
it m
akes
to th
e jo
int v
entu
re.
If JV
is a
new
lyfo
rmed
bus
ines
s ve
ntur
e, th
en th
e du
e di
ligen
cere
view
will
be a
bila
tera
l end
eavo
r. T
he p
artie
sm
ay w
ish
to li
mit
acce
ss to
cer
tain
per
sonn
el,
cust
omer
s an
d ot
her s
ensi
tive
info
rmat
ion,
atle
ast u
ntil
they
are
reas
onab
ly c
erta
in th
etra
nsac
tion
will
pro
ceed
.
SSeeee
CCoomm
mmeenn
ttaarryy
uunndd
eerr GG
eenneerr
aallCCoo
nnssiidd
eerraatt
iioonnss
..SSee
ee CCoo
mmmm
eennttaa
rryy uu
nnddeerr
GGeenn
eerraall
CCoonnss
iiddeerr
aattiioo
nnss..
Antic
ipat
edD
ocum
enta
tion
CCoomm
mmeenn
ttaarryy
:: Fr
om a
pro
ject
man
agem
ent p
ersp
ectiv
e, it
isim
port
ant t
o id
entif
y as
soo
n as
pos
sibl
e th
eun
iver
se o
f agr
eem
ents
that
the
part
ners
antic
ipat
e w
ill c
onst
itute
the
join
t ven
ture
.To
the
exte
nt p
ossi
ble,
the
Non
-loca
l Par
tysh
ould
try
to c
ontro
l the
dra
fts o
f all
rele
vant
docu
men
ts.
SSeeee
CCoomm
mmeenn
ttaarryy
uunndd
eerr GG
eenneerr
aallCCoo
nnssiidd
eerraatt
iioonnss
..SSee
ee CCoo
mmmm
eennttaa
rryy uu
nnddeerr
GGeenn
eerraall
CCoonnss
iiddeerr
aattiioo
nnss..
93Baker & McKenzie
International Joint Ventures HandbookSection 6 – Supplement A to Term Sheet
Prov
isio
nG
ener
al C
onsi
dera
tions
Maj
ority
Pos
ition
Con
side
ratio
nsM
inor
ity P
ositi
on C
onsi
dera
tions
Gov
erni
ng L
awCCoo
mmmm
eennttaa
rryy::
Idea
lly, t
he g
over
ning
law
of t
he J
oint
Ven
ture
Agre
emen
t and
rela
ted
agre
emen
ts s
houl
dbe
the
sam
e as
the
law
gov
erni
ng th
ees
tabl
ishm
ent a
nd o
pera
tion
of J
V. I
n th
isw
ay th
e N
on-lo
cal P
arty
wou
ld m
inim
ize
the
risk
that
the
JV P
artn
er w
ould
try
to fo
rum
shop
or e
xplo
it di
ffere
nces
in th
e de
faul
tru
les
gove
rnin
g th
e Jo
int V
entu
re A
gree
men
tan
d re
late
d ag
reem
ents
and
JV’
s op
erat
ions
and
gove
rnan
ce.
SSeeee
CCoomm
mmeenn
ttaarryy
uunndd
eerr GG
eenneerr
aallCCoo
nnssiidd
eerraatt
iioonnss
..SSee
ee CCoo
mmmm
eennttaa
rryy uu
nnddeerr
GGeenn
eerraall
CCoonnss
iiddeerr
aattiioo
nnss..
Dis
pute
Reso
lutio
nCCoo
mmmm
eennttaa
rryy::
Whi
le p
artie
s to
a 5
0/50
join
t ven
ture
will
likel
y in
clud
e a
mec
hani
sm fo
r res
olvi
ngde
adlo
cks,
the
part
ies
may
als
o w
ish
toin
clud
e in
thei
r tra
nsac
tion
agre
emen
tsa
gene
ral d
ispu
te re
solu
tion
clau
se fo
r the
purp
ose
of e
nfor
cing
thei
r agr
eem
ents
.Th
ech
oice
s in
this
rega
rd a
re ty
pica
lly li
tigat
ion
and
arbi
tratio
n, w
ith v
ario
us le
vels
of n
egot
iatio
nan
d/or
med
iatio
n of
ten
incl
uded
as
apr
elim
inar
y st
ep.
The
part
ies
may
als
och
oose
not
to in
clud
e a
disp
ute
reso
lutio
ncl
ause
, whi
ch w
ould
leav
e th
em fr
ee to
file
ala
wsu
it in
any
cou
rt w
hich
they
bel
ieve
will
exer
cise
juris
dict
ion,
but
this
app
roac
h co
uld
incr
ease
unc
erta
inty
ove
r the
out
com
e of
disp
utes
. Th
e ul
timat
e de
cisi
on d
epen
ds o
na
cons
ider
atio
n of
sev
eral
fact
ors
incl
udin
gen
forc
eabi
lity
of ju
dgm
ents
or a
war
ds, t
hele
ngth
of t
ime
requ
ired
to re
solv
e di
sput
es,
the
need
for d
isco
very
, the
rela
tive
cost
s of
the
pote
ntia
l app
roac
hes,
the
need
for i
njun
ctive
or o
ther
inte
rim re
lief,
the
desi
re to
mai
ntai
nco
nfid
entia
lity,
and
the
type
s of
dam
ages
whi
ch p
oten
tially
cou
ld b
e aw
arde
d.
SSeeee
CCoomm
mmeenn
ttaarryy
uunndd
eerr GG
eenneerr
aallCCoo
nnssiidd
eerraatt
iioonnss
..SSee
ee CCoo
mmmm
eennttaa
rryy uu
nnddeerr
GGeenn
eerraall
CCoonnss
iiddeerr
aattiioo
nnss..
94 Baker & McKenzie
International Joint Ventures HandbookSection 6 – Supplement A to Term Sheet
Prov
isio
nG
ener
al C
onsi
dera
tions
Maj
ority
Pos
ition
Con
side
ratio
nsM
inor
ity P
ositi
on C
onsi
dera
tions
Expe
nses
CCoomm
mmeenn
ttaarryy
::If
an e
xpen
ses
prov
isio
n ha
s pr
evio
usly
bee
nin
clud
ed in
the
conf
iden
tialit
y ag
reem
ent,
mak
e ce
rtai
n th
at a
ny e
xpen
se p
rovi
sion
sin
the
term
she
et a
nd o
ther
sub
sequ
ent
agre
emen
ts a
re e
ither
con
sist
ent w
ith it
orex
pres
sly
supe
rsed
e it.
SSeeee
CCoomm
mmeenn
ttaarryy
uunndd
eerr GG
eenneerr
aallCCoo
nnssiidd
eerraatt
iioonnss
..SSee
ee CCoo
mmmm
eennttaa
rryy uu
nnddeerr
GGeenn
eerraall
CCoonnss
iiddeerr
aattiioo
nnss..
Sche
dule
CCoomm
mmeenn
ttaarryy
:: On
ce th
e pa
rtie
s ha
ve re
ache
d th
e st
age
ofne
gotia
ting
a te
rm s
heet
, the
Non
-loca
l Par
tysh
ould
det
erm
ine
as p
rom
ptly
as p
ract
icab
leif
ther
e is
a re
al p
ossi
bilit
yto
clo
se th
e de
alan
d w
heth
er th
e N
on-lo
cal P
arty
is a
ble
tow
ork
effe
ctiv
ely
with
the
JV P
artn
er.
Atra
nsac
tion
sche
dule
can
hel
p in
bot
hre
gard
s.
SSeeee
CCoomm
mmeenn
ttaarryy
uunndd
eerr GG
eenneerr
aallCCoo
nnssiidd
eerraatt
iioonnss
..SSee
ee CCoo
mmmm
eennttaa
rryy uu
nnddeerr
GGeenn
eerraall
CCoonnss
iiddeerr
aattiioo
nnss..
Baker & McKenzie 95
International Joint Ventures HandbookSection 6 – Supplement B to Term Sheet
Supplement B to Term Sheet Sample Exit Rights Provisions
RRiigghhtt ooff FFiirrsstt OOffffeerr ffoorr TTrraannssffeerrssooff EEqquuiittyy IInntteerreessttss::
If either party (the “OOffffeerriinngg PPaarrttyy”) intends to enter into negotiations ordiscussions to sell or otherwise transfer all (but not less than all) of itsequity securities of JV, it would give notice to the other party (the “OOffffeerreeeePPaarrttyy”) of such intent. If the Offeree Party notifies the Offering Party of itsdesire to purchase such equity securities, the Offering Party would negotiatein good faith to reach an agreement with the Offeree Party for the sale ofthe equity securities prior to engaging in any negotiations or discussions forthe sale or transfer of any of such equity securities with (or making any offerto sell such securities to) any third party. If the Offeree Party does notdesire to purchase the equity securities, or if the Offering Party does notreach an agreement with the Offeree Party within 30 days of receipt of theOfferee Party’s notice of its desire to purchase, then for 90 days thereafter,the Offering Party would be entitled to sell the equity securities to a bonafide purchaser.CCoommmmeennttaarryy:: This provisions contemplates a right of first offer as opposedto a right of first refusal. In practice, a right of first refusal will make a transferof equity extremely difficult because it is generally triggered only whena potential third party purchaser has made an offer (or has been identified).That third party, however, is unlikely to seriously consider a bid (or maydiscount its bid) if the bid is subject to the right of another party to trump it.The example right of first offer shown above is combined with co-sale anddrag-along rights described below. The combination of the right of first offerwith co-sale and drag-along rights would have the practical effect of requiringa disposition of the JV to a third party. The parties may want to consider,as an alternative, a right to force a disposition of JV through an auctionprocess initiated by an agreed investment bank – a process in which eachparty may participate..
