| The key provisions in any JV include: | | | | (5) Termination of the Joint Venture / Buyout Provision. |
| (1) Clearly defined business objectives; | | | | Joint ventures typically are not intended to last forever. |
| (2) The degree of participation and the management | | | | The parties often provide a termination date, at which |
| roles of each joint venturer in the business; | | | | time contractual arrangements will terminate or one |
| (3) Contribution of capital and ownership rights to | | | | party will buy the other's equity stake. Buyout |
| property / division of the profits and losses; | | | | provisions can be difficult to negotiate in advance |
| (4) A dispute mechanism to avoid management | | | | because the parties may not be able to accurately |
| impasses that may produce deadlock or litigation; | | | | predict the value of the strategic alliance or joint |
| (5) Termination/liquidation of the JV and the buy-out | | | | venture at the time of the buyout. One solution is to |
| provisions; | | | | provide that the valuation will be based on revenues or |
| (6) Confidentiality; and | | | | profits at the time of the buyout, or that a third-party |
| (7) Indemnification. | | | | appraiser will determine the valuation. Alternatively, the |
| (1) Clearly defined business objectives. The agreement | | | | parties can adopt a "shotgun" or "auction" provision, |
| must initially lay out the purpose of the joint venture, | | | | whereby one party initiates the process by proposing |
| generally a common business interest or investment. | | | | to buyout the other party at a specified valuation, and |
| For instance, paragraph one could say: "1.1. Business | | | | the other party must agree to buy or sell at that price, |
| Purpose. The business of the Joint Venture shall be as | | | | or begin an auction by proposing to buy at an |
| follows:" and then describe the business purpose. This | | | | increased valuation. |
| paragraph should also define the term of the | | | | (6) Confidentiality / Intellectual Property. The parties to |
| agreement. | | | | a strategic alliance or joint venture should consider |
| (2) Degree of participation and the management roles | | | | carefully how to allocate, control and protect |
| of each joint venturer. Next the agreement should lay | | | | confidential information and other intellectual property |
| out the roles, management responsibilities, and degree | | | | that is contributed to, or developed in, their business |
| of participation of each joint venturer. This provision will | | | | relationship. The parties may want to provide that all |
| be contractually enforceable, so it must be clearly | | | | employees and consultants with access to confidential |
| drafted to accurately define the roles, obligations, rights, | | | | information must execute a separate stand-alone |
| and duties of the parties. In the case of a new entity | | | | confidentiality and nondisclosure agreement. The |
| or where an equity investment is involved, it is typical | | | | parties also should consider how to allocate new |
| to address representation on the joint venture's or the | | | | intellectual property that is developed in the course of |
| other party's board of directors or similar governing | | | | the business relationship. In a classic joint venture |
| body. | | | | where the new intellectual property becomes the |
| (3) Contribution of capital and ownership rights/Division | | | | property of the new entity, the parties should consider |
| of the profits and losses. The agreement should next | | | | who will own the new intellectual property if the entity |
| describe the capital contributions and other resources | | | | subsequently is dissolved |
| each party will convey to the venture, as well as | | | | (7) Indemnification. Finally, an indemnification provision of |
| method and percentage of profit and loss sharing for | | | | a joint venture agreement must be in place to |
| the venture. Who will be primarily responsible for | | | | indemnify the manager and its directors, officers, |
| losses, and how and when shall profits be shared? | | | | employees and agents, and any person who is or was |
| Typically parties often share profits pro rata according | | | | serving at the request of the joint venture as a |
| to their respective equity interests. In cases where one | | | | director, officer, partner, trustee, employee or agent of |
| company contributes more cash, however, that | | | | another corporation, partnership, joint venture, trust or |
| company may receive priority on the distribution of | | | | other enterprise against liability. Most importantly, this |
| profits. | | | | provision should cover such a director or employee's |
| (4) A dispute mechanism. The Agreements should lay | | | | costs in defending a third-party law suit, including |
| out the terms of an internal mechanism for resolving | | | | attorneys' fees, judgments, fines and amounts paid in |
| any disputes that may arise between the joint | | | | settlement, actually and reasonably incurred by such |
| venturers. This mechanism is necessary to avoid | | | | indemnitee in connection with the defense or |
| management impasses that may produce deadlock or | | | | settlement of such action, suit or proceeding, if such |
| litigation. Neither party would benefit from adjudicating | | | | indemnitee acted in good faith or in a manner |
| claims externally by way of litigation or arbitration while | | | | reasonably believed by such indemnitee to be in or not |
| the joint venture is in place. This provision could create | | | | opposed to the best interests of the joint venture; |
| a board, filled by executives from each venturer, who | | | | provided that the indemnitee's conduct shall not have |
| would be responsible for hearing and resolving | | | | constituted gross negligence or willful or wanton |
| disputes. | | | | misconduct. |