Joint Ventures International Transaction Guide: United States

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InfoPAKSM Joint Ventures International

Transaction Guide: United States

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Joint Ventures International Transaction Guide:

United States

August 2015

Provided by the Association of Corporate Counsel 1025 Connecticut Avenue, NW, Suite 200 Washington, DC 20036 tel +1 202.293.4103 fax +1 202.293.4107 www.acc.com

SM This InfoPAK provides a practical guide to joint ventures, including practice notes and standard documents for cross-border deals with detailed drafting notes highlighting the main legal, commercial and negotiating issues. The standard documents and drafting notes are specifically adapted from the UK versions to provide a plain English, jurisdiction- neutral starting point for local counsel to adapt for cross-border deals.

Country-specific commentaries on the practice notes giving a step-by-step guide to each stage of the joint venture are available for Australia, Canada, China, France, Germany, Hong Kong, India, Italy, Japan, Mexico, The Netherlands, Russia, Singapore, UK and US (New York).

The information in this InfoPAKSM should not be construed as legal advice or legal opinion on specific facts, and should not be considered representative of the views of PLC or of ACC or any of its lawyers, unless so stated. This InfoPAKSM is not intended as a definitive statement on the subject but rather to serve as a resource providing practical information for the reader.

This material was developed by PLC. For more information about PLC, visit their website at http://www.practicallaw.com/.

Contents

I. Structures ...... 8

A. What Are the Most Common Legal Structures for Joint Ventures? ...... 8

B. Are There Different Forms of Corporate Entity? If so, Which Form Is Most Likely To Be Used for a Joint Venture? ...... 10

C. Are There Any Minimum/Maximum Capital Requirements? ...... 10

D. Can Shares Be Issued in Consideration for the Contribution of Assets or Services (Present or Future)? Are Any Formalities Required if Shares Are Issued for Non-Cash Consideration? ...... 10

E. Are There Any Specific Restrictions on the Form of Management Structure? ...... 11

F. Are There Any Restrictions on the Age, Nationality or Identity of Directors or Managers? ...... 12

G. Do Employees or Shareholders Have the Right to Appoint a Certain Number of Directors? ...... 12

H. What Formalities Are Required for the Establishment of a Partnership? ...... 12

I. Are There Any Restrictions on the Age, Identity or Number of Partners? ...... 12

J. What Is the Extent of Each Partner's Potential Liability in Respect of the Partnership Business? ...... 13

K. In What Circumstances Is a Partnership Structure More Likely to Be Used than a Company for a Commercial Joint Venture? ...... 13

L. Are There Any Circumstances in Which a Contractual Joint Venture Could be Categorised as a Partnership (and the Parties Therefore Become Jointly Liable in Relation to the Substance of the Contract)? ...... 13

M. Is It Possible to Have a Limited Partnership in Your Jurisdiction? If so, What Are the Main Characteristics of a Limited Partnership? ...... 13

N. What Formalities Are Required for Establishing a Limited Partnership? ...... 14

O. Are There Any Restrictions on the Identity of Partners or Their Role in a Limited Partnership? ...... 14

P. In What Circumstances Is a Limited Partnership Structure More Likely to Be Used than a Company for a Commercial Joint Venture? ...... 14

Q. About the Authors of Section I ...... 15

II. Shareholders' Agreement and By-laws ...... 16

B. Is It Possible to Amend the Constitutional Documents of a Company? If so, What Are the Relevant Voting Requirements? ...... 17

C. Is Every Shareholder Automatically Bound by a Company's Constitutional Documents? ...... 17

4 Joint Ventures International Transaction Guide: United States

D. Is It Necessary for a Company's Constitutional Documents to Be Registered and Open to Public Inspection? ...... 18

E. Is It Necessary for a Shareholders' Agreement to Be Registered and Open to Public Inspection? ...... 18

F. Is a Company Bound by Its Constitutional Documents? ...... 18

G. Is It Common Practice for a Joint Venture Company to Be a Party to a Shareholders' Agreement Relating to the Joint Venture? ...... 18

H. What Are the Remedies for Breach of a Shareholders' Agreement? ...... 18

I. What Are the Remedies for Breach of a Company's Constitutional Documents? ...... 19

J. In Which Document Would You Commonly Insert the Following Provisions: ...... 19

K. In the Event of a Conflict Between a Shareholders' Agreement and a Company's Constitutional Documents, Which Document Is Likely to Prevail? ...... 21

III. Control and Minority Protection ...... 21

A. In the Absence of Specific Provisions in the Shareholders' Agreement or Bye-Laws of a Company, What Protections Are Automatically Given to a Minority Shareholder under Local Law? ...... 21

B. Are Specific Voting Majorities Required by Law for Any Corporate Actions (for Example, Increasing Share Capital, Changing the Company's Constitution, Appointing and Removing Directors and so on)? ...... 22

C. Are There Any Statutory Restrictions on Quorum or Voting Requirements at Director and Shareholder Meetings? Do They Need to Be Proportionate to Shareholdings? ...... 22

D. Can Voting Majorities Required by Law Be Disapplied to Protect a Minority Shareholder (for Example, Through Class Rights or Weighted Voting)? ...... 22

IV. Competition ...... 23

A. What Are the Triggering Events/ Jurisdictional Thresholds for the Application of National Competition Rules to a Joint Venture? ...... 23

B. Is Notification Mandatory or Voluntary, and Is There an Obligation to Suspend? Where Notification Is Mandatory, What Is the Deadline for Notifying and What Sanctions Can Be Imposed for Failure to Notify?24

C. Who Notifies? ...... 25

D. What Authority Do You Inform? ...... 25

E. What Is the Substantive Test? ...... 26

F. What Is the Time Limit for the First Stage Decision? ...... 26

G. What Is the Time Limit for a Final Decision and What Decisions Can Be Made? ...... 27

H. Who Do You Appeal to? ...... 27

I. What Are the Filing Fees? ...... 27

J. Can You Complain About Competitors? ...... 28

K. What Are the Penalties for Implementing a Transaction Before It Has Received Clearance? ...... 28

L. About the Authors of Section IV ...... 28

V. Employees ...... 30

A. What Level of Statutory Employment Protection Do Employees Receive in Your Jurisdiction? Are There Provisions of 'Mandatory Law' That Apply to All Workers in Your Jurisdiction, Regardless of the Choice of Law in the Employment Contract and the Identity, Place of Incorporation or Location of the Employing Entity? ...... 30

B. Please Give Details of the Following in Your Jurisdiction (if Applicable): ...... 31

C. What Statutory Rights Do Workers Have Against Dismissal in Your Jurisdiction? ...... 31

E. What Is the Basis of Taxation of Employment Income in Your Jurisdiction? Please Distinguish Between Foreign Nationals Working in Your Jurisdiction and Nationals of Your Jurisdiction Working Abroad...... 32

F. What Is the Rate of Tax on Employment Income? Are Any Other Taxes (such as Social Security Contributions) Levied on the Employment Relationship? ...... 32