CCoo--SSaallee RRiigghhttss ffoorr TTrraannssffeerrssooff EEqquuiittyy IInntteerreessttss::
Subject to the right of first offer discussed above, the Offering Party wouldhave the right to sell all (but not less than all) of its equity securities in JV toa third party, provided that the Offeree Party would have a right to sell all(but not less than all) of its equity securities to the third party, upon thesame terms and conditions.
DDrraagg--AAlloonngg RRiigghhttss ffoorr TTrraannssffeerrssooff EEqquuiittyy IInntteerreessttss::
Subject to the right of first offer discussed above, the Offering Party wouldhave the right to compel the Offeree Party to sell its equity securities in JVupon the same terms and conditions as agreed with a third party, and theOfferee Party would waive any dissenter’s or similar rights. CCoommmmeennttaarryy:: Co-sale and drag-along rights are traditionally used inthe context of a minority strategic investment. However, by requiring thata right of first offer include all (but not less than all) of the Offering Party’sequity and requiring that a co-sale or drag-along right require the dispositionof all (but not less than all) of the Offeree Party’s equity, the co-sale anddrag along rights are the functional equivalent of a sale of the JV.
Baker & McKenzie96
International Joint Ventures HandbookSection 6 – Supplement B to Term Sheet
PPuutt//CCaallll OOppttiioonn:: Beginning ___ [[mmoonntthhss]] [[yyeeaarrss]] after the date on which the parties maketheir initial capital contributions to JV, the Non-local Party would have a rightto call up to ___% of the JV Partner’s equity and the JV Partner would havea right to put to the Non-local Party up to ___% of its equity for an amountequal to [[aa pprroo rraattaa ppoorrttiioonn ooff ______ ttiimmeess JJVV’’ss EEBBIITTDDAA ffoorr tthhee pprriioorr ffiissccaallyyeeaarr]]//[[ootthheerr aapppprroopprriiaattee mmeeaassuurree]]//[[aammoouunntt ddeetteerrmmiinneedd bbyy iinnddeeppeennddeennttaapppprraaiissaall]].CCoommmmeennttaarryy:: To the extent possible, the Non-local Party will want tonegotiate in advance for a right to take greater control of the JV. Such aright most likely will need to reflect a control premium plus a formula thatlinks the valuation to some determinable measure (whether established bythe parties or an independent party). Alternatively, the parties may agreethat any such put or call would be valued by an independent valuationexpert.
RReemmeeddiieess UUppoonn DDeeffaauulltt:: If one party (the “DDeeffaauullttiinngg PPaarrttyy”): (i) is in material breach of itsnon-compete, confidentiality or additional capital contribution obligations;(ii) transfers its equity in violation of the Joint Venture Agreement;(iii) undergoes a change of control; or (iv) becomes subject to a proceedingfor bankruptcy, dissolution or winding up; the other party (the “NNoonn--DDeeffaauullttiinnggPPaarrttyy”) would have a right to exercise a Buy-Sell Option under which theNon-Defaulting Party would have a right to buy the Defaulting Party’s equityfor [[8800%%]] of fair market value or to sell its equity to the Defaulting Party for[[112200%%]] of fair market value, with fair market value determined in each caseby an independent valuation expert.CCoommmmeennttaarryy:: The remedies upon default are designed to address thesituation where the JV’s operations are located in a jurisdiction in whichspecific performance is unavailable, but a holding company structure is putin place in a jurisdiction in which specific performance is available. In thisway, the non-defaulting party’s practical remedy is to take control of the JV.
Baker & McKenzie 97
International Joint Ventures HandbookSection 6 – Issues Checklist
Exhibit 6(c) Joint Venture Issues ChecklistThe following checklist is intended to help formulate the key provisions of the jointventure documents once the parties have already considered the main internationalissues discussed in this handbook. Cross-references are included to handbooksections that contain relevant preliminary questions to consider under local law.
1. Preliminary matters1.1 Who are the parties to the joint venture? Are they individuals,
companies, partnerships or other entities? Are any of the partiessubsidiary or holding companies?
1.2 If a subsidiary is a party, will a parent company guarantee of itsobligations be required?
1.3 Do the parties want the principle terms embodied in a term sheet orletter of intent?
1.4 Do the parties wish to have a period of exclusivity during which theyare prevented from negotiating with third parties regardingarrangements which may compete with the joint venture business?
1.5 Will confidential information be disclosed during negotiations? If so,the parties should consider entering into a confidentiality agreement.
1.6 Are there any conditions precedent to the final establishment of thejoint venture? For example, is shareholder consent required? Willthird party financing need to be obtained? In certain industries, it mayalso be necessary to obtain governmental or regulatory consent.
2. Relationship between the partiesIs a joint venture appropriate to regulate the relationship between theparties? What are the commercial objectives of the parties? Would anyof the following alternatives be appropriate:
(a) a supply agreement for goods or services;
(b) a distribution or agency agreement;
(c) a license or franchise agreement;
Baker & McKenzie98
International Joint Ventures HandbookSection 6 – Issues Checklist
(d) a research and development or cooperation agreement;
(e) a 100% acquisition; or
(f) establishment of a wholly-owned subsidiary without participationfrom another party?
3. Business of the joint venture3.1 What activities will be carried on by the joint venture? Is the purpose
of the joint venture to carry out a specific project or a continuingbusiness?
3.2 Has a feasibility study or business plan been prepared?
3.3 Will there be geographical limitations placed on the joint venture’soperations?
3.4 Will any regulatory consents, approvals and/or licenses be requiredfor the joint venture?
3.5 Will any tax clearances be required in connection with either thesetting up or the continuing operation of the joint venture?
4. Financing4.1 How will the joint venture be funded? Will any initial investment by
the parties be in cash or by the contribution of assets? If cash, will thistake the form of loans or equity?
4.2 Will it be necessary for the parties to secure funding from externalsources? If so, what security and/or recourse to the parties will thelenders require (e.g., guarantees)?
4.3 Will any loans by the parties be interest-free? Will they be securedand, if so, will they be subordinated to any external funding?
4.4 Are there any tax or other advantages to funding through debt ratherthan equity, or vice versa?
4.5 Will the joint venture require ongoing funding (e.g., for working capital,expansion) to carry on its business? If so, will each party be required
to contribute to future calls for funding pro rata to its originalinvestment? Will the commitment to fund by capped or open-ended?What should happen if any ongoing funding obligation is not met?
Key preliminary local law considerations: Section 3.3 (Structure – Capital and FinancialInterests).
5. Contribution of assets5.1 Are any specific assets to be contributed to the joint venture by any party?
5.2 If so, will such contribution be by outright transfer or by lease/licenseto the joint venture? Will such lease/license be for a fixed or anindefinite period?
5.3 Will stamp duty or other tax consequences effect the method ofcontribution?
5.4 How, and when, are the contributed assets to be valued? Is itnecessary to incorporate a mechanism to make adjustments for anyshortfall or excess in the relevant funding obligation?
5.5 Are any third party consents required before any assets can betransferred or licensed? If so, should the transfer of the relevant assetsbe a condition to completion of the joint venture?
5.6 Will any due diligence investigation be carried out on the contributedassets and will any representations and warranties or indemnitiesbe given?
Key preliminary local law considerations: Section 3.3 (Structure – Capital and FinancialInterests) and Section 5.2 (Other Key Considerations – Methods for ContributingAssets).
6. Cross-border/local law issuesIs it a cross-border joint venture? If so, local law advice should alwaysbe obtained. The following issues may be relevant.
(a) Are there any specific laws relating to joint ventures in therelevant jurisdictions?
(b) What will be the governing law of the joint venture agreement?
Baker & McKenzie 99
International Joint Ventures HandbookSection 6 – Issues Checklist
Baker & McKenzie100
International Joint Ventures HandbookSection 6 – Issues Checklist
(c) Where will the joint venture be located? Are there any lawsgoverning foreign ownership or investment?
(d) Are there any restrictions on the repatriation of profits and/orthe payment of dividends? In what currency will payments bemade and at what exchange rate will these be calculated?
(e) Are any local governmental or regulatory consents required?
(f) What will be the governing language of the joint venture agreementand/or any ongoing information provided to the parties?
7. Competition7.1 Will establishing the joint venture trigger any competition or antitrust
laws, including:
(a) the US Hart-Scott-Rodino Antitrust Improvements Act;
(b) the EC Merger Regulation;
(c) Article 81 of the EC Treaty; or
(d) other relevant competition or antitrust laws?
