CHAPTER 14
Management and Control of the JV to be negotiated between JV parties is the devising of an appropriate structure for management and control of the entity. The relative interests of the parties in the JV’s profits need not dictate the degree of actual control exercised by the parties. Although a majority interest in the profits of the enterprise might well mandate the assumption of control, in some situations the nature of the party’s contribution to the enterprise, or local laws, may require that the party with a minority interest in the profits of the JV will be in control of certain of the JV’s activities. Generally, each party is given the right to designate one or more representatives to act as members of a managing board (e.g., a board of directors if the JV is organized in a corporate form). In addition, either as a matter of law or by contract, each party will have voting rights on matters of importance to the JV. The JV, as a separate entity, may contract with one or both parties to conduct specific functions or services; this can include research and development, manufacturing, or distribution. As a result of these contractual arrangements, one party effectively assumes control over a material aspect of the JV’s operations, even though nominal authority remains in the JV’s managing board.
ONE OF THE MOST IMPORTANT MATTERS
Factors for Consideration in Allocating Control Several different factors need to be considered in the course of allocating control of the JV, including the functional and operational objectives of the JV, the level within the organizational structure at which decisions should be made and responsibilities placed, the degree to which the success of the JV is depending on the use of “shared control,” or unanimous voting requirements, the key commitments of each of the parties, and the major business and technical milestones that must be achieved for the venture to prosper. FUNCTIONAL AND OPERATIONAL OBJECTIVES
The parties should focus on the key functional and operational objectives of the JV and attempt to allocate responsibilities in a manner that takes into account which party possesses the requisite expertise necessary for achieving those objectives. In most cases, control should be allocated in relation to the respective substantive contributions of the parties to the venture, but the nonexpert party must be given the opportunity to review major actions proposed by the controlling party. Therefore, a party contributing technology to the enterprise should have the primary right to control its use in development efforts, and a party with responsibility for sale and distribution should be given primary authority over various marketing matters, with an overall review and approval procedure.
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