G. If an Individual Employee Agrees to Transfer Employment to a New Entity, Should Any Formalities Be Followed to Prevent the Employee from Later Bringing a Claim in Respect of Termination of Employment? (Assume That the Transfer Is Not Part of a Transfer of a Business as a Going Concern.) ...... 33

H. What Benefits (if Any) Does a Period of Continuous Employment Bring for an Employee in Your Jurisdiction? If an Individual Employee Is Transferred to a New Entity, in What Circumstances (if Any) Will the Employee Be Deemed to Retain His Continuous Period of Employment? (Assume That the Transfer Is Not Part of a Transfer of a Business as a Going Concern.) ...... 34

I. What, if Any, Remedies Are Available to an Employer, if an Employee Refuses to Transfer to a Joint Venture Entity? (Assume That the Transfer Is Not Part of a Transfer of a Business as a Going Concern.) ... 34

J. If a Business Is Transferred from a Joint Venture Party to the Joint Venture Entity, Is There Any Statutory Protection of Employees Working in the Business? Are They Automatically Transferred with the Business? Are They Protected Against Dismissal? Do They Need to Be Consulted? ...... 35

K. If Employees Are Transferred to a Joint Venture Entity by Different Parties, Are There Any Legal Restrictions on Harmonizing Their Terms of Employment? ...... 35

L. Are There Any Restrictions in Your Jurisdiction on an Employer Seconding an Employee to Another Organisation on a Temporary Basis? ...... 35

M. Does an Employer That Seconds an Employee to Another Organisation Remain Vicariously Liable for the Acts of the Employee (Even if the Employee Is Acting in Accordance with Instructions from the Other Organisation)? ...... 36

N. If an Employee Creates Intellectual Property Rights in the Course of His Employment, Who Owns the Rights? Would the Answer Be Any Different if the Employee Is Seconded to Another Organisation When the Rights Are Created? ...... 36

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O. How Are Fees for Seconded Employees Taxed in the Hands of the Employing Company? Does Value Added Tax Apply to Secondment Fees? ...... 36

P. Is It Common (or Compulsory) for Employees to Participate in Private Pension Schemes Established by Their Employing Company? Are Any Tax Reliefs Available on Contributions to Such Schemes (by the Employing Company and Employees)? ...... 37

Q. Can Employees That Are Working Abroad and Employees of a Subsidiary Company in a Different Country Participate in a Pension Scheme Established by a Parent Company? Are the Same Tax Reliefs Referred to in Section V.P. Still Available in These Circumstances? ...... 37

R. If an Employee Is Transferred as Part of a Business, Is the Transferee under an Obligation to Honour Existing Pension Rights or Provide Equivalent Rights? ...... 38

S. Are Employee Share Option Schemes Common in Your Jurisdiction? If so, Are There Any Tax Benefits and Can Options Be Granted to Employees of Group Companies? ...... 38

T. If an Employee That Participates in a Share Option Scheme Is Transferred as Part of a Business, Is the Transferee under an Obligation to Provide an Equivalent Scheme? If so, How Is This Dealt with in Practice?38

U. Do Foreign Nationals Require Work Permits and, if so, How Difficult Are They to Obtain and How Long Does the Process Take? ...... 39

V. Are There Any Restrictions on Foreign Managers or Directors for Companies in Your Jurisdiction? ...... 39

W. Are There Any Circumstances in Which Directors or Managers Can Be Personally Liable in Respect of the Actions of a Joint Venture Company That Is Incorporated in Your Jurisdiction? ...... 39

VI. Tax ...... 40

A. Are Partnerships Tax Transparent in Your Jurisdiction? ...... 40

B. Can Losses of a Foreign Partnership Be Offset Against the Profits of a Corporate Partner That Is a Tax Resident in Your Country? ...... 40

C. Do Partnerships That Are Tax Resident in Your Country Generally Receive Similar Benefits to Companies under Double Tax Treaties? ...... 40

D. Does Your Country Have Rules That Restrict the Proportion of a Company's Capital That Is Comprised of Loans by Affiliates (Thin Capitalisation Rules)? If so, Please Explain in What Circumstances These Rules Apply and Whether They Can Be Circumvented...... 41

E. If a Company That Is a Tax Resident in Your Country Transfers Assets (Including Shares) to a Company That Is Tax Resident in Another Country, What Taxes Might Arise? Are Reliefs Potentially Available? (Please Distinguish, if Relevant, Between Assets That Are Located in Your Country and Assets Located in a Foreign Country.) ...... 41

F. Is Any Tax or Duty Payable on the Issue of Shares by a Company That Is Incorporated in Your Country? .. 42

G. What Rate of Tax Do Companies Pay in Your Jurisdiction and How Is It Assessed? ...... 42

H. Can Losses of a Company That Is Tax Resident in Your Country Be Surrendered for Tax Purposes to Another Company? If so, What Conditions Apply? Can Losses Be Carried Forward for Tax Purposes? ...... 43

I. Are Interest Payments Tax Deductible in Your Country? ...... 43

J. Are Withholding Taxes Applied to Dividends, Interest and/or Other Payments Made by a Company That Is Tax Resident in Your Country to a Foreign Company? If so, What Rates Apply? Can They Be Reduced or Eliminated in Any Circumstances? ...... 43

K. What Is the Tax Treatment of Dividends Paid by a Company That Is Tax Resident in Your Country to a Corporate Shareholder (Domestic or Foreign)? ...... 45

L. What Is the Tax Treatment of Dividends Received by a Company That Is Tax Resident in Your Country from a Foreign Company? ...... 45

M. Are There any Circumstances in Which (Undistributed) Profits of a Company in a Foreign Country Can Be Imputed to a Corporate Shareholder in Your Country by Tax Authorities (Controlled Foreign Company Rules)? ...... 45

N. Does Your Country Have Transfer Pricing Rules? If so, Please Explain Broadly How They Apply? ...... 46

O. About the Authors of Section VI ...... 47

VII. Deadlock and Termination ...... 50

A. In the Absence of Specific Provisions in a Company's Bye-Laws or a Shareholders' Agreement, Are Any Remedies Available at Law in the Event of an Unresolved Dispute Between Shareholders Resulting in Deadlock? ...... 50

B. Is It Common Practice Expressly to Provide for a Dispute Resolution Process in a Joint Venture Company for an Unresolved Dispute Between Shareholders Resulting in Deadlock? If so, Are Any Procedures Commonly Adopted? In Which Document Would the Relevant Provisions Commonly Be Drafted? ...... 50

C. Is It Common to Provide for the Compulsory Transfer of Shares in a Joint Venture Company in Any of the Following Circumstances? In Which Document Are the Relevant Provisions Likely to Be Drafted and Are They Likely to Be Enforceable? ...... 51

D. Is It Common in a Joint Venture Company to Impose Restrictions on the Transfer of Shares? If so, What Sort of Restrictions Are Commonly Imposed and in Which Document Are They Likely to Be Drafted? ...... 52

E. If Shares Are Transferred to a Third Party in Breach of Restrictions on Transfer (in a Shareholder's Agreement or Bye-laws), What Remedies Are Available to the Remaining Party? ...... 52

F. Is It Possible to Provide That in the Event of a Joint Venture Company Being Wound up, Certain Assets (such as Intellectual Property Rights) Will Be Transferred to a Specific Shareholder? Will such a Provision Be Enforceable in a Winding-up? ...... 53

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I. Structures

A. What Are the Most Common Legal Structures for Joint Ventures?

The four basic structures are:

■ Corporation: a jointly owned corporation or group of corporations.