7.2 If so, what competition notifications need to be made?
7.3 Are any industry specific approvals required? Are any sensitiveindustries involved such that government approval or notification(e.g., Exon-Florio in the US) is advisable?
Key preliminary local law considerations: Section 5.4 (Other Key Considerations –Competition/Antitrust Law).
8. Structure of the joint venture8.1 Is the joint venture business to be carried out through a separate
vehicle or through a direct contractual relationship between parties?For example, a contractual arrangement may be more appropriate forjoint research or marketing projects.
8.2 If the joint venture is to be carried out through a separate vehicle, willit be an existing entity or one specially created?
8.3 What form will the joint venture vehicle take? There are a number ofpossible forms, including:
(a) a corporation;
(b) a limited liability company;
(c) a partnership or limited liability partnership; or
(d) a profit pooling or revenue sharing arrangement.
The structure will be influenced by a number of factors, including:
(e) the need to have a separate identity to provide a flexible structurefor investment;
(f) publicity and disclosure requirements; and
(g) tax matters.
8.4 Will the joint venture be incorporated in one jurisdiction or will therebe a series of joint venture vehicles in different jurisdictions? Will thejoint venture be on or offshore?
8.5 Will the structure provide the best tax treatment for the joint ventureitself and for each of the parties?
8.6 Should the joint venture vehicle be party to the joint venture agreement?
8.7 Is an initial public offering of the shares of the joint venturecontemplated as an exit strategy? Will it be possible to convert thejoint venture vehicle into an appropriate entity form in connectionwith such an offering without adverse tax or other consequences tothe joint venture parties?.
Key preliminary local law considerations: Section 3 (Structure).
9. Accounting9.1 How will each joint venture participant account for its interest in the
joint venture? Does a party intend to treat its interest on aconsolidated basis for financial accounting purposes or to fileconsolidated income tax returns? What are the applicable rulesrelating to consolidation?
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9.2 What accounting policies will be adopted by the joint venture?
Key preliminary local law considerations: Section 3.2 (Structure – Jurisdiction inWhich to Organize the Vehicle).
10. Share capital10.1 If the parties contemplate a joint venture vehicle in the form of
a corporation with pre-set share capital, what will be the initialauthorized and issued share capital? In what currency will the sharecapital be denominated?
10.2 Will there by different classes of shares/interests with varying rights,(e.g., will any party have preferential dividend rights)? Willshares/interests of the same class be capable of being held by morethan one person?
10.3 Will there be an obligation on the parties to subscribe for additionalshares/interests? What should happen if any such obligation is not met?
10.4 Will additional shares/interests be issued on a pro rata basis (nodilution) or a pre-emptive basis (dilution will happen if the pre-emptive offer is not accepted)?
Key preliminary local law considerations: Section 3.2 (Structure – Jurisdiction inWhich to Organize the Vehicle).
11. Profit distribution11.1 What policy will apply to the distribution of profits? Should
a minimum level of profits be retained or distributed every year?Will distribution levels be restricted for an initial period?
11.2 How will changes to the distribution policy be made?
11.3 Are there any tax or regulatory constraints on the distribution ofprofits? Will it be necessary to establish a special structure for theeffective distribution of profits (e.g., an income access structure)?
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12. Transfers of interests12.1 Should there be restrictions on transfers of interests in the joint
venture? Should transfers be prohibited within an initial period inorder to firmly establish the joint venture? Should the parties beallowed to transfer part of their respective interests?
12.2 If transfers are permitted, should the other parties have pre-emptiverights?
12.3 Should there be exceptions from any pre-emptive provisions fortransfers to other group companies or to family members and trusts?If so, consider including an obligation to re-transfer if such relationshipis broken.
12.4 How will interests be valued for pre-emption purposes (e.g., marketvalue, fair value)? Will there be a mechanism for valuation by anindependent third party?
12.5 If the pre-emptive rights are not exercised, should a party have a rightto call for liquidation of the joint venture?
12.6 Is it appropriate to include any of the following transfer mechanisms:
(a) “co-sale” rights - the transferor is able to require that a potentialpurchaser also purchases the interests held by other joint venturepartners;
(b) “drag-along” rights - the transferor is able to require other jointventure partners to transfer their interests to a potentialpurchaser; or
(c) “buy-sell” option - a party receiving notice of a potential transfermust elect to either purchase the interests of the other party ortransfer its interests to the other party.
12.7 Should all new joint venture partners be required to enter into thejoint venture agreement on the same terms and conditions as theoriginal parties?
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12.8 Will the name of the joint venture need to be changed if interests aretransferred to a new party? Will arrangements need to be made for thecontinued use of assets contributed by a selling joint venture partner?
12.9 Will the parties be required to transfer their interests in certaincircumstances (e.g., insolvency, breach of the joint venture agreementor a change of control)? How will a change of control be defined?Consider the use of put and call options to cover these events.
12.10 Should the parties be permitted to grant security over their interestsin the joint venture?
Key preliminary local law considerations: Section 4.1 (Exit and Termination – Transfersof Interests).
13. Board of Directors/Management13.1 How many directors will serve on the board? How many directors
will each party be entitled to designate?
13.2 What rights will each party have to remove directors? Can the boarditself appoint additional directors?
13.3 Is a two-tier board structure with supervisory and managing levelsappropriate?
13.4 Will decisions be made by simple majority or will certain directorshave weighted voting rights?
13.5 Who will be the chairman and will he/she be entitled to casta tie-breaking vote? Will the right to appoint the chairman berotated between the parties?
13.6 Will the directors be able to delegate their power?
13.7 How frequently, and where, will board meetings be held?
13.8 What notice and quorum requirements will apply for board meetings?What will happen if a quorum is not present? Will it be possible tohold meetings on short notice or to take action by written resolution?
13.9 Who will be entitled to appoint executive officers? Will theshareholders/members have any direct rights with respect to theappointment of particular executives or management positions?
13.10 Will certain matters be reserved for decision at the shareholder/memberlevel?
13.11 What exculpation and indemnification protections will be extended tothe officers and directors of the joint venture?
13.12 Will the joint venture enter into employment agreements andconfidentially and invention assignment agreements with keyemployees?
13.13 Will a set of common incentives be established for key managementpersonnel?
Key preliminary local law considerations: Section 3.2 (Structure – Jurisdiction inWhich to Organize the Vehicle).
14. Shareholder meetings14.1 Will the shareholders/members have decision-making power?
14.2 If so, what notice and quorum requirements will apply for shareholdermeetings? What will happen if a quorum is not present? Will it bepossible to hold meetings on short notice or to take actions by writtenresolution?
14.3 Where will shareholder meetings be held?
14.4 Will any shareholders have weighted voting rights?
15. Minority protection15.1 Will the minority be protected against majority decision on certain
matters by:
(a) a requirement for a unanimous vote;
(b) a requirement for a special majority (e.g., in excess of 50.1%) or,in addition to a majority vote on the relevant matter, a vote infavor by a specified percentage of the minority;
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(c) veto rights; or
(d) shareholder class rights?
15.2 Will any such protection be entrenched at board or shareholder level?
15.3 When will the minority protection mechanisms apply? For example,the minority protection may apply to:
(a) establish or modify the purpose of the joint venture;
(b) establish or modify the business plan;
(c) amend the joint venture’s charter documents;
(d) appoint and enter into employment agreements with the officers;
(e) consummate transactions or otherwise make expenditures outsidethe ordinary course of business;
(f) acquire or divest a business or merge or consolidate with anyother entity;
(g) make material loans, borrow material sums, grant securityinterests, or guaranty the debt of third parties;
(h) approve transactions or other arrangements between or involvingJV and any party or affiliate thereof;
(i) raise capital from the parties;
(j) make any distributions to the parties or repurchase any equity ofthe parties;
(k) appoint or change public accountants;
(l) admit new parties to JV;
(m) liquidate, dissolve, wind up or file voluntary bankruptcyproceedings with respect to JV.
16. Representations and warranties16.1 What representations and warranties will the parties be required to
make?
16.2 Will the parties indemnify each other for breaches of representationsand warranties or covenants under the joint venture agreement?
16.3 Will indemnification obligations be subject to limitations based ontime, amount, or otherwise?
17. Restrictive covenants17.1 Will the parties be restricted from competing with the joint venture?
If so, what territorial or other limitations will apply?
17.2 Will the parties be required to refer business opportunities to the jointventure?
17.3 To what extent will the parties have access to, or rights over,confidential information belonging to the joint venture? Will theparties be under any confidentiality obligations regarding the otherparties?
Key preliminary local law considerations: Section 4.4 (Exit and Termination –Non-Competition Provisions) and, with respect to enforceability, Section 5.3(Other Key Considerations – Non-Competition Provisions).
18. Administration18.1 Who will act as the company secretary? What professional advisers
will be appointed and by whom?
18.2 What information on the business and performance of the jointventure will be provided to the parties and how frequently?
18.3 What rights will shareholders have to inspect the accounts and recordsof the joint venture company?
19. Intellectual property19.1 What intellectual property rights will the joint venture acquire? Will
these be transferred or licensed and on what terms? Will thetransferring/licensing party retain the ability to use the intellectualproperty rights?
