USA Law and Practice Contributed by: Olesya Bakar, William “Bill” Jackson, Daniel E. Levisohn and Steven D. Lear, Holland & Knight LLP
6.7 Minority Protection and Control Rights In a JV where one of the venturers has managerial control of the JV either through majority ownership or negotiated terms (such as being the manager or general partner of a JV), the non-managing venturer will usually have rights to approve certain actions to be taken by the JV, such as mergers or other sales of the JV or its assets, the admission of new venturers, transfers of interests in the JV by the other venturers, approval of the budget and business plan, instituting or settling litigation and incurring debt. These “major decision” rights are highly negotiated and may be very detailed. 6.8 Applicable Law and Dispute Resolution in International JVs In international JVs, neither side wants disputes to be resolved through litigation in the other venturer’s home court and under its substantive and procedural laws. The venturers will want substantive law that favours neither party and has well-established commercial law. Procedurally, the process needs to be mutually fair and timely, and to have decisions enforceable in the jurisdiction of each venturer. Most sophisticated international JV agreements pro - vide for mandatory international arbitration rather than litigation. The largest international arbitration organi - sations for JV disputes include: • the International Chamber of Commerce, with mil - lions of members in over 100 countries; • the International Center for Dispute Resolution (the international branch of the American Arbitration Association); • the London Court of International Arbitration (for complex and financial sector disputes); and • the Singapore International Arbitration Centre. Each organisation has its own procedural rules unless the JV agreement amends those rules. Examples of possible rule changes include the scope of disclosure, manner of selecting arbitrators, review of awards and providing for interim relief. Each forum has a different mechanism to review awards and manage the selec - tion of arbitrators. The chosen seat for international arbitration is often in major financial centres such as Paris, London, Singapore or Geneva. In the United
Dissolution The JV could be forced to liquidate its assets and dissolve. 6.5 Other Documentation Any number of agreements may be appropriate depending on the type of JV. • Contribution agreements: If a venturer will con - tribute assets to the JV (such as real estate, equipment or IP), a contribution agreement may be appropriate; this provides the terms by which a venturer contributes the property to the JV in exchange for equity interests in the JV. • IP licences: If one of the venturers has IP that the JV needs in its business, such venturer may want to retain ownership and license the IP to the JV (rather than contributing it) by means of an IP licence. See also 8.1 Ownership and Use of IP . • Guarantees: A guaranty from a credit-worthy affili - ate may be appropriate if the venturer lacks the financial ability to satisfy its monetary obligations under the JV, such as mandatory capital contribu - tions and/or indemnification obligations. • Services agreements: If a venturer or its affiliate will be providing services to the JV, then an agreement providing the terms relating to the services and any compensation therefor may be appropriate. 6.6 Rights and Obligations of JV Partners Typically, the rights and obligations of the venturers are negotiated in the JV agreement (topics are dis - cussed in 6.1 Drafting and Structure of the Agree- ment ). No specific legal requirements exist for distri - butions and allocations of profits or losses (other than the tax-related requirements set forth in 6.1 Drafting and Structure of the Agreement ), and they are nego - tiated by the venturers. The distributions are often made on a pro rata basis in accordance with the per - centage interests of the venturers. Where a venturer may be providing services to the JV, it may receive incentive distributions with respect to such services. The venturers’ liabilities for the debts and obligations of the JV depend on the type of JV entity (as further discussed in 2.1 Typical JV Structures ).
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