■ Limited liability company (LLC).

■ Partnership: general or limited.

■ Contractual arrangement: a co-ownership model or a contract between parties whereby they retain their assets and agree on their rights and obligations (that is, partnering arrangements, strategic alliances and outsourcing services arrangements).

1. Corporation Almost all corporations are organised under state (as opposed to federal) law. State corporation statutes can be different from one another. For a variety of reasons, many US businesses choose to incorporate under Delaware law. A corporation is a separate legal entity in which the liability of the owners (referred to as stockholders or shareholders) is restricted to the amount of their investment in the corporation.

A corporation has a charter (usually called a Certificate of Incorporation or Articles of Incorporation) governing its existence and powers and the shares it may issue. It also has bye-laws governing the election of directors, voting by shareholders and directors, duties of officers and other matters. The charter is filed with a public official in the state in which the corporation is formed and generally may be amended only with the approval of the corporation's directors and shareholders. Bye-laws are not publicly filed (unless the corporation is subject to US SEC disclosure rules or other special regulatory provisions) and usually may be amended by the corporation's board of directors acting alone or by its shareholders acting alone.

2. Limited Liability Company (LLC) LLCs are organised under state (as opposed to federal) law. State LLC statutes can be different from one another. This is a hybrid of a corporation and a partnership. It combines the limited liability of a corporation with the flexibility in management and capital structure of a partnership. A US LLC with more than one member is treated for US federal income tax purposes as a pass-through entity unless it makes an election to be treated as a corporation.

Owners (called members) have limited liability (that is, they are generally not personally liable for LLC liabilities or obligations, and therefore their potential loss is typically limited to what they invest in the LLC). Terms of an LLC are set out in an agreement (usually called a Limited Liability Company Agreement or an Operating Agreement). The Limited Liability Company Agreement need not be filed with a public official, unless the LLC is publicly-traded and therefore becomes subject to US SEC reporting requirements or the LLC is subject to other special regulatory requirements.

3. Partnership There are two forms of partnerships that can be used for joint ventures:

■ General partnerships. All partners of a general partnership are liable for the partnership's liabilities and obligations. A general partnership is formed by two or more persons with management control carrying on a business as co-owners. General partnerships are rarely used for business enterprises because the tax attributes of partnerships are available when using other types of business structures that also offer limited liability to the owners.

■ Limited partnerships. A limited partnership must have at least one general partner, who is personally liable for all of the limited partnership's liabilities and obligations. It also has limited partners, who have limited liability (that is, partners who are not personally liable for partnership liabilities or obligations, and therefore whose potential losses are limited to what they contribute or are required to contribute to acquire partnership interests) and no management control of the partnership. The general partner can be a corporation or other entity that itself offers limited liability to its owners. Both forms of partnership qualify as pass-through entities for US federal income tax purposes. The partnership structure was more common before the increased use of the LLC structure.

Several factors can affect the choice of structure, including:

■ The purpose of the venture. That is, whether it is single project or ongoing venture.

■ The parties involved.

■ The management of the venture.

■ The liability.

■ The form and type of financing.

■ Tax considerations.

■ Third party involvement.

■ Accounting considerations.

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■ Legal protection and control by the parties.

■ Disclosure considerations. It should be noted that, regardless of structure, joint ventures are subject to federal antitrust laws and the issuance of ownership interests in the joint venture is subject to federal and state securities laws.

B. Are There Different Forms of Corporate Entity? If so, Which Form Is Most Likely To Be Used for a Joint Venture? The most common corporate form of corporate entity is the "C-corporation" (references to corporations are usually to C-corporations). C-corporations are subject to two levels of tax on their income. One is at the corporate level, when earned, and the second is at the stockholder level, generally, when the profits are distributed as dividends or other distributions. This double taxation can be avoided by electing to be treated as an "S- corporation", which is a pass-through entity for US federal income tax purposes. However, this form of corporation may not always be available because there are substantial limitations on the availability of this election. Among other conditions, an S-corporation can have only one class of stock, no more than 100 stockholders, and with certain limited exceptions, only US individuals (citizens or residents) can be stockholders.

A C-corporation can be privately-held or publicly-held.

C. Are There Any Minimum/Maximum Capital Requirements?

There are no minimum or maximum capital requirements for any of the legal structures mentioned above, and which are organised under Delaware law (see Section I.A). However, the corporation, LLC or partnership statutes of the various states can be different from one another.

D. Can Shares Be Issued in Consideration for the Contribution of Assets or Services (Present or Future)? Are Any Formalities Required if Shares Are Issued for Non-Cash Consideration?

Subject to certain limited exceptions and technical requirements, consideration for stock must be paid in the form and manner decided by the board of directors. In the absence of actual fraud, the board of directors' judgment as to the value of the consideration is

conclusive. When the board issues stock, it must do so with care and its deliberations must be appropriately documented, including its determination that the benefit received by the corporation for the issuance of such shares, regardless of the form, has a value that is no less than the par value of such shares. Shares may also be issued with no par value or with nominal par value.

Delaware law requires that corporations follow certain procedures when issuing stock:

■ The board of directors must approve stock issuances in a written instrument, either by resolution at a properly held meeting or by unanimous written consent.

■ The corporation must receive sufficient consideration in return for stock.

■ The corporation should generally maintain a proper stock ledger. The contribution to a limited liability company by a member of the LLC may be in the form of:

■ Cash.

■ Property.

■ Services rendered.

■ A promissory note or other obligation to contribute cash or property or to perform services in the future. There are no formalities under Delaware law if contributions are made other than in cash.

E. Are There Any Specific Restrictions on the Form of Management Structure?

A corporation is governed by a board of directors. Directors of Delaware corporations must be natural persons. The board of directors must designate officers to manage the day to day operations. Certain major decisions need to be approved by the stockholders. The board of directors may delegate certain decision-making to committees. There is a well developed body of corporate case law and statutes which provides greater certainty, but less flexibility than other entity forms.

The management structure of a limited liability company is flexible and is primarily determined by the members and set out in the Limited Liability Company Agreement, including provisions allowing for a board of directors and officers as in a corporation. Many LLCs have a manager, who may be a member of, or hired by, the LLC. A manager need not be a natural person. However, an LLC is not required to have a manager. An LLC can be managed directly by its members.

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F. Are There Any Restrictions on the Age, Nationality or Identity of Directors or Managers?