19.2 Who will own the intellectual property developed by the jointventure?
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19.3 What will happen to the intellectual property rights on termination ofthe joint venture and will this vary depending on the nature of thetermination or exit by a particular party?
Key preliminary local law considerations: Section 4.3 (Exit and Termination –Intellectual Property) and, with respect to enforceability, Section 5.2 (Other KeyConsiderations – Methods for Contributing Assets).
20. Employee issues20.1 How will employees be transferred to the joint venture (e.g.,
offer/acceptance, automatic transfer)? Is there a transfer of a businessto the joint venture? What local rules apply to the transfer ofemployees to the joint venture (e.g., in the United Kingdom, theTransfer of Undertakings (Protection of Employment) Regulations1981)? Will any other termination, transfer or relocation laws (e.g., inthe United States, the WARN Act) impact the joint venture?
20.2 Will the joint venture have its own employees? What terms andconditions of employment will apply to the joint venture employees?Are service contracts required? What share option and pensionarrangements are envisioned?
20.3 Is any particular management structure envisioned?
20.4 Will any of the parties second staff to the joint venture? If so, on whatterms?
Key preliminary local law considerations: Section 5.6 (Other Key Considerations –Employee Transfers and Benefits).
21. Land21.1 What premises will the joint venture occupy?
21.2 Will the joint venture own, lease or license its premises?
21.3 Is a parent or other guarantee required in relation to the occupation ofthe premises?
22. Ancillary arrangementsAre any ancillary arrangements required, for example, in relation to:
(a) the transfer (sale or contribution) of business assets;
(b) the supply of goods;
(c) transitional arrangements for sharing information technologyfacilities, including software;
(d) the provision of technical assistance/know-how/training;
(e) the secondment of staff; or
(f) the provision of facilities?
23. Deadlock23.1 If the parties cannot agree on an issue which is fundamental to the
joint venture, how should matters be resolved? Specifically, in whatcircumstances will deadlock arise:
(a) on all material issues;
(b) on certain issues determined by the parties when the jointventure is established; or
(c) on issues designated as deadlock issues by one of the parties at thetime they arise?
23.2 Will deadlock issues be referred to the respective chief executiveofficers of the parties in the first instance? Will alternative mechanismsto resolve deadlock be used, such as:
(a) the joint venture chairman’s tie-breaking vote;
(b) reference to an independent director; or
(c) reference to an independent third party?
23.3 Will different deadlock issues be resolved by different methods?Should an alternative dispute resolution procedure be developed?
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23.4 What rights will a party have on a deadlock? For example, will a partybe able:
(a) to require the termination of the joint venture and either awinding up or sale; or
(b) to exercise a “buy-sell” option requiring the other party to sell orpurchase its interest in the joint venture?
24. Termination24.1 Is the joint venture for a fixed term or indefinite in duration? If for a
fixed term, can it be renewed and on what basis?
24.2 Are there any circumstances in which the joint venture willautomatically terminate (e.g., the insolvency of any party, thedestruction of a particular asset, loss of regulatory approval)?
24.3 In what circumstances will a party be entitled to terminate the jointventure (e.g., on a material breach of the joint venture agreement byanother party or a change of control of another party)? How will theparties define change of control?
24.4 Will the parties have a right to terminate by notice after an initialperiod?
24.5 What arrangements will apply on termination in relation to thedistribution of assets, the discharge of outstanding contracts, or theassumption or discharge of any other liabilities of the joint venture?
24.6 Will any restrictions on the parties apply after termination of the jointventure?
Key preliminary local law considerations: Section 4 (Exit and Termination).
Appendix AOverview of D&O Duties and Liabilities inForeign EntitiesJoint ventures parties are likely to ask some of their own officers and employeesto serve as directors of the joint venture entity. Most individuals who are askedto serve in this position assume that being a director of a joint venture is nota significant burden and does not involve much risk about which to be concerned.Generally speaking, this is true, provided everything is running smoothly. Theposition of a director of a foreign entity has its pitfalls, however, and a prudentdirector should be aware of their existence and should watch out for them.
This appendix provides a brief overview of the duties, risks and potential civil andcriminal liabilities of a director of an entity incorporated outside the United Statesin order to create a general awareness of the kinds of problems that a director shouldanticipate, particularly if the entity finds itself in financial difficulty. This summaryis not, in any way, intended to be an exhaustive discussion of all the relevant issuesand potential liabilities that a director of a foreign joint venture entity might faceand it should not be construed as legal advice because the recommended approachwill vary according to the issue, the director’s actions and the jurisdiction involved.
Position and Duties of a DirectorA prospective or current director should have a clear understanding of what the term“director” means in a particular jurisdiction. While in the United States there isa clear distinction between a “director” and an “officer,” this is not necessarily thecase in other jurisdictions. For example, in Singapore, the Companies Act definesan “officer” of a company to include any director of the company. In Hong Kong,the Companies Ordinance defines a director as “any person occupying the positionof a director by whatever name called,” and all directors are vested with the samepowers, duties and liabilities, whether they are called “director,” “manager,”“managing director,” “chief executive” or other similar title.
On the other hand, many jurisdictions distinguish between a director (i.e., a memberof the board of directors) and a managing director. In Sweden, for example, theboard of directors is responsible for the management and organization of a limited
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liability company, whereas the powers of a managing director are restricted today-to-day management. A Japanese stock company (K.K.) must have a minimumof three directors of which at least one must be resident in Japan and serve asa “representative director,” carrying on the day-to-day functions of the companypursuant to the direction and policies established by the board of directors.A Dutch private limited liability company (B.V.) is managed by a “managementboard” consisting of one or more “managing directors,” who can be individualsor companies.
The duties and liabilities of a director may also depend on the type of entity.A French S.A. (stock corporation), for example, may have a “Président DirecteurGénéral” (Chairman of the Board), directors (members of the board of directors)and a “managing director.” A French SARL (limited liability company), on the otherhand, only has a “manager” (gérant), who may be held personally liable while actingin his or her managerial capacity.
A director’s duties vary depending on the position (e.g., member of the board ofdirectors vs. manager), the type of legal entity and the jurisdiction. A director’sduties may be defined by a statute, by common law (in common law jurisdictions)or by the articles or bylaws of the company. In some jurisdictions, a director hasthe power to bind the company by his or her single signature. For example, amanaging director (Geschäftsführer) of a German GmbH has unlimited statutorypowers to legally represent the company. Although the shareholders (i.e., the jointventure partners) of a GmbH may internally limit the scope of the managingdirector’s powers by including restrictions in the Articles of Association, themanaging director’s employment contract or so-called “standing orders,” theserestrictions are generally not enforceable against third parties.
A director’s general duties can be broadly described as fiduciary. The director hasa duty, among other things, to act in good faith and with loyalty to the company,to act prudently and in the best interests of the company, to exercise powers anddischarge duties with care and diligence, not to misuse corporate information orthe position for personal gain, and to avoid conflict of interest.
An officer or employee of a US corporation should be aware of the potentialconflict of interest inherent in the situation where he or she serves as a directorof a joint venture entity in which his or her employer is one of the parties to thejoint venture, thus owing a duty to both entities. Most of the time, the interests of
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the joint venture party and the joint venture entity are in alignment; however,circumstances may arise under which a joint venture party’s interest could beadverse to the interest of the joint venture entity. Most notably, this may occurwhen either of the two entities is in financial difficulty. For example, the jointventure party that is struggling to remain financially afloat may want to takecash out of the joint venture entity, which could render the joint venture entityinsolvent. Or, in a situation where the joint venture entity is insolvent, its directorsmay be required by law to take steps to liquidate it contrary to the wishes of thejoint venture parties.
In some jurisdictions, even transactions in which such entities’ interests are inalignment may be deemed legally problematic (i.e., void or voidable) where adirector has a potential conflict of interest. For example, if a director of a FrenchS.A. is also a director of an entity contracting with the S.A. (e.g., of an affiliatedcompany), the transaction between the two entities is considered a “regulatedagreement” and is subject to advance authorization by the board of directors ofthe S.A. and approval by a meeting of its shareholders.
In addition to general fiduciary duties, directors typically have specific duties underthe applicable foreign corporate laws, including, among other duties, the preparationand submission to the shareholders of the annual balance sheet, and an obligation tocall shareholders’ meetings. Directors may also be responsible for the company’scompliance with other laws and regulations of the foreign country, such as unfaircompetition laws, environmental laws, labor laws, workplace hygiene and safetyregulations and personal data protection laws. Individuals serving as directors ofa foreign joint venture entity should make a special effort to ascertain the specificduties of their positions in each jurisdiction where they are serving as a directorand endeavor to discharge them with diligence and care.
Civil Liability of DirectorsSources of Potential LiabilityAs in the United States, most foreign jurisdictions recognize the general principlethat corporations and limited liability companies are distinct legal entities, separatefrom their shareholders, and are responsible for their own debts and liabilities.(Limited partners in limited partnerships may also benefit from principles oflimited liability although often at the expense of giving up managerial rights.)
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Nonetheless, there are various circumstances in which directors of foreign entitiesmay become liable not only to the entity itself, but also to its shareholders (i.e., theparties to the joint venture) or to third parties.
