MEXICO Law and Practice Contributed by: Allan Kaye Trueba, Rebeca Sánchez and Mariana Santillán, Aziz & Kaye Business Law
Provisions should address unforeseen funding needs and their impact on ownership. Where debt or related- party transactions are involved, transfer pricing analy - sis by a tax specialist is essential. Contractual JV Funding in a contractual JV is based on tax and accounting assessments to efficiently allocate costs and distribute revenue without a shared legal entity. Commonly, each party covers its own assigned expenses, which are considered in profit allocation, or one party may charge fees for certain activities. Transaction documents typically include a budget, outline funding commitments, and specify milestones for disbursements. Debt funding by a party requires careful tax and trans - fer pricing analysis if members are related parties. 6.4 Deadlocks A deadlock occurs when the board of directors or JV partners are unable to reach a decision due to an equal number of votes for and against a proposal, or when a unanimous vote is required but not achieved. It may also arise if the board, shareholders’, or partners’ meeting repeatedly fails to achieve a legal quorum, preventing the body from being officially convened. To address such situations, JV documents often include deadlock provisions that set out rules to help the board or partners move forward. Common mecha - nisms to break a deadlock include: • mediation by a neutral third party or arbitration; • one partner electing to sell its participation in the JV or buy out the other partners (known as Russian roulette or shotgun terms); • third-party buyout; • liquidation or winding-up of the JV as a last resort; or • if the deadlock occurs at board level, referring the issue to the shareholders’ or partners’ meeting for resolution. Despite the availability of these mechanisms, it is advisable to try to prevent deadlocks in the first place, for example, by appointing an odd number of direc -
tors or granting a casting vote to a designated person in the JV documents. 6.5 Other Documentation A JV structure often necessitates documentation beyond that which establishes the vehicle and out - lines the rules governing the relationship between the parties. For instance, the parties may need to transfer certain assets to the corporate JV, requiring the execution of a contribution agreement or a purchase and sale agreement. In cases where the corporate JV, or one of the parties in a contractual JV, needs to use an asset owned by another JV member or a third party, a lease or bailment agreement may be necessary. For agreements related to intellectual property, see 8.2 Licensing v Assignment of IP Rights . Furthermore, in both corporate JV and contractual JV structures, the execution of services, distribution, or supply agreements may be required. These agree - ments delineate the operational relationships between the JV and its partners or external entities. When the structure includes debt funding, the trans - action documents will also encompass a loan agree - ment and associated collateral documents. 6.6 Rights and Obligations of JV Partners While the specific allocation of rights and duties will depend on the JV structure and the negotiated agree - ment, the following are key considerations. Rights of JV Partners Profit sharing and loss allocation JV partners are typically entitled to share the profits and bear the losses of the JV in proportion to their respective contributions, unless otherwise agreed. In corporate JVs, this is usually set forth in the by-laws or shareholders’ agreement; in contractual JVs, it is defined in the JV contract. Access to information Partners should have the right to timely and accurate information regarding the JV’s operations, financial status, and material developments. In corporate JVs,
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