There are no statutory restrictions on the age, nationality or identity of directors or managers for any of the legal structures discussed above, and which are organised under Delaware law. However, the corporation, LLC or partnership statutes of the various states can be different from one another.

G. Do Employees or Shareholders Have the Right to Appoint a Certain Number of Directors?

In a corporation, shareholders vote to elect directors. Directors then run and manage the affairs of the corporation.

Generally, under Delaware law, employees do not have the right to appoint a certain number of directors and neither do shareholders unless otherwise specified in a shareholders' agreement or certificate of designation.

H. What Formalities Are Required for the Establishment of a Partnership?

With certain specified exceptions, the association of two or more persons to carry on as co- owners of a business for profit forms a partnership, whether or not the persons intend to form a partnership. There are no registration or filing requirements. It is common practice for the partners in a general partnership to enter into a partnership agreement, which generally may contain any terms the partners desire. Normally, the partnership agreement is not filed with any government official.

I. Are There Any Restrictions on the Age, Identity or Number of Partners?

There are no restrictions on the age, nationality, identity or number of partners for partnerships organised under Delaware law. However, the partnership statutes of the various states can be different from one another.

J. What Is the Extent of Each Partner's Potential Liability in Respect of the Partnership Business?

The general partners of a partnership are jointly and severally liable for all of the liabilities and obligations of the partnership.

K. In What Circumstances Is a Partnership Structure More Likely to Be Used than a Company for a Commercial Joint Venture?

A partnership might be used rather than a corporation for tax transparency and for the availability of a more flexible management structure. However, since the same can be accomplished by using an LLC, but without the joint and several liability, it is more likely that an LLC would be used.

Due to certain international tax treaties, a partnership structure can be more advantageous than an LLC from a tax standpoint, when the joint venture is making investments into foreign countries and/or when the joint venture has foreign partners.

As noted in Section I.H, any association of two or more persons to carry on as co-owners of a business for profit constitutes a partnership, even if the persons do not intend to form a partnership. The consequence will be that the persons will become jointly and severally liable for the liabilities and obligations of the business.

M. Is It Possible to Have a Limited Partnership in Your Jurisdiction? If so, What Are the Main Characteristics of a Limited Partnership?

Yes, in most states. The main characteristic of a limited partnership is that generally limited partners are only liable to the extent of their committed capital contribution. A limited partnership must have at least one general partner, however, and general partners are jointly and severally liable for the liabilities and obligations of the partnership.

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N. What Formalities Are Required for Establishing a Limited Partnership?

In most states, a limited partnership is formed by the execution and filing of a certificate of limited partnership. A partnership agreement is usually required and may contain any terms the partners desire. Normally, the limited partnership agreement is not filed with any government official. A certificate of limited partnership typically contains little information other than the name of the limited partnership.

O. Are There Any Restrictions on the Identity of Partners or Their Role in a Limited Partnership?

A limited partner is not liable for the liabilities and obligations of a limited partnership unless he is also a general partner or, in addition to the exercise of his rights and powers as a limited partner, he participates in the control of the business.

Limited partners may not be actively engaged in the management of the partnership. However, most state laws permit limited partners to be employees of the partnership. Limited partners may also vote with regard to major matters (including the removal of general partners). Generally, if a limited partner participates in the control of the business, he is liable only to persons who transact business with the limited partnership believing, based upon the limited partner's conduct, that the limited partner is a general partner. There are extensive statutory provisions relating to what does not constitute participating in the control of the business.

P. In What Circumstances Is a Limited Partnership Structure More Likely to Be Used than a Company for a Commercial Joint Venture?

A limited partnership might be used rather than a corporation for tax transparency and for the availability of a more flexible management structure. But because of the potential risk of liability for limited partners that participate in the control of the business (see Section I.O), an LLC is more commonly used than a limited partnership (see Section I.B).

Q. About the Authors of Section I

1. Ivan Presant, Partner Clifford Chance

T +212-878-3154 F +212-878-8375 E [email protected] W www.cliffordchance.com

Professional qualifications. Admitted as an attorney-at-law in New York in 1995

Areas of practice. Corporate, M&A

2. Erika Bucci, Counsel Clifford Chance

T +212-878-8142 F +212-878-8375 E [email protected] W www.cliffordchance.com

Professional qualifications. Admitted as an attorney-at-law in New York in 1986

Areas of practice. Corporate, M&A

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II. Shareholders' Agreement and By-laws

A. What Are the Main Documents that Regulate the Constitutional Arrangements and Day-to-Day Operation of a Joint Venture Company Incorporated in Your Jurisdiction? (Please Answer This and Other Questions in Respect of the Corporate Vehicle That Is Most Likely to Be Used for a Private Joint Venture with Two or More Corporate Shareholders.) In the US a joint venture is ordinarily formed by contract or agreement between the parties, but there need not be any formal document defining the parties' respective rights and duties. The rights and liabilities of parties to a joint venture are generally governed by the same rules and principles that apply to partnerships or limited liability companies in many US jurisdictions.

The limited liability company (LLC) is an increasingly popular form of business entity in the US and can be used for joint ventures (although partnerships and contractual joint ventures are also commonly used).

An LLC is a business structure that falls somewhere between a corporation and a partnership. Typically, members treat LLCs as partnerships for tax purposes. Accordingly, the LLC's members can report business profits or losses on their personal income tax returns, and the LLC itself is not deemed a separate taxable entity. All LLC owners are protected from personal liability for business debts and claims, hence the term limited liability.

In the State of Delaware, the only requirement to form an LLC is to file a Certificate of Formation with the Secretary of State's office. Most other states have a similar requirement; however, the organisational document is usually labelled "Articles of Organization". LLC members commonly prepare a written Limited Liability Company Agreement, also known as an Operating Agreement (LLC Agreement), although it is not legally required in most states, including Delaware. The LLC Agreement explicitly states the rights and responsibilities of the LLC owners.

Note: for the purposes of this analysis, we have used Delaware law, except where noted, because that State has been a leader in LLC development.

1. Certificate of Formation Under Delaware law, the executed Certificate of Formation must contain:

■ The name of the LLC, which must contain the words "limited liability company" or the abbreviation "LLC".

■ The address for the principal place of business of the LLC.

■ The name and address of the LLC's registered agent for service of process in Delaware.

■ Any other provision, not inconsistent with the default law otherwise applicable, which the members determine to include. Under Delaware law, the Certificate of Formation is a notice filing only and provides no guidance on the operation of the LLC.

Most LLCs use an LLC Agreement, which is an agreement of the members to establish the affairs of the LLC and the conduct of its business. The Delaware LLC law was drafted to give maximum flexibility in entering into arrangements governing the parties' relationship. If the LLC Agreement does not provide guidance with respect to a particular issue, Delaware law will supply the terms by default.