Corporate Compliance. One usual source of personal liability for directors is thefailure to comply with corporate formalities. For example, under Dutch law, thefailure to comply with the formalities of incorporation makes the directors liable onthe company’s obligations to third parties. In Singapore, directors are personallyliable for the company’s failure to comply with various corporate and filing formalitiesin connection with an increase in the company’s capital and share allotments, forfailure to properly maintain the company’s registers, failure to hold an annualmeeting, failure to have a registered office which is open and accessible to thepublic (as required by law) and other corporate compliance requirements.
Income and Payroll Taxes. In many jurisdictions, directors may become personallyliable for unpaid company tax or social security contributions. For example,a director (gérant) of a French SARL may be personally liable for the payment ofunpaid corporate tax and penalty if he or she has made tax and penalty assessmentsand payments impossible, either through fraud or through serious and repeatedfailure to comply with the company’s tax obligations. In Germany, the managingdirector of a GmbH may become personally liable for payment of social securitycontributions and administrative fines. The managing directors of a Dutch B.V. maybe personally liable, jointly and severally, for the B.V.’s unpaid corporate, socialsecurity and pension fund taxes and premiums, if the B.V.’s inability to pay thesesums resulted from “obvious mismanagement” or if the managing directors failedto give timely notice to the competent agencies.
Violation of Other Foreign Laws. In addition to corporate and tax laws, directorsmay also be liable for the company’s violation of other laws and regulations of theforeign country in which the entity is organized. For example, under Italian law,directors may become personally liable for failure to comply with data protectionlaws. In France, a director may be liable for violations of labor law and workplacehygiene and safety regulations. Under Mexican law, a director may be liable tothird parties for damages caused by the payment of dividends out of funds otherthan profits. Similarly, in Singapore, directors may be personally liable to thecompany’s creditors to the extent to which dividends paid to the shareholders(i.e., the parties to the joint venture) exceed the company’s profits.
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Liability to the Entity. In most jurisdictions directors may incur personal liabilityto the entity itself. The most common source of this liability is breach of fiduciaryduties and acting contrary to the best interest of the company. Under Argentinelaw, for example, directors may become personally liable if they undertake businessactivities that compete with the company. A director of a French S.A. who hada potential conflict of interest in a transaction (i.e., the “regulated agreement”situation) may be personally liable to the S.A. for damages if the “regulatedagreement” was not properly approved by the board of directors and by theshareholders of the S.A.
Limiting ExposurePrevention. A director’s first line of defense against liability is, of course, prevention.To avoid liability, a director of a foreign entity should be well aware of his or her dutiesto the company under applicable law and should discharge these duties with careand diligence. The director should act in good faith and avoid conflict of interest.The director should monitor the company’s activities, exercise reasonable businessjudgment in pursuing the company’s best interests and should seek professionaladvice in case of doubt. The director should be particularly careful and shouldmonitor the entity’s affairs particularly closely when the entity is in financialdifficulty.
Indemnification. Most US corporations put in place some indemnificationarrangements to protect the directors of their foreign subsidiaries and joint ventureentities from liability incurred while serving as director. In general, a director’sright to be indemnified for such liability may come from three sources: (1) articles ofincorporation, bylaws or other charter documents of the foreign entity (if permissibleunder applicable foreign law); (2) indemnification agreements between the directorand the foreign entity or the US entity that is his or her employer that ownsthe interest in the foreign entity, or both; and/or (3) the statutory right toindemnification that the individual has as an employee of the US entity that is hisor her employer that owns the interest in the foreign entity.
Indemnification provisions included in the articles of incorporation or other charterdocuments of the foreign joint venture entity do not necessarily provide a sufficientlevel of protection to the company’s directors and may be difficult to enforce insome jurisdictions. It would be more prudent for a director of a foreign jointventure entity to obtain a contractual right to indemnification by entering into an
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indemnification agreement either with the entity itself or with the US entity that ishis or her employer that owns the interest in the foreign joint venture entity, orwith both.
The laws of some jurisdictions either prohibit or severely limit the scope ofpermissible indemnification of directors of entities incorporated in those jurisdictions.For example, Austria and Germany permit indemnification of directors only forslight negligence. In Australia, a company or a related body corporate may notindemnify a director against liability that (1) is owed to the company or a relatedbody corporate; (2) is a fine or compensation order made under the CorporationsAct; or (3) arises out of conduct that is not in good faith. Australian law also limitsthe circumstances under which a company may indemnify its directors for legalcosts (although in many cases this type of indemnification is permissible).
In jurisdictions that prohibit or limit the scope of indemnification, an indemnificationprovision included in the articles of incorporation or other charter document maybe void. Similarly, an indemnification agreement between the director and theentity incorporated in such jurisdiction would be of questionable enforceability.On the other hand, a US joint venture party may be able to enter into an enforceableagreement under US law to indemnify a director of its foreign joint venture entityeven if the joint venture entity itself is prohibited from indemnifying its directors.
Although in many cases indemnification agreements offer adequate protection fromliability, there are several pitfalls of which directors should be aware. First of all,the director should establish who is the indemnitor under the agreement. In thejoint venture context, this would typically be either the foreign joint venture entityitself or the US entity that is his or her employer that owns the interest in the jointventure entity. If the agreement is with the foreign joint venture entity itself, thedirector should confirm that the agreement will not be unenforceable becauseapplicable law prohibits indemnification of directors. In addition, the directorshould make sure that the foreign joint venture entity has complied with allcorporate formalities applicable under the laws of the foreign jurisdiction withrespect to approval and execution of the indemnification agreement (e.g., boardresolution, shareholder approval and signature authority).
The identity of the indemnitor also bears on the practical aspects of indemnification:if the indemnification obligation is undertaken by the foreign entity itself, thedirector should consider whether the entity is likely to have sufficient funds to meet
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this obligation. In this regard, if a joint venture entity is underfunded, the directorwould feel more secure if the indemnitor were his or her employer that holds theinterest in the joint venture or another entity within the employer’s corporategroup that has sufficient assets to provide adequate indemnification. But even thatmay be of little practical value in the event the employer (or other indemnitor)finds itself in financial difficulty. Under these circumstances, director and officerinsurance may help (see below).
The director should review the draft indemnification agreement carefully beforesigning it. For one thing, the director should make sure that his or her rightto indemnification is not subject to a burdensome condition that could makeindemnification unfeasible. For example, if indemnification is subject to approvalby the joint venture entity’s board of directors or shareholders (i.e., the parties tothe joint venture), that approval may be difficult to obtain under some circumstances(such as when the director’s employer holds only a minority interest in the jointventure). The director should also carefully consider the substantive provisions ofthe indemnification agreement and should have a clear understanding of the scopeof liabilities that are indemnifiable under the agreement (which are often madesubject to various contractual limitations and exclusions). Of great importance isalso the director’s right to advancement of litigation expenses, without which manydirectors would not be able to fund their defense.
Director and Officer Insurance. Traditional director and officer insurance(commonly called “D&O” insurance) policies offer two types of coverage. The firstcovers individual directors and officers for losses not indemnified by the corporation;the second reimburses the corporation for the amount it spends indemnifyingdirectors and officers for their losses. A newer kind of D&O insurance not onlycovers the director or officer as the insured, but also provides protection for thecorporation itself (so-called “entity coverage”). In the joint venture context, ifD&O insurance is purchased by a joint venture party, its joint venture directorappointees should confirm that the policy covers his or her actions as director ofthat foreign joint venture entity. Most foreign jurisdictions allow a company toprocure D&O insurance, even if that jurisdiction does not permit indemnificationprovisions. For example, although U.K. law prohibits indemnification provisions inmost circumstances, it does not preclude a company from purchasing D&O insurance.
A director of a foreign entity should carefully review the terms of the policy –particularly the exclusions and endorsements contained in it. For public policy
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reasons, most D&O insurance policies contain a dishonesty exclusion. That is, theydo not cover dishonest or criminal acts by an officer or director. Another typicalexclusion concerns claims brought by regulatory agencies. Endorsements mayenhance or diminish coverage and can often be negotiated with the insurer, possiblywith an increased or reduced premium.
Statutory Indemnification of Employees. When an employee of a US corporationis asked to serve as director of the corporation’s foreign joint venture entity, servicein that capacity becomes part of his or her employment duties. To the extentthat such director’s liability is incurred within the course and scope of his or heremployment by the US corporation, the individual may be protected by the statutoryindemnification provisions of the applicable state employment law or by commonlaw principles of agency. For example, in Illinois, general principles of agency lawprovide that employees in the private sector are entitled to indemnification fromtheir employer for all losses incurred by the employee while acting in good faithwithin the scope of their employment. “Scope of employment” is understoodbroadly: an employee’s conduct is within the scope of his or her employmentwhere it is a lawful action undertaken at the direction of and for the benefit of theemployer. The employee’s right to indemnification under general agency principlesis fairly broad. However, an employee will not be indemnified for conduct that isillegal, even if performed pursuant to the express direction of the principal.
