CHAPTER 8
Selecting a Legal Entity for the JV generally turns on the compatibility of the persons and resources involved in the particular project, attention must be paid to the form of the legal entity selected to conduct the relationship. The characteristics of the organizational forms available for operating a JV are a function of relevant company law, sometimes referred to as “enterprise law” or the “law of business organizations.” Company laws not only define the legal entities or enterprises that can be used to conduct commercial activities, but also establish the rights and obligations of each enterprise, its governance process, and the rights and duties of its managers and owners. Also, company laws set out the specific rules for forming, operating, and terminating business enterprises. The law of business enterprises in a particular jurisdiction is heavily influenced by the particular legal traditions that prevail there. Investors will find certain similarities in business enterprise law among countries sharing the common law heritage, such as the United States, England, Australia, and English-speaking Africa. However, notable divergencies exist even among these countries, such as the fact that company laws in many English-speaking African countries are based on historic, rather than current, English law. Other countries, particularly in Europe, base their legal systems on civil law traditions that include concepts, principles, rules and procedures that vary substantially from common law countries. In spite of these basic differences, both common and civil law jurisdictions typically offer a choice between partnership-type entities, which impose unlimited liability on some or all participants, and corporate-type entities, which offer limited liability to the participants in exchange for more elaborate statutory regulation of the business operation.
ALTHOUGH THE SUCCESS OF ANY JV
Which Entity: Compare the Major Distinguishing Factors The process of selecting the proper form of business entity generally requires a comparison of the entities in relation to a variety of distinguishing factors. Among the factors that you should consider are the following: F O R M A L I T I E S The formalities and procedures involved in forming and organizing the business entity.
■ FORMATION
The manner in which the business entity facilitates the fulfillment of the financing and credit requirements of the underlying business, either through the issuance of ownership interests, or by credit arrangements based on the assets of the business and its owners.
■ FINANCING FACILITY
The rights of the owners to participate in managing and controlling the activities of the enterprise, as well as the ability of the owners to enter into contracts and other arrangements with outside parties.
■ MANAGEMENT AND CONTROL
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