B. Is It Possible to Amend the Constitutional Documents of a Company? If so, What Are the Relevant Voting Requirements?

An amendment to the Certificate of Formation may be filed at any time for any proper purpose. The certificate of amendment must include the name of the LLC and the amendment to be made to the Certificate. In Delaware, there is no statutory requirement on the vote of members required to amend the Certificate. Voting requirements could be included in the LLC Agreement.

Under Delaware law, there is a duty to amend erroneous statements in the Certificate of Formation. In New York, for example, not only is there a duty to amend, but members may be held personally liable for false statements in the Articles of Organization.

C. Is Every Shareholder Automatically Bound by a Company's Constitutional Documents?

Yes. It should be noted that, under Delaware law, courts have imposed personal liability upon members of an LLC where there is no written LLC Agreement, and, in rare instances, where the LLC's Certificate of Formation did not comply with the statutory requirements.

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D. Is It Necessary for a Company's Constitutional Documents to Be Registered and Open to Public Inspection?

In many states only the organisational documents must be filed with the state (for example, the Certificate of Formation in Delaware).

E. Is It Necessary for a Shareholders' Agreement to Be Registered and Open to Public Inspection?

The LLC Agreement is not filed with the State of Delaware.

F. Is a Company Bound by Its Constitutional Documents?

It is unclear, in certain jurisdictions, whether the LLC is bound by the LLC Agreement signed by its constituent members. In Delaware, the LLC is bound by the LLC Agreement.

G. Is It Common Practice for a Joint Venture Company to Be a Party to a Shareholders' Agreement Relating to the Joint Venture?

Under the Delaware statute, the company is not required to be a party to the limited liability company agreement.

H. What Are the Remedies for Breach of a Shareholders' Agreement?

Delaware law permits an LLC Agreement to contain a provision that a member or manager who violates the LLC Agreement will be subject to penalties or consequences specified in the LLC Agreement. For instance, under the Delaware statute the LLC Agreement may provide for certain penalties or consequences for a member who fails to make a contribution to the company. Such penalties or consequences may include the following:

■ Reduction or forfeiture of the defaulting membership interest in the LLC.

■ Subordination of the defaulting member's interest to that of non-defaulting members.

■ A forced sale of the defaulting member's interest.

■ Forfeiture of the defaulting member’s limited liability company interest.

I. What Are the Remedies for Breach of a Company's Constitutional Documents? While perhaps not considered a technical breach of the company’s constituent documents, the authorities in Delaware will cancel the Company's Certificate of Formation for failure to pay the annual tax for a period of three years from the date such tax was due.

J. In Which Document Would You Commonly Insert the Following Provisions:

Where the parties use the LLC vehicle, the Certificate of Formation is only required to contain the name of the LLC or any other provision the parties see fit to include. Hence, any of the following provisions are likely to be found in the LLC Agreement, which provides the details of operation. Note that under Delaware law (and most States), if an LLC Agreement is silent on an issue, the LLC statute will apply to the issue by default.

1. Object and Scope of the Company. LLC Agreement.

2. Capitalisation and Funding. LLC Agreement.

3. Board Composition and Management Arrangements. LLC Agreement.

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4. Distribution of Profits (Including Dividend Policy). LLC Agreement.

5. Provisions for Dealing with Deadlock. LLC Agreement.

6. Termination Provisions. LLC Agreement.

7. Restrictive Covenants. LLC Agreement.

8. Rights to Appoint and Remove Directors. LLC Agreement.

9. Quorum for Board and Shareholder Meetings. LLC Agreement.

10. Procedures for Shareholders' Meetings. LLC Agreement.

11. Division of Shares into Classes. LLC Agreement.

12. Chairman's Casting Vote. LLC Agreement.

13. Notice Provisions. LLC Agreement.

14. Share Transfer Provisions. LLC Agreement.

15. Minority Protection (Veto Rights and so on). LLC Agreement.

K. In the Event of a Conflict Between a Shareholders' Agreement and a Company's Constitutional Documents, Which Document Is Likely to Prevail?

A conflict between a company's Certificate of Formation and LLC Agreement is unlikely to exist because the Certificate of Formation typically only establishes the name of the LLC, its principal place of business, and the name and address of the registered agent for service of process. The LLC Agreement covers the affairs of the LLC and the conduct of its business.

III. Control and Minority Protection

A. In the Absence of Specific Provisions in the Shareholders' Agreement or Bye-Laws of a Company, What Protections Are Automatically Given to a Minority Shareholder under Local Law?

Where the limited liability company (LLC) is managed by the members, ordinary transactions may generally be decided by a majority vote. A dissatisfied minority member has limited ability to withdraw from the LLC or cause its dissolution (for instance, in Delaware and New York, unless otherwise provided in the LLC Agreement, LLC Members may not withdraw prior to dissolution).

Under Delaware law, a member may petition the court of chancery to determine the validity of any admission or removal of a member or the result of any vote of the members upon matters for which the members have the right to vote under the LLC Agreement. Each member has the right, subject to reasonable standards, to accurate information regarding the business and financial condition of the LLC, tax returns, current list of managers and copies of the constitutional documents.

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B. Are Specific Voting Majorities Required by Law for Any Corporate Actions (for Example, Increasing Share Capital, Changing the Company's Constitution, Appointing and Removing Directors and so on)?

Specific voting majorities or weighted voting rights would be governed by the terms of the LLC Agreement. It should be noted that LLCs may have non-voting members.

Unless otherwise provided in the LLC Agreement, certain actions require a specific voting majority. These actions include, without limitation:

■ An agreement of merger or consolidation.

■ A transfer or continuation of the LLC outside of Delaware.

■ The admission of a new member or assignee.

■ Dissolution.

C. Are There Any Statutory Restrictions on Quorum or Voting Requirements at Director and Shareholder Meetings? Do They Need to Be Proportionate to Shareholdings?

No. The LLC Agreement may provide for any quorum or voting requirements for members and managers. Delaware law provides that the members or managers of an LLC may take action without a meeting, if consent is signed by the number of members or managers, as the case may be, that would be required to vote for such action at a meeting.

Most LLC statutes that allocate voting rights provide that the LLC members vote according to their respective interests. However, members could provide for class rights or weighted voting in the LLC Agreement. Delaware law is very deferential to the LLC members in structuring the management of their LLC.

D. Can Voting Majorities Required by Law Be Disapplied to Protect a Minority Shareholder (for Example, Through Class Rights or Weighted Voting)?

There are no statutory restrictions, although a member could petition a Delaware court of chancery for equitable relief from the provisions of an LLC Agreement.

IV. Competition

A. What Are the Triggering Events/ Jurisdictional Thresholds for the Application of National Competition Rules to a Joint Venture?

The formation and operation of a joint venture are subject to the competition laws of the United States without regard to particular triggering events or jurisdictional thresholds, so long as the joint venture is in United States commerce or affects United States commerce. In addition, the formation of a joint venture is subject to the premerger notification and waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) if the following jurisdictional thresholds are all met: a commerce test, a size-of- transaction test, and in some instances a size-of-person test:

■ The commerce test. The commerce test is met if any person contributing to the joint venture, or any entity included within any such person, is engaged in commerce in the United States or in any activity affecting United States commerce. Foreign persons meet the commerce requirement if they engage in business activity in the United States or make sales in or into the United States.