Criminal Liability of DirectorsSources of Potential LiabilityA director of a foreign entity potentially may face criminal liability in two typesof situations: (1) criminal liability arising from intentional, willful or knowingmisconduct of the individual director while in office and (2) criminal liabilityarising from the foreign entity’s acts in contravention of the applicable foreign lawwhere the director did not act intentionally, willfully or knowingly.
As a matter of common sense, most individuals realize that certain acts (e.g., fraud,forgery and theft) are clearly dishonest, improper and/or criminal. In the corporatecontext, such offenses may take the form of providing false information or makinguntrue statements to authorities or shareholders, intentional destruction of financialrecords, or other improprieties. Most directors recognize the illegality of such actsand understand that they may give rise to criminal liability.
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There are, however, less obvious sources of criminal liability, to which a director ofa foreign entity may expose himself or herself inadvertently, for example by signinga document on behalf of the entity without being aware that this causes the entityto violate local criminal laws. These “hidden” sources of criminal liability may beassociated with corporate compliance, tax or other laws of the foreign jurisdiction.
Corporate Compliance. A company’s violation of corporate compliance requirementsmay give rise to criminal liability for the directors responsible for the company’scompliance. For example, in the United Kingdom, a director may be held criminallyliable for the company’s failure to hold an annual general meeting within 15 monthsof its last annual general meeting and, if convicted, will be subject to a fine. In Japan,a director is criminally liable for an illegal distribution of dividends in the absenceof adequate distributable profit. It should be noted that it is not a defense thatthe joint venture parties authorized the act. If convicted, the director could face asignificant fine and/or imprisonment.
Tax. Criminal liability may also be imposed on directors for corporate tax violationsincluding tax evasion, failure to pay taxes, making a false entry in a tax return anddestroying records. In Ireland, for example, most revenue offenses committedby a director are punishable by imprisonment and/or a significant fine. Similarpunishment exists in the United Kingdom and the People’s Republic of China.
Other Foreign Laws. Directors may also be held criminally liable for the company’sviolations of numerous statutes of general applicability. For example, in the UnitedKingdom, a director may be held criminally liable under the Consumer ProtectionAct of 1987. The Consumer Protection Act covers offenses such as producingand/or importing defective (unsafe) products and giving misleading price indications,and violations are punishable by imprisonment and/or significant fines. Directorsmay also be criminally liable for the company’s violations of environmental protectionlaws, antitrust laws, copyright laws, patent and trademark laws and other laws. InJapan, for example, a director is criminally liable for violations of the Anti-MonopolyLaw and infringement of third parties’ industrial rights under the Copyright Code.
Past Violations. In some countries, a director may also be criminally liable for pastviolations of law by the company of which he or she becomes director. If uponelection to the board of directors, the director becomes aware of a continuing orongoing failure of the company to comply with its legal obligations, the directorcould be criminally liable if he or she failed to take corrective action.
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Limiting ExposureSome defenses to potential criminal liability exist. For example, a director whotakes all reasonable steps to secure compliance with a particular provision andendeavors to correct any irregularities of which he or she might become aware ismore likely to avoid criminal liability.
Indemnification agreements may provide for indemnification from criminal liability;however, in some jurisdictions these provisions may be considered contrary topublic policy and may be unenforceable. Most indemnification agreements excludeindemnification for liability incurred by a director through gross negligence,intentional misconduct or fraud. Similarly, D&O insurance policies typicallyexclude dishonest or criminal acts committed by a director or officer.
Director Liability in Connection with a Subsidiary’sInsolvency/BankruptcySources of Potential LiabilityThe improper or faulty management of a company before or after it finds itself infinancial difficulty represents a source of potential liability of which directors offoreign entities should be particularly aware. In general, absent mismanagement,a director is not personally liable for the company’s financial failure, particularlywhen such failure results from general market conditions. In many jurisdictions,however, a director may be exposed to potential liability if he or she fails to exercisereasonable business judgment regarding the financial status of the company and,either expressly or implicitly through inaction, authorizes the continuation ofbusiness activity for a company that is or is likely to become insolvent.
A director of a bankrupt company may incur personal liability, in general, underthe following circumstances: (1) in instances of mismanagement (defined broadlyand often by case law), if the mismanagement leads to an insufficiency of assets;(2) if the director has not ensured that the company’s taxes and social securitycontributions have been paid; (3) if the director has abused his or her position orcommitted fraud; or (4) if the director intentionally fails to commence bankruptcyproceedings within a specified period of time once the company becomes insolvent.This latter obligation warrants additional discussion.
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In most jurisdictions, a director of a company has an affirmative duty to assure thatthe company does not trade or conduct business while the company is insolvent,a situation that is typically defined as one where the company cannot cover itsliabilities with its current assets on an ongoing basis. Civil liability may also beimposed on a director of a company that becomes insolvent where the director knewor ought to have concluded that there was no reasonable prospect that the companywould avoid going into insolvent liquidation and the director failed to take everystep he or she ought to have taken to minimize the potential loss to the company’screditors. Furthermore, in many jurisdictions, a director also has an affirmativeduty to notify shareholders (i.e., the parties to the joint venture) if the companybecomes insolvent or overindebted and to initiate liquidation or bankruptcyproceedings within a specified period of time after it is determined that the companywill not be able to meet its current financial obligations on a continued basis.The timeframe for initiating these proceedings is relatively short in many countries.
The threshold requirements for determining whether voluntary liquidation orinvoluntary bankruptcy proceedings must be initiated vary from jurisdiction tojurisdiction, and a director anticipating that the company may soon meet withfinancial difficulty should seek specific advice regarding the company’s options inadvance. The decision with respect to the type of winding up procedure to pursueshould be based on analysis of accurate financial statements. Although in somejurisdictions a liquidation proceeding can be converted into a bankruptcy proceedingif a determination is made during the liquidation process that a solvent liquidationis impossible, other jurisdictions are not so flexible.
Limiting ExposureDirectors should take care to avoid “surprises” regarding the financial situation ofthe company. The timely and accurate preparation of financial accounts on a regular(i.e., monthly and quarterly) basis (in addition to annual filings) should assist thedirectors in assessing the financial condition of the company. If the company’sfinancial situation is beginning to deteriorate, it is advisable to increase the frequencyof management accounts in order to monitor the situation as closely as possible.The directors should seek timely professional advice regarding their specific dutiesin connection with the company’s possible insolvency in that particular foreignjurisdiction.
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If the company experiences financial difficulties, and the directors have determinedthat the company is, or is about to become, insolvent, they should immediatelynotify the shareholders (i.e., the parties to the joint venture) of this situation. Theshareholders may rectify the situation through an infusion of funds. Thus, in thejoint venture context, so long as the company remains funded by the joint ventureparties and is therefore able to meet its debt obligations as they fall due (therebyavoiding insolvency), directors may not need to take action to wind up the company.They should, however, remain vigilant regarding the company’s financial situationand exercise due care with regard to any asset transfers or contractual engagements,so as not to incur new liabilities or debts that could lead to charges of fraudulenttrading.
As a practical matter, a director should also keep in mind the potential costs ofliquidation in analyzing the company’s financial situation. In some cases, thedecision to cease operating should be made early, while the company still hassufficient funds to pay liquidation costs, particularly in the joint venture contextif there is any doubt that the joint venture parties will finance the liquidation.
ConclusionServing as a director of a foreign entity is not a risk-free proposition. The generalduties and responsibilities that apply to a director of a US corporation may alsoapply to a director of a foreign entity. The law of the jurisdiction in which the foreignentity is incorporated determines the potential civil and criminal sanctions that maybe imposed on a director. The scope and severity of the failure to comply withlocal law and the associated consequences can vary widely, as discussed in this briefoverview. Individuals serving as directors can take some steps towards reducingtheir liability exposure, notably by requesting indemnity agreements and confirmingthe level of D&O or entity insurance in effect. These steps may not be options inall jurisdictions, particularly in those which may consider such actions to be voidas against public policy. These steps, however, are not a substitute for diligentperformance of one’s duties as a director.
The guiding principle for any director, in addition to any available indemnification orinsurance, is to be constantly aware of the company’s business and financial situationand to confirm that all corporate formalities, tax filings and required annual reportsand filings are attended to in a consistent and timely manner.
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Appendix BOverview of Applicable US Laws ImpactingD&O LiabilityWhere a US party is contemplating entering into a joint venture in a foreignjurisdiction, the directors of the joint venture must be prepared to identify activitiesor transactions at the joint venture level that may create the risk of civil or criminalliability under US and local laws. Regardless of whether a US party controlsthe joint venture (through equity ownership or management control), there area number of activities and transactions at the joint venture level that can exposethe joint venture, its directors themselves and even the US party, to civil and criminalliability under US or local laws, and that can seriously damage the US party’sbusiness reputation. Some of the activities that could most seriously impact thejoint venture and the joint venture directors are:
• Bribes to local government officials to win business concessions;
• Partnering with a local company which is funded by illegal activities;
• Engaging in anti-competitive discussions with competitors; and
• Entering into agreements that contain provisions supporting boycottactivities.
