drafting of joint venture agreements kiran m. chitale disclaimers: 1. contents of this presentation reflect my personal views. 2. any intellectual property referred here is owned by respective owners
1 back to basics
• what is joint venture?
• types of joint venture
• why jv ?
2 why jv ?
• co-branding of • combining each enterprises others strengths • technology • better financials • sharing risks in • best practices and business experience • larger market share • regulatory reasons • eliminating like sectoral caps competition
3 key considerations
maintain highest transparency if you want one, ask for two voice your expectations and concerns be honest – concede to others’ views reason for a jv have a summary of key issues assess “give and take” identify the single contact point to represent make a list of critical dates
4 jv process
swot-analysis of the partners identification of area of business finding a suitable partner defining the purpose for the jv conducting initial discussions feasibility study and market survey preparing a draft business plan drafting mou
5 …jv process
defining a schedule of action points drafting of joint venture agreement (jva) drafting of other related agreements/ documents initiate process for jvc incorporation nominating directors on the board drafting of memorandum and articles and other documents
6 mou/ term sheet
introduction of the parties confidentiality objective of joint venture products and services to be offered by jvc basic terms of joint venture modes of funding, management personnel technology project profile obligations of parties validity period and binding clauses
7 jva contents, preamble definitions business purpose of jvc related agreements sales and distribution activities conditions and closing of subscription form and capital structure of jvc name of the jvc, brand and logo board of directors and their powers management of the jvc shareholders’ meetings
8 …jva accounts, audit and dividend distribution transfer of shares - restrictions exclusivity and non-competition conditions deadlock and its resolution intellectual property rights representations and warranties confidentiality termination and dissolution arbitration and applicable law force majeure notices and miscellaneous
annexures 9 board/ shareholder issues
composition dividend independent directors restrictions on transfer ceo, cfo, technical meetings director quorum voting rights frequency veto right location casting vote to matters for discussion Chairman % shareholding affirmative vote jva - vis-à-vis – articles nominee/ independent director
10 funding
business plan – not be annexed to JVA Annual operating plan funding structure guarantees/ letters of comfort foreign borrowings tie ups with local banks for loans consequences of funding defaults by JV partner
11 technology
technical collaboration agreement technical fees technical training and assistance transfer vs. licensing
intellectual property rights future developments technology to be developed by the JVC use of partners’ brands/ logos trademark license agreement
12 governance issues
information rights accounting standards, International accounting audit insurance and risk management health and safety ethical business practices management information/ reports employee stock options data privacy anti-bribery applicable laws
13 governing law/ dispute resolution
choice of law interim relief and appeal provisions court/ dispute resolution arbitration rules: UNCITRAL/ ICC/ London/ Singapore language of arbitration venue of arbitration costs of arbitration nomination by parties
14 other issues
• key definitions (products, services, customer, market) • non-compete (business, products, territory, right to refuse, NOC, existing ventures) • exclusivity (definition, what you want) • non-solicit (employees, management staff, period) • transfer (lock -in, affiliates/ competitors, valuation, FEMA and other laws, put and call options, drag along and tag along rights for sale of shares) • ipo (timing, size, stake, valuation) • valuation (methods) • merger/ acquisition (either party by a third party) • other factors (success vs. failure of joint venture)
15 recent news item…
Source : The Hindu 16 recent news item…
Source : Economic Times 17 recent news item…
Source : Economic Times 18 failed jv
Source : International Business Times 19 some jv examples
company/ jv partners product/ brand industry Vistara Airlines Tata Sons Singapore Aerospace Airlines Bharati Axa Bharati Entp Axa, France General General insurance Insurance Tata Starbucks Tata Global Starbucks, USA Coffee Beverages (Tata Sons) Mahindra Mahindra & Renault SA, Automobile Renault Mahindra France Mahindra Agri Mahindra & Sumitomo Crop care Solutions Mahindra Corporation, Japan 20 examples of failed auto jvs
venture models reason for break-up Hero-BMW F650 Poor consumer response
Fiero, Max 100, Suzuki-TVS Ownership issues Shogun, Shaolin
Yamaha- RD 350, RX 100 Falling demand Escorts RX 135, Kinetic-Honda Zoom, DX, Marvel Kinetic buys partner’s stake Kinetic- Aquila, Comet Steep pricing Hyosung LML-Piaggio Vespa 150 NV LML bought partner’s stake
Source : Business Standard 21 your role… takeaways… questions …?? experience sharing…
22 usual questions
why mou/ is mou mandatory? do we need to register jva ? jva vs. articles of association which laws apply to jva? who decides % share in equity? is it mandatory to form a jvc ? can jv be formed between firms/ llp ? do we need to pay stamp duty on jva? who can sign the jva ?
23 Thank you for your patience !!
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