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JOINT
VENTURE
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INTRODUCTION
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Joint Venture is not a strict legal term, but adescription of a certain business relation.
The term describes a business situation where 2 ormore parties join their capacities in order toachieve a certain common objective with a beneitor ever! part! and mostly over a long period oftime.
"hat does the term
#Joint Venture$ standor%
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Joint ventures have become an importantstrate&ic option or man! businesses' Due
to increased &(oba(isation) the pro(ieration
o modern techno(o&! as the means o
conductin& business) and increasedinternationa( trave() businesses are now
operatin& in a wor(d without borders)
a(beit that there are sti(( cu(tura( and
(an&ua&e issues' This &uide summarises the
*e! considerations in estab(ishin& a joint
venture or other strate&ic partnership'
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The term +joint venture, is an umbre((a term whichdescribes the commercia( arran&ement between two or
more economica((! independent entities'
In practice) the (e&a( orm o a joint venture is (i*e(! to
be determined b! a number o actors inc(udin& the
nature and si-e o enterprise) the anticipated (en&th o
the venture) the identit! and (ocation o the venturers
and the commercia( and inancia( objectives o the
participants'
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#riends$mar*et
competitors
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The parties a(wa!s hope to save
mone! and time b! uni!in& their
capacities to achieve a common
tar&et and proit both
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Ne&ative aspects o the Joint
Venture
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NE.OTI/TION 01/E
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as the Joint Venture is a complex business, that involveshigh investment costs and generally a long period of time,there will be the need for substantial resources and othercapacities
The 0arties) in the determinationo the content o the Joint Venture)
have to pass throu&h a ne&otiationphase) as o((ows3
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T1E 0/RTIE
1/44 DE/4
"IT1
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C1OOIN. /
0/RTNER
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Veri! easibi(it!
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Then the parties have to veri! the economic)technica( and commercia( easibi(it! o the JV'
These easibi(it! studies are based on assumptions
about the mar*et and principa((! re&ard the
inancia( burdens o constitutin& the JV andpositionin& it on the mar*et'
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Three basic (e&a( structures can be used or joint
venture) these bein&3
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0/RTNER1I0
/ partnership is the re(ation which subsists between
persons carr!in& on a business in common with a viewto a proit'
There are a(so certain #h!brid$ vehic(es or
arran&ements) such as a (imited (iabi(it! partnership)
with characteristics rom more than one o the abovecate&ories'
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In an! case peop(e are &ettin& used to
distin&uish 2 main dierent wa!s to setup a Joint Venture
b! contract b! estab(ishin& acompan!
Contractua(
Joint VentureE5uit! Joint
Venture
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6oth orms 7i'e' contractua( and e5uit! J'V'8 re5uire
dierent so(utions or simi(ar prob(ems) such as3
attribution o investment costs) attribution o
contro((in& powers) distribution o ris*s and proits)
disso(ution o the JV'
Each orm is more suitab(e or a
certain business tar&et
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CONTR/CTU/4 JOINT VENTURE
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E9UIT: JOINT
VENTURE
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The objectives determine the tar&ets o the JV; what it
was constituted or'
The! show what the uture shou(d brin&' The purpose o
this /&reement is to provide or the estab(ishment)
ownership and operation b! the 0arties o the New
Compan!) which sha(( be the eENT
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DIO4UTION O=
T1E JOINT
VENTURE
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The JV can
survive or it can
be disso(ved
T1E DIO4UTION oftenresults in its liquidation in
cases of hardship ordeadloc, as also ruled out
by law in many!urisdictions.
IN C/E IT URVIE3one party leaves the JV", if
it is profitable and the otherparty wants to continuewor.
This is often made by grantingput or call options to theremaining or leaving part
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DE/D4OC?
This reerence stands or a standsti(( resu(tin& rom theopposition o two unre(entin& orces or actions'
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Dead(oc* can arise either in a @AB@A joint venture where
the shareho(ders, appointed directors ta*e opposin&
views or where a director appointed b! a minorit!
shareho(der e
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It is he(pu( to have a po(ic! to revert to when an inso(ub(e
dead(oc* arises' The aim o the po(ic! shou(d be to ensure
that a sensib(e compromise is reached beore the dead(oc*
occurs'"hen there is an inso(ub(e dead(oc*) the o((owin&
options are usua((! avai(ab(e3
Transer o shares a dead(oc* cou(d serve as a tri&&er
(eadin& one part! to transer its shares to a third part!
subject to preemption ri&hts'
Vo(untar! (i5uidation the assets o the venture wi(( be
so(d and the venturers wi(( share the proceeds accordin&
to their e5uit! interest
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=urthermore) the JV a&reement has to determine the
price o the shares' In case o nonperormance o onepart! the price mi&ht have a pena(i-in& character'
/ situation o dispute can arise in determinin& the part!who has to (eave the JV' Especia((! in cases o dead(oc* it
is not eas! to decide which part! can sta!'
uch a dispute is oten so(ved in an auction procedure7a(so ca((ed Russian rou(ette8 or b! the decision that theminorit! part! has to (eave'
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PUT OPTION
#fter the occurrence of the "ompletion and during thecontinuance of this #greement, provided that aTermination $vent occurs as hereinafter set forth in
article %%..without pre!udice to any further right toclaim for damages, shall have the right to sell its &ew"ompany's (hares to && and && shall be bound to
purchase said (hares, the transfer price being equal tothe actual value of the (hares at that time owned by ##as assessed at that time in accordance with the priceformula)s* herein referred to in $nclosure +....
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C1IN/