CHAPTER 17
Terminating the JV that more than 50 percent of international JVs survive no longer than five years. Although venturers sometimes contemplate such a short term initially, the more likely scenario is that a breakup of the JV will be unplanned, in the sense that it occurs before the end of the JV term specified in the formation documents. Most JV agreements include restrictions on the transfer of ownership and the ability of a venturer to withdraw unilaterally from the JV. These restrictions are designed to promote continuity in the relationship. Nevertheless, when the JV is formed, it is important for the parties to consider carefully the procedures that might facilitate an orderly termination of the JV in the event that the relationship sours. Absent such an agreement, the parties may find themselves involved in a protracted and expensive dissolution battle, which could impair their ability to make new strategies for exploitation in the geographic and technical markets where the JV was active. The termination provisions included in the definitive documents for the JV will depend to an extent on whether the JV will have a fixed term (e.g., completion of a specified project) or whether the parties originally contemplated a perpetual or indeterminate term for the business. When the JV is to run for a fixed term, it is important to have a post-termination plan as part of the initial arrangements, and that the plan set the rules for one or both of the parties to continue to operate in the JV’s field of activity following termination of the business. When the JV does not have a fixed term, it is more difficult to draft definitive provisions relating to termination at the beginning of the JV; however, at a minimum, the parties should include some of the procedures described in Chapter 16 for regularly reviewing the continuing viability of the JV relationship before it implodes with disputes.
COMMENTATORS HAVE SUGGESTED
Restrictions on Transfers of Ownership A transfer of a partner’s ownership interest in the JV to a new party would effectively terminate the original business relationship between the parties, even if the JV entity continues. Accordingly, as a general rule, the parties will agree to strictly prohibit the sale or transfer of their ownership interests for a specified time, usually corresponding to the initial JV term. Precluded transfers will include not only an outright sale of the interests, but also any pledge or other encumbrance of the interests, although in some cases a party will be permitted to transfer the interest to a successor corporation or a wholly owned subsidiary of the party. Waiver of the restriction on transfer would require the consent of the other party. After the restriction period has ended, the parties usually have a right of first offer or first refusal. A right of first offer obligates the party that seeks a purchaser for its interest to first offer it to the other party on the same terms at which the potential seller would complete the transaction. If the other party is unwilling to purchase the interest on those terms, the seller then has a specified time within which to find a
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