■ The size-of-transaction test. The size-of-transaction test is met with respect to any contributor that, as a result of the acquisition, will beneficially own (hold) voting securities, interests in, and/or assets of the joint venture valued at more than US$75.9 million (as at 28 October 2014, US$1 was about EUR0.78) or more. If a contributor already holds voting securities of or interests in the joint venture, the value of the previously acquired voting securities or interests must be aggregated in determining whether the size-of-transaction test is met. In certain situations, the value of previously-acquired assets also must be included in determining the value of the transaction.

■ The size-of-person test. If a contributor will hold voting securities of the joint venture valued at more than US$303.4 million, then the size-of-person test is not a jurisdictional prerequisite to filing. In such cases, a determination of whether HSR Act notification is required will be based upon the commerce and size-of- transaction tests alone. If a contributor will hold voting securities of the joint venture valued at more than US$75.9 million but less than or equal to US$303.4 million, the size-of-person test must be met before a filing is required. The manner in which the test is applied depends upon the organisational form of the joint venture: • Corporate joint ventures. Generally for corporate joint ventures, the size- of-person test is met if one contributor to the joint venture has assets or sales of at least US$151.7 million, another contributor has assets or sales of at least US$15.2 million, and the joint venture itself has assets of at least US$154.2 million. Alternatively, this test is met if two contributors to the

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joint venture have assets or sales of at least US$154.2 million and the joint venture has assets of at least US$151.7 million. • Non-corporate joint ventures. A non-corporate joint venture may be organised as, among other things, a partnership, a limited liability company formed under the laws of the United States, a co-operative, or a business trust. For non-corporate joint ventures, the size-of-person test is met if the contributor has assets or sales of at least US$151.7 million and the joint venture has total assets of at least US$154.2 million, or if the contributor has assets or sales of at least US$154.2 million and the joint venture has total assets of at least US$151.7 million. For the purposes of calculation, the total assets of the joint venture include all assets that any person contributing to the formation has agreed to contribute at any time and any amount of credit or any obligations of the joint venture which any person contributing to the joint venture has agreed to extend or guarantee. Certain assets such as cash are considered exempt assets, which may be excluded when calculating the size of the joint venture. If the joint venture's total non-exempt assets are valued at less than US$75.9 million, then no notification will be necessary.

Thresholds are revised annually, based on the change in US gross national product. The most up-to-date information on thresholds can be found at http://www.ftc.gov/bc/hsr/index.shtm.

Notification is mandatory. Notification may be made at any time after the execution of a letter of intent or a definitive agreement. The transaction may not be consummated until the applicable waiting period has expired or has been terminated early by the anti-trust enforcement agencies.

Parties proceeding with the formation of a joint venture subject to the notification requirements of the HSR Act without first filing notification and observing the applicable waiting period are subject to fines of up to US$16,000 per day, possible rescission of the transaction, and possible disgorgement of profits gained as a result of the violation.

C. Who Notifies?

The identity of the person(s) who must file notification in connection with the formation of a joint venture depends on the organisational form of the joint venture. (In all instances joint venture formation is subject to special rules that differ from the typical rules for mergers and acquisitions.)

1. Corporate Joint Ventures Each person who contributes to the formation of a corporate joint venture and who receives voting securities of the corporation in return for its investment must file notification if the commerce test, the size-of-transaction test, and (where applicable) the size-of-person test are satisfied.

2. Non-Corporate Joint Ventures Each person who contributes to the formation of a non-corporate joint venture and who will hold a controlling interest in the joint venture must file notification if the commerce test, the size-of-transaction test and, where applicable, the size-of-person test are satisfied. Control of a non-corporate entity is defined as having the right to 50% or more of the profits of the non-corporate entity or the right to 50% or more of the assets of the non-corporate entity upon dissolution.

A number of exemptions are potentially applicable to the formation of a joint venture. Two that often matter are exemptions for certain intra-person transactions and for the acquisition of interests in entities holding exempt assets.

D. What Authority Do You Inform? Notification must be filed with two Agencies: the Federal Trade Commission and the Antitrust Division of the Department of Justice.

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E. What Is the Substantive Test? The principal substantive test governing the formation of a joint venture is Section 7 of the Clayton Act, which prohibits acquisitions of stock or assets where the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly. Formation may also be subject to:

■ Section 1 of the Sherman Act, which prohibits transactions that are considered to be unreasonable restraints of trade.

■ Section 2 of the Sherman Act, which prohibits monopolisation or attempts at monopolisation.

■ Section 5 of the Federal Trade Commission Act, which prohibits unfair methods of competition. Under merger guidelines issued periodically by the Agencies and modified most recently in 2010, a merger should not be permitted to proceed if it will create or enhance market power or facilitate its exercise. Market power is defined as the ability of a seller profitably to maintain prices above competitive levels for a significant period of time.

Substantive competition rules also apply to a joint venture's ancillary restraints - that is, agreements governing aspects of competition among the joint venture's contributors or between the joint venture and its contributors. Examples include agreements on pricing of the joint venture product or on allocation among contributors of distribution territories for the joint venture product. Such restraints may be challenged unless they are reasonably necessary to achieve the legitimate aims of the joint venture.

It is also worth noting that, unlike in other jurisdictions, the US antitrust authorities may challenge a transaction, including the formation of a joint venture, as anti-competitive even when such a transaction does not trigger the notification requirements of the HSR Act.

F. What Is the Time Limit for the First Stage Decision? The initial waiting period is 30 calendar days from the date of receipt of notification from all persons required to file. Unless one of the Agencies requests more information within 30 days, the transaction may proceed. A waiting period that would expire on a Saturday, Sunday or legal public holiday is extended to the end of the next regular business day. The parties may request early termination of the waiting period, and the Agencies may, at their discretion, grant such request.

G. What Is the Time Limit for a Final Decision and What Decisions Can Be Made?

If either agency issues a request for additional information or documentary material (commonly known as a "second request") before the expiration of the initial 30-day waiting period, the waiting period is extended until the end of the 30th day following the date of receipt of all additional information and documentary materials from all persons to whom such requests have been directed.

H. Who Do You Appeal to? The HSR Act is a notification statute, and it does not grant the Agencies approval powers over transactions. If one of the Agencies wishes to prohibit the transaction, it must ask a federal district court to grant an injunction. (Formally, the Federal Trade Commission also has administrative authority to order the parties to cease and desist, but that authority cannot realistically be invoked prior to closing in the time available to the Commission.) If a district court issues an injunction on application of an Agency, the parties may appeal to the court of appeals in the circuit in which the district court is located. If the appeal is denied, the parties may petition the Supreme Court to hear the case, although it is rare for the Supreme Court to accept such an appeal.