In addition, acts that ratify or otherwise signal the intent of the joint venturedirectors or the US party to aid and abet or conspire to violate local laws couldexpose the joint venture, its directors or the US party itself to liability under localand US laws. For example, if the joint venture directors are present at meetingswhere bribes to government employees are discussed, or if the US party acceptsdividends from a joint venture sourced in revenues from contracts derived frombribes, both the joint venture directors and the US party could face serious liability.Moreover, if the US party continues to invest in a joint venture after havingknowledge (e.g., through its joint venture board representatives) of improper activitiesor transactions by the joint venture or the other party to the joint venture, the USparty may be deemed to have acquiesced in, ratified or been involved in the activity.
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Finally, the joint venture directors may find themselves in situations where thereis a real or potential conflict between their roles as senior executives of the USparty and their roles as directors of the joint venture. Those conflicts will require abalancing of potentially inconsistent duties.
US Laws That Could Expose the US Party, the JointVenture and its Directors to LiabilitySome US laws apply to activities and transactions that occur outside the UnitedStates, even if a US entity does not wholly own or control the non-US entity.Indeed, in appropriate circumstances, some US laws, such as the money launderinglaws, can apply if only a part of a transaction occurs in the United States – such asa wire transfer through a US bank accounts that touches the United States onlymomentarily.
The US laws of particular note are the following:
• the Foreign Corrupt Practices Act (or “FCPA”), which prohibits bribesto foreign government officials, political parties or political candidates,and imposes accounting and internal control requirements on the USparty;
• money laundering and Bank Secrecy Act reporting and recordkeepingrequirements, which prohibit transactions with funds sourced fromillegal activity;
• trade and investment sanctions, which generally restrict the ability ofUS individuals and companies to engage in any transactions withcountries such as Cuba, Iran and Sudan;
• export controls, which regulate the export and re-export of so-called“US-origin items;”
• US anti-boycott regulations, which prohibit or penalize certainactivities and agreements in connection with foreign boycotts that arenot sanctioned by the United States, such as the Arab League boycottof Israel;
• anti-competition laws; and
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• certain other criminal laws, such as mail and wire fraud, conspiracy,aiding and abetting, and other vicarious liability theories, all of whichcould be used by US authorities to prosecute the joint venture, itsdirectors or the US party itself in appropriate circumstances, forcustoms fraud, foreign tax evasion and other fraud committed againstforeign governments.
DiscussionThe following is a discussion of each of the above-listed US laws that could exposea joint venture, its directors and the US joint venture party to liability.
Improper Payments to Foreign Government Officials Any time a joint venture is dealing with government officials or employees ofgovernment-owned entities, the joint venture directors should ask appropriatequestions at board meetings and oversee the joint venture’s activities to ensure thatimproper payments are not promised, offered or made, and that all contracts areobtained on the merits and in good faith. The FCPA prohibits certain improperpayments, directly or indirectly through third parties, to foreign officials, politicalparties or political candidates, and officials or employees of public internationalorganizations, such as the European Union. These laws can apply to the joint venture,its directors and the US party itself, in appropriate circumstances, given the level ofgeneral and specific involvement in the improper payments. Thus, if a joint venturemakes improper payments, the US party could be held responsible for such payments.
Foreign officials may include not just officials themselves, but also officers andemployees of foreign-owned or controlled enterprises such as hospitals, schools,train stations or other public transportation facilities. Bribes to such officials toobtain concessions so the US party can expand its operations are likely to violatethe FCPA and local anti-bribery laws. Penalties for violations of these laws includeheavy civil and criminal fines, imprisonment and potentially very serious damageto the US party’s business reputation.
In addition, under the US securities laws, including the accounting provisions ofthe FCPA, a US party which is a US publicly-traded company must meet variousstandards as to the accuracy of financial statements and internal controls ofconsolidated joint ventures, minority interest joint ventures and joint venturesor alliances that perform certain “outsourcing” functions.
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To the extent the joint venture commits any act in the United States in furtheranceof an activity prohibited by the FCPA, such as wire transfer through US banks ofmonies used for a bribe to a government official, the joint venture would be subjectto jurisdiction under the FCPA. The FCPA also will apply to a joint venture directorwho uses faxes or telephones in furtherance of a prohibited bribe. The US partycould have direct responsibility for the FCPA violation based upon its connection tothe joint venture.
Joint venture directors should not, in their individual capacities, be liable forimproper payments made by the joint venture or joint venture parties if the jointventure directors do not have knowledge of, and are not willfully blind or deliberatelyignorant to, any improper payments by the joint venture or joint venture parties.If the joint venture directors have knowledge, that knowledge could be imputed tothe US party in appropriate circumstances. Joint venture directors also shouldconfirm that none of the joint venture parties are government officials or related toforeign government officials.
Engaging in Transactions with the Proceeds of Illegal ActivityJoint venture directors should ensure that the joint venture does business and entersinto financial transactions only with reputable business partners who are sourced infunds generated from wholly legal activities and routed through reputable bankingcenters. Under the US money laundering laws, the joint venture, its directors andthe US party can all be potentially liable for serious money laundering violationsif they enter into transactions with funds that are sourced from illegal activity –including foreign tax evasion and bribery of government officials. Penalties forviolations of these laws include civil and criminal fines, imprisonment and forfeiture.The US money laundering laws, generally speaking, prevent persons from enteringinto financial transactions where knowledge of, or being willfully blind or deliberatelyignorant to, the fact that the funds involved in the transaction are the proceeds ofunlawful activities. These laws can apply in appropriate circumstances to the jointventure, its directors and the US party, even if the relevant conduct takes placeoutside the United States or if the conduct occurs only in part in the United States,such as wire transfers to or from US banks.
Moreover, the US party itself could be deemed to have aided and abetted orconspired to participate in a money laundering violation if dividends sourced fromthe joint venture’s illegal activities are paid to the US party in the United States,
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and the joint venture directors knew or failed to ask questions in the face of redflags that the joint venture’s dividends were sourced from violations of law, or thatpayments made by the joint venture funded terrorist activity. Finally, joint venturedirectors also may have recordkeeping obligations relating to foreign joint venturebank accounts under the US Bank Secrecy Act and/or the US Patriot Act.
Regardless of actual legal exposure, however, any involvement by the joint venturein money laundering or terrorist financing is likely to cause significant damage tothe US party’s business reputation.
Entering into Agreements with Sanctioned Persons or Countries,including CubaA US joint venture party may not be involved in or facilitate offshore transactionsinvolving countries or persons that have been sanctioned by the United States. TheUnited States currently maintains country-specific trade and investment sanctionsagainst various countries, such as Burma (Myanmar), Cuba, Iran and Sudan, andindividuals and entities deemed to be foreign policy concerns, such as narcoticstraffickers or terrorists. These trade sanctions apply to US joint venture parties andto joint venture directors who are US citizens and green card holders. The tradesanctions generally would not apply to a foreign joint venture itself unless the USparty owns or controls the joint venture. More expansive rules apply in the caseof Cuba, and a US party should be especially vigilant with any activities relating toCuba. Violations of trade sanctions are punishable by civil and criminal penaltiesand imprisonment in some cases.
Examples of improper activities include a US party’s review or approval ofprohibited transactions, or purchase of capital equipment earmarked for the jointventure’s business with sanctioned countries. If the joint venture entity discussesexpansion plans that involve countries, individuals or entities that are sanctioned bythe US, the joint venture directors may be liable for US trade sanctions violations.It is likely that large sales or investment transactions contemplated by a joint venturemay require approval or guarantees by the joint venture partners. If sanctionedcountries or persons are involved, the US party may not provide its approval orguarantee, and could not specifically delegate that responsibility to others.
Joint venture directors who are US citizens or permanent resident aliens are fullysubject to the trade sanctions, even if they are overseas or on temporary assignment
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to the joint venture. All such joint venture directors should recuse themselves fromactivities or transactions with sanctioned countries or sanctioned persons that arepermissibly entered into by the joint venture.
Monitoring for Export Controls and Export License RequirementsExports or re-exports by a joint venture involving US-origin items or foreign itemswith US content generally are restricted to certain countries, such as Cuba, Iran,Sudan and Syria. In addition, such exports or re-exports might trigger certainlicensing requirements (e.g., the US party may supply computers or encryptionsoftware to the joint venture that are subject to US export license requirements).Accordingly, joint venture directors must be certain they are instructed on exportcontrols before entering into transactions on behalf of the joint venture. In addition,there are somewhat technical exceptions for de minimis levels of US content.
It is important to note that a company found to be in violation of export controlscan have its export privileges denied by the US Department of Commerce.A denial of export privileges could have very serious implications for the regularexports and re-exports from the United States of the US party’s other products.
Transactions With the Middle East Involving the Arab Boycottof IsraelThe United States prohibits and/or penalizes participation in or compliance withforeign boycotts against countries that are considered “friendly” to the United Statesand that are not the object of any form of boycott under US laws or regulations.Anti-boycott laws are particularly relevant for companies doing business in theMiddle East, where the Arab League boycott of Israel is still actively maintained,or with other countries that boycott Israel.
