USA Law and Practice Contributed by: Olesya Bakar, William “Bill” Jackson, Daniel E. Levisohn and Steven D. Lear, Holland & Knight LLP
Contributing ownership of IP to the JV through an assignment is less common because the assign - or would cease to directly own the IP. One way to address this issue is for the JV to obtain ownership of the IP but then enter into a broad “licence back” to the contributing venturer. 8.3 ESG Considerations in JVs Outside of public company context, there are no uni - fied federal ESG regulations. However, many states have ESG-related regulations applicable to the enti - ties formed or operating within such state. Caution should be taken to review state regulatory require - ments before the formation of a JV to ascertain that the JV will be able to comply with such requirements. ESG Materiality A party considering entering into a JV should first con - sider whether ESG will be material to the transaction. Certain industries, such as oil and gas, may be sub - ject to more ESG-related concerns, which may require evaluating how ESG may impact the JV. ESG Goals If one venturer has ESG-related goals, there should be discussions at the outset by the venturers as to how ESG will affect the JV’s business and operations. Careful due diligence on such venturer and its goals would be needed in negotiating the JV agreement. ESG-Related JV Provisions The JV agreement will need to set out desired ESG reporting requirements and monitoring functions, require the adoption of ESG-related policies and targets, and provide for approval or blocking rights related to certain activities that implicate ESG. 9. Exit Strategies and Termination 9.1 Termination of a JV Venturers should carefully consider at the outset when and how a JV may be terminated. Many JVs are intended for a specific purpose. For example, a real estate development JV may have the purpose of developing land, constructing buildings thereon and selling the buildings upon completion. Other JVs are created to operate a business without a specific
planned termination. Many JV agreements provide that the JV has a term that is perpetual pending an express termination event. Others will set forth a ter - mination date. Dissolution and Exit For JVs that are LLCs or partnerships, the applicable entity statute of the jurisdiction of its formation will set forth certain default events for dissolution of the JV. These need to be carefully reviewed, as the statute may permit some or all of these events to be waived or changed by the venturers in the JV agreement. The dissolution events for JVs often include: • the disposition of substantially all of the JVs’ assets; • the decision of venturers owning a requisite per - Most JVs are illiquid investments. Accordingly, in addi - tion to the dissolution provisions, the JV agreement should address the ways in which a venturer may exit the JV. Depending on the relationships of the ventur - ers and their goals, one or more of the following rights may be appropriate. • Buy/sell or put or call rights: Under specified cir - cumstances, these give one or more venturers the right to acquire or sell ownership interests from or to the other venturers. • Rights to transfer ownership interests: Generally, each venturer would prefer to have unlimited rights to transfer its ownership interest, or as few restric - tions as feasible, so it can exit the venture when desired. On the other hand, each venturer would want to restrict the other venturer’s transfer rights to ensure the transferee is an appropriate venturer. Accordingly, many JVs restrict transfer rights other than to affiliates of the venturer. centage of ownership interests; and • a case where there are no ventures. • Forced sale rights: These permit one or more venturers, after any applicable lock-out period, to cause the marketing and sale of the assets of the JV to third parties, often combined with the right of first offer to the other venturer(s). • Registration rights: These are used to register and sell a venturer’s ownership if the JV has an initial public offering of its equity interests.
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