I. What Are the Filing Fees? The filing fees effective as of February 2013 are set out below. The thresholds that define the filing fee brackets are revised annually, based on the change in US gross national product. The most up-to-date information on thresholds can be found at: www.ftc.gov/bc/hsr/index.shtm

Value of assets or voting securities to be held Fee amount Greater than US$75.9 million or greater but less than US$151.7 million: US$45,000 US$151.7 million or greater but less than US$758.6 million: US$125,000 US$758.6 million or greater: US$280,000

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J. Can You Complain About Competitors?

Yes.

K. What Are the Penalties for Implementing a Transaction Before It Has Received Clearance?

Any person who fails to comply with the HSR Act is liable for civil penalties of not more than US$16,000 for each day during which such person is in violation of the Act. The Agencies may also seek rescission of the transaction and disgorgement of profits gained.

L. About the Authors of Section IV

1. Timothy Cornell, Head of US Antitrust Practice Clifford Chance

T +1 202 912 5220 F +1 202 912 6000 E [email protected] W http://www.cliffordchance.com

Professional qualifications. United States, Admitted to the New York and District of Columbia Bars

Areas of practice. Antitrust; consumer protection; cybersecurity.

Non-professional qualifications. Bachelor of Science, United States Naval Academy.

Publications

■ The FTC's Data Privacy Enforcement: A Wake-Up Call For U.S. Companies in Metropolitan Corporate Counsel.

■ A Data Privacy Checklist: 10 Things the CEO Should Do to Protect Against an E- tastrophe in CEO Briefing Newsletter.

■ Apple: Changing More Than Technology in Metropolitan Corporate Counsel.

■ Nowhere to Hide: How Extraterritoriality is a Growing Concern for Multinationals in the American Bar Association's International Antitrust Bulletin.

■ US Premerger Notification Program Undergoes Significant Changes in Metropolitan Corporate Counsel.

■ Credit Card Issuers Face New Scrutiny in Risk Management.

■ The Majority-Owned Venture: Does Copperweld Provide Immunity After American Needle? in Competition Law Insight .

■ The US Petroleum Price Manipulation Rules: Cause for Concern? in Oil Gas & Energy Law Intelligence.

■ Addressing Standards Creation: Divergence or Convergence Across the Atlantic? in Antitrust Magazine.

■ Apple, Google, and Motorola as Barometer of Patent/Antitrust Tension in Bloomberg BNA's Antitrust & Trade Regulation Report.

2. Brian Concklin, Associate Clifford Chance

T +1 202 912 5060 F +1 202 912 6000 E [email protected] W www.cliffordchance.com

Professional qualifications. uris Doctorate; District of Columbia barred; Maryland barred

Areas of practice. Banking and finance; private equity; air and space; consumer goods; health care and pharmaceuticals; energy; telecommunications; material science and chemicals.

Non-professional qualifications. BA, Goucher College

Publications

■ The Difficulty of the § 802.51 Exemption For Technology Companies, 14 October 2014,available at: www.cliffordchance.com/briefings/2014/10/the_difficulty_ofthes80251exempti onfo.html.

■ The FTC's Data Privacy Enforcement: A Wake-Up Call for U.S. Companies, 21 May 2014, available at: www.metrocorpcounsel.com/articles/28921/ftc’s-data- privacy-enforcement-wake-call-us-companies.

■ Guest Lecturer, Humans and Machines Working Together: An Overview of Technology Assisted Review, E-Discovery Course, Georgetown University Law Center, 28 October 2013.

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V. Employees

US employment rights provided by statute are applied to almost every employee who works in the United States, regardless of any choice of law provision in an employment contract, the place of incorporation of the employer or the location of the home office of the employing entity. Among the statutory employment rights that are applied to almost every employee working in the US are protections against discrimination or harassment in employment based on gender, pregnancy, race, colour, religion, veteran-status, national origin, age (40 or older), genetic information and disability. Almost every individual state and some municipalities also have anti-discrimination statutes that provide additional statutory protections against discrimination.

In addition, under the Family and Medical Leave Act, many US employees are entitled to 12 weeks' leave (which may be paid or unpaid) each year if they need the time off because of a serious medical condition of the employee or a family member of an employee, circumstances related to a family member's military service or to care for a new child. The statute authorises 26 weeks' leave to care for a family member serving in the Armed Forces with a serious injury or illness. Furthermore, in a very small number of states and municipalities, many employees are entitled to varying amounts of paid sick leave per year. Under such laws, employees may take paid sick leave if they need the time off because of their own or family members' illnesses or health conditions, including the diagnosis and prophylactic treatment of these. Therefore, sick leave available to employees under state and municipal laws generally differs from leave available under the Family and Medical Leave Act in that state and municipal laws permit employees to take sick leave for less serious medical conditions.

B. Please Give Details of the Following in Your Jurisdiction (if Applicable):

1. Maximum Working Week Generally speaking, there is no maximum work week. However, with the exception of salaried executives, professionals, administrators, select computer professionals and outside salespeople, most employees are entitled to overtime at the rate of one and a half times the employee's regular hourly rate for hours worked in excess of 40 hour during a week.

2. Minimum Wage US$7.25 per hour (with exceptions for certain professions).

3. Minimum Holiday Entitlement There is no minimum holiday requirement.

Note: As with most other aspects of US laws, the individual states within the country may have statutory requirements that exceed these federal requirements.

C. What Statutory Rights Do Workers Have Against Dismissal in Your Jurisdiction?

Unlike many other countries, most private employers in the US may terminate the employment of their employees, without breaching any statutory prohibition, as long as the termination was not motivated by discrimination based on membership of a protected class (for example, discrimination based on gender, pregnancy, race, colour, religion, veteran- status, national origin, age (40 or older), genetic information and disability). Similarly, employees may not be terminated in retaliation for complaints of violation of most federal laws.

In the absence of an employment contract or a union collective bargaining agreement, most employees are considered at-will employees, which means that their employment may be terminated with or without cause and are not entitled to any compensation beyond their salary and benefits through their last day of work.

However, in the event of a mass redundancy (which is referred to as a layoff or reduction- in-force in the United States) or plant closing affecting at least 50 employees, most

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Many states have similar protections, which are even more extensive, covering smaller layoffs or providing for longer notice periods.

D. What Rights Do Workers Have to Be Consulted or Participate in the Management of Companies Incorporated in Your Jurisdiction? (In Particular, Do They Have to Be Consulted in Relation to Redundancies or Disposals)? In the absence of a collective bargaining agreement with a union or rights established under an individual employment contract, companies have no obligation to consult with employees regarding the management of the company or redundancies.

If an individual is a citizen of the US, he will be subject to tax on all income irrespective of its source.

If an individual is a resident alien of the US, he will be subject to tax on all income irrespective of its source.

In general, a non-resident alien working in the US is subject to tax on income that is derived from sources within the US.

F. What Is the Rate of Tax on Employment Income? Are Any Other Taxes (such as Social Security Contributions) Levied on the Employment Relationship?

The personal income tax year in the United States runs from 1 January to 31 December. In general, income tax rates are tapered, with the basic rate starting at 10%, but rising as

income rises over US$9,225 (as at 11 December 2014, EUR1 was about US$1.2) for unmarried individuals (US$18,450 for married individuals filing jointly) for 2015. A maximum rate of 39.6% applies to amounts in excess of US$413,200 for married individuals (US$464,850 for married individuals filing jointly).

Employers and employees also are required to contribute to a national retirement plan, known as Social Security. In general, the employer's and the employee's contributions are 6.2% each of the employee's wages (up to US$118,500 in 2015), unless exempted by agreement with a foreign country. Both employers and employees are required to contribute to a national hospital insurance plan, known as Medicare. The employer's and the employee's contributions are each 1.45% of the employee's income (without limitation on the amount of income). Therefore, in total, 2.9% of the employee's income is withheld pursuant to the Medicare tax.

Under the new health care law, which came into force in 2013, the Medicare tax has been increased for high income individuals. The income subject to the additional tax will be expanded to include investment income. The new tax is called "unearned income Medicare contribution", and is calculated by multiplying 3.8% tax by the lower of either:

■ Net investment income for the year.

■ Modified adjusted gross income over a certain threshold amount. Therefore, high income individuals' Medicare tax rates are 0.9% higher than non-high income individuals' Medicare tax rates (3.8% versus 2.9%).

Employers also are required to contribute to a national unemployment tax at a rate of 6% of an employee's income (up to US$7,000). Several states also require employees to share in the cost of providing unemployment insurance benefits.

As a matter of practice, many employers request that an employee signs a waiver stating that he has no claims against the first employer. However, in order for such a waiver to be binding, the first employer must provide consideration (an amount that the employer is not otherwise legally required to provide to the employee) in exchange for the employee's execution of the release. Accordingly, employers make business judgments as to the value of the release in different circumstances and tend not to offer a release in the event of each and every termination.

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The main statutory benefit is that employees with one continuous year of employment (and with at least 1,250 hours worked during that year) are entitled to up to 12 weeks' leave (which may be paid or unpaid) each year if they need the time because of a serious medical condition of the employee or a family member of an employee, circumstances related to a family member's military service or to care for a new child. The statute authorizes 26 weeks' leave to care for a family member serving in the Armed Forces with a serious injury or illness.

Under many private pension plans, continuous service is relevant to the amount of the employee's pension at the time of retirement, especially if pension assets are transferred to a new entity pension plan. In any case, the employee will be deemed to retain his continuous period of employment for purposes of vesting if the new entity is an associated employer (that is, part of the same control group of employers).

An employee cannot be forced to join a new employer, unless there is an express right of assignment in an employment contract. Even then, an employee cannot be compelled to transfer to the new employer and may choose to resign in lieu of transferring. In such a circumstance, the employer's only remedy against the employee would be to seek monetary damages provided for under the contract. Practically speaking, as most employees in the US are at-will employees, an employer may elect to terminate the employment of an at-will employee who refuses to transfer without being subject to penalties, unless the employee can establish that the decision to transfer was prompted by a discriminatory or other unlawful motive.

In most cases in which an employee is transferred to a new employer, US law treats that situation as the termination of employment with the first employer and a new hire by the new employer. Generally speaking, there are no statutory protections that apply in this situation. Accordingly, employees are not automatically transferred with the business, they are not protected from dismissal in these circumstances and they do not need to be consulted about the decision to transfer the business to the joint venture entity.

K. If Employees Are Transferred to a Joint Venture Entity by Different Parties, Are There Any Legal Restrictions on Harmonizing Their Terms of Employment?

Unless employees are transferred under the terms of a contract that addresses this circumstance (including a collective bargaining agreement), there are no legal restrictions on harmonizing the terms of employment.

L. Are There Any Restrictions in Your Jurisdiction on an Employer Seconding an Employee to Another Organisation on a Temporary Basis?

Although there are no statutory restrictions on seconding an employee to another organisation on a temporary basis, individual employment contracts and union collective bargaining agreements may place restrictions on such an action. Additionally, employees always have the option of resigning if they are not willing to be seconded to another organisation.

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In principle, yes, because the first employer remains the employer of the employee. However, if the employee is acting at the direction of the organisation to which he has been seconded, then there is also a risk for that entity of liability for the acts of the employee.

Generally speaking, ownership of intellectual property rights created by an employee in the course of his employment rest with the employer. The answer as to which entity owns the property rights may vary if the employee is seconded to another organisation, depending on the contractual relationship governing that secondment.

In the interest of protecting themselves, many employers in the US require employees to sign agreements that expressly provide that the employer is the owner of any such intellectual property created in the course of employment, including in circumstances where the employee is asked to work for another division or subsidiary.

O. How Are Fees for Seconded Employees Taxed in the Hands of the Employing Company? Does Value Added Tax Apply to Secondment Fees?

Under general US tax principles, a company should be liable to pay income tax on income from secondment fees but should be allowed a deduction for its own expenses of paying the employees. The US does not impose a valued added tax.

Yes, private pension schemes are common in the US. There are a variety of private pension schemes, ranging from a traditional defined benefit pension plan to employee-optional 401(k) plans. However, employers are not required to make pension schemes available to their employees.

Employees are generally not taxed on employer contributions to a US tax-qualified plan until benefits are paid from the plan. Subject to limits, employer and employee contributions to pension schemes are tax-deductible.

It is possible for pension schemes to be open to an employee working abroad or for a subsidiary of a company. Generally speaking, the ability of an employee to participate in a private pension scheme is defined by the terms of the various pension schemes being offered by an employer. However, it is common for a pension scheme to require active employment for the employer sponsoring the plan, which active employment requirement may preclude participation by some employees working for a subsidiary (depending on the definition of active employment under the contract).

Generally speaking, employer contributions to pension schemes are tax-deductible for whichever employer is making the contributions on behalf of the employee, and US taxpayers are not taxed on contributions to a US tax-qualified plan until they are paid out as benefits, regardless of their place of employment.

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R. If an Employee Is Transferred as Part of a Business, Is the Transferee under an Obligation to Honour Existing Pension Rights or Provide Equivalent Rights?

Unless the transfer is part of a merger of two corporations into one legal entity or a contract that provides otherwise, an employee transferred from one employer to another is deemed to have terminated his employment with the first employer, which may result in the loss of any unvested rights to a pension from the first employer.

S. Are Employee Share Option Schemes Common in Your Jurisdiction? If so, Are There Any Tax Benefits and Can Options Be Granted to Employees of Group Companies?

Employee share option schemes are very common and options can be granted to members of group companies.

A variety of tax benefits are available, so long as the share option scheme satisfies certain requirements imposed by the tax laws. For example, employees generally are not taxed on the value of the grant of an option at the time of the grant, allowing for deferral of the tax until the time that the options are exercised. "Incentive stock options" can allow for deferred employee taxation at favourable rates, but at