A US joint venture party is fully subject to the US anti-boycott rules, limited to theextent of its knowledge of or actual involvement, such as specific authorization ordirection, in the joint venture’s boycott-related acts. Boycott-related participation orcooperation by the joint venture also could have negative tax consequences for theUS party. In that regard, any boycott action taken by the joint venture, such asagreeing to enter into a contract or set up a store with terms that are favorable tothe boycott of Israel, will be subject to US anti-boycott rules. Any time the jointventure does business with Middle Eastern countries, the joint venture directors
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should ensure that all underlying documentation, including seemingly innocentor standard boilerplate terms, do not, in fact, support the Arab League boycottof Israel.
Prohibited Communications with Competitors and OtherAnti-Competitive BehaviorAnti-competitive conduct by a foreign joint venture or its directors, such asexchanging information with competitors, price fixing or acting as a monopoly,can be charged under US criminal and civil antitrust laws if there are certainharmful effects on US commerce. The joint venture, its directors and potentiallythe US party can be exposed to civil and criminal antitrust claims in this regard.
Related US Criminal LawsIn addition to the laws described above, the joint venture, its directors and the USparty can all, in appropriate circumstances, be charged by enforcement authoritieswith mail fraud and wire fraud, conspiracy or aiding and abetting as well as underother theories of vicarious liability for fraudulent and improper acts taken by thejoint venture with the knowledge and/or involvement of the joint venture directorsor the US party. Situations that can arise might include the joint venture’s involvementin failing to comply with local requirements relating to taxes, currency controls orcustoms duties.
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Baker & McKenzie Offices WorldwideOffice phone numbers and addresses change from time to time. Please refer towww.bakermckenzie.com for current contact information.
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MEXICO - MONTERREYBaker & McKenzie Abogados, S.C.Edificio Oficinas en el ParqueTorre I Piso 10 Blvd. Antonio L. Rodriguez 1884 Pte.64650 Monterrey, Nuevo León, México Telephone: +52 81 8399 1300 Facsimile: +52 81 8399 1399
MEXICO - TIJUANABaker & McKenzie Abogados, S.C.Blvd. Agua Caliente 10611, Piso 122420 Tijuana, B.C., MéxicoP.O. Box 1205 Chula Vista, CA 91912 Telephone: +52 664 633 4300 Facsimile: +52 664 633 4399
THE NETHERLANDS -AMSTERDAMBaker & McKenzie Amsterdam N.V.Claude Debussylaan 54 1082 MD AmsterdamP.O. Box 27201000 CS AmsterdamThe Netherlands Telephone: + 31 20 551 7555Facsimile: + 31 20 626 7949
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PHILIPPINES - MANILAQuisumbing Torres12th Floor, Net One Center 26th Street Corner 3rd Avenue Crescent Park West Bonifacio Global City Taguig, Metro Manila,Philippines 1634Postal Address:MCPO Box 1578Makati City 1299, Philippines Telephone: +63 2 819 4700 Facsimiles: +63 2 816 0080,728 7777
POLAND - WARSAWBaker & McKenzie Gruszczynski i Wspolnicy Attorneys at Law LPRondo ONZ 100-124 Warsaw, Poland Telephone: +48 22 445 3100 Facsimile: +48 22 445 3200
RUSSIA - MOSCOWBaker & McKenzie - CIS, LimitedSadovaya Plaza, 11th Floor 7 Dolgorukovskaya Street Moscow, Russia 127006Telephone: +7 495 787 2700Facsimile: +7 495 787 2701
RUSSIA - ST. PETERSBURGBaker & McKenzie - CIS, Limited57, Bolshaya Morskaya StreetSt. Petersburg, Russia 190000Telephone: +7 812 303 9000Facsimile: +7 812 325 6013
SAUDI ARABIA - RIYADHBaker & McKenzie Gulf LimitedOlayan Complex Tower II Al Ahsa Road PO Box 4288 Riyadh 11491, Saudi Arabia Telephone: +966 1 291 5561 Facsimile: +966 1 291 5571
SINGAPOREBaker & McKenzie.Wong & Leow#27 01 Millenia Tower 1 Temasek Avenue Singapore 039192 Telephone: +65 6338 1888 Facsimile: +65 6337 5100
SPAIN - BARCELONA Baker & McKenzie Barcelona S.L.Avda.Diagonal, 652Edif. D, 8th floor 08034 Barcelona, Spain Telephone: +34 93 206 0820 Facsimile: +34 93 205 4959
SPAIN - MADRIDBaker & McKenzie Madrid S.L.Paseo de la Castellana, 92 28046 Madrid, Spain Telephone: +34 91 230 4500Facsimile: +34 91 391 5149
SWEDEN - STOCKHOLMBaker & McKenzie Advokatbyrå Linnegatan 18 P.O. Box 5719 SE - 11487 Stockholm, Sweden Telephone: +46 8 5661 7700 Facsimile: +46 8 5661 7799
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SWITZERLAND - GENEVABaker & McKenzie GenevaChemin des Vergers 41208 Geneva, Switzerland Telephone: +41 22 707 9800 Facsimile: +41 22 707 9801
SWITZERLAND - ZURICHBaker & McKenzie ZurichZollikerstrasse 225 P.O. Box 8034 ZürichSwitzerland Telephone: +41 1 384 1414 Facsimile: +41 1 384 1284
TAIWAN - TAIPEIBaker & McKenzie15th Floor, Hung Tai Center No.168,Tun Hwa North Road Taipei,Taiwan 105 Telephone: +886 2 2712 6151 Facsimiles: +886 2 2716 9250;2712 8292
THAILAND - BANGKOKBaker & McKenzie Ltd.25th Floor, Abdulrahim Place990 Rama IV Road Bangkok 10500,ThailandTelephone: +66 2636 2000; 2636 2222 Facsimile: +66 2636 2111
UKRAINE - KYIVBaker & McKenzie - CIS, LimitedRenaissance Business Center 24 Vorovskoho St.Kyiv 01054, UkraineTelephone: +380 44 590 0101Facsimile: +380 44 590 0110
UNITED STATES - CHICAGOBaker & McKenzie LLP300 East Randolph Drive Chicago, Illinois 60601, USTelephone: +1 312 861 8000Facsimiles: +1 312 861 2899; 861 8080
UNITED STATES - DALLASBaker & McKenzie LLP2300 Trammell Crow Center 2001 Ross Avenue Dallas,Texas 75201, USTelephone: +1 214 978 3000Facsimile: +1 214 978 3099
UNITED STATES - HOUSTONBaker & McKenzie LLPPennzoil Place, South Tower711 Louisiana, Suite 3400 Houston, Texas 77002-2746, USTelephone: +1 713 427 5000 Facsimile: +1 713 427 5099
UNITED STATES - MIAMI Baker & McKenzie LLPMellon Financial Centre 1111 Brickell Avenue Suite 1700 Miami, Florida 33131, USTelephone: +1 305 789 8900 Facsimile: +1 305 789 8953
UNITED STATES - NEW YORKBaker & McKenzie LLP452 Fifth AvenueNew York, New York 10018, USTelephone: +1 212 626 4100Facsimile: +1 212 310 1600
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UNITED STATES - PALO ALTOBaker & McKenzie LLP660 Hansen Way Palo Alto, California 94304, US Telephone: +1 650 856 2400 Facsimile: +1 650 856 9299
UNITED STATES -SAN FRANCISCOBaker & McKenzie LLPTwo Embarcadero CenterTwenty-Fourth FloorSan Francisco,California 94111-3909, USTelephone: +1 415 576 3000Facsimiles: +1 415 576 3099; 576 3098
UNITED STATES -WASHINGTON, D.C.Baker & McKenzie LLP815 Connecticut Avenue, NW Washington, D.C. 20006-4078, USTelephone: +1 202 452 7000 Facsimile: +1 202 452 7074
VENEZUELA - CARACASBaker & McKenzie SCTorre Edicampo, PHAvenida Francisco de Miranda Cruce con Avenida Del Parque Urbanización Campo Alegre,Caracas 1060Postal Address: PO Box 1286 Caracas 1010-A,VenezuelaUS Mailing Address:Baker & McKenzie M-287, Jet Cargo InternationalP.O. Box 020010Miami, Florida 33102-0010, USA:Telephone: +58 212 276 5111;276 5112 Facsimiles: +58 212 264 1532;264 1637
VENEZUELA - VALENCIABaker & McKenzie SCEdificio Torre Venezuela, Piso No.4Av. Bolivar cruce con Calle 154(Misael Delgado) Urbanizacion La AlegriaPostal Address: PO Box 1155 Valencia, Estado Carabobo,Venezuela Telephone: +58 241 824 8711 Facsimile: +58 241 824 6166
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VIETNAM - HANOIBaker & McKenzie LLP13th Floor, Vietcombank Tower198 Tran Quang Khai StreetHoan Kiem DistrictHanoi, Socialist Republic of VietnamTelephone: +84 4 825 1428;825 1429; 825 1430 Facsimile: +84 4 825 1432
VIETNAM - HO CHI MINH CITYBaker & McKenzie LLP12th Floor, Saigon Tower 29 Le Duan Blvd.District 1, Ho Chi Minh City Socialist Republic of VietnamTelephone: +84 8 829 5585;829 5601; 829 5602 Facsimile: +84 8 829 5618
International Joint Ventures HandbookBaker & McKenzie Offices Worldwide