USA Law and Practice Contributed by: Olesya Bakar, William “Bill” Jackson, Daniel E. Levisohn and Steven D. Lear, Holland & Knight LLP
7. The JV Board 7.1 Board Structure
States, New York is the most frequently chosen arbi - tral seat, followed by Miami, Washington, DC and Houston. The selected situs is important because it determines the procedural law and the courts that parties may need to rely on to compel arbitration and enforce their rights. Federal law has a strong public policy favouring arbitration, and awards are generally enforced. The chosen arbitral institution plays an important part in the management of cases and ensuring parties are afforded an efficient process. The court or arbitration body generally applies its own procedural rules, which may materially differ from each venturer’s expecta - tions, create uncertainty and adversely affect enforce - ability, the timing of the resolution, discovery, confi - dentiality, evidentiary matters and the right to appeal. This could lead to forum shopping by each venturer, in turn leading to differing, conflicting rulings and addi - tional litigation to resolve. International arbitration awards are enforced in the USA under one of two treaties, depending on the jurisdiction of the foreign venturer(s): • the 1975 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), which is a UN treaty for its 172 state members; or • the Inter-American Convention on International Commercial Arbitration (the “Panama Conven - tion”), which has 19 member states throughout the Americas. Because international arbitral awards are enforced through these treaties, arbitration is favoured to ensure JV obligations can be enforced in a foreign jurisdiction. The United States is not a party, how - ever, to any international treaty to enforce foreign court judgments. While no federal law applies, state law governs the enforcement of foreign judgments, often pursuant to the Uniform Foreign-Country Money Judgments Recognition Act or its predecessor, the Uniform Foreign Money Judgments Recognition Act. Courts in the United States will generally enforce foreign judgments, but procedural and due process defences may be raised and hinder the enforcement of foreign judgments.
Unless it is a “close corporation” that elects otherwise, a JV that is a corporation must have a board of direc - tors. The rights of the venturers to elect or appoint board members would be subject to significant nego - tiation by the venturers. Unless otherwise provided in the certificate of incorporation, each shareholder will have one vote per share, and board members are elected by a majority of the votes. Different classes of stock, such as preferred versus common equity, may have different voting rights. Directors of a corporation may have different voting rights, but those rights need to be set forth in the cer - tificate of incorporation in accordance with applicable statutes. If the corporate JV has multiple classes of stock, one class may have greater approval rights per share than another (which may be non-voting or have limited vot - ing rights). Shareholders may enter into a shareholder or voting agreement that provides each shareholder with rights to appoint members to the board of direc - tors or approve certain matters. Because of formalities that must be observed with respect to corporate entities, venturers more com - monly elect to form a JV as an LLC or LP, which provide more contractual and governance flexibility. These entities may be also structured with a govern - ing board but without all the statutory requirements applicable to corporations. 7.2 Duties and Functions of JV Boards and Directors The directors of a corporate entity owe fiduciary duties to the corporation and its shareholders, comprised of a duty of care and a duty of loyalty. These duties can - not be waived. In a corporate JV, these duties must be exercised by a director notwithstanding that a director may also have a duty to the venturer who appointed him/her or to other parties. To avoid liability, a director who has competing duties should carefully consider in what capacity he/she is acting when making a deci - sion with respect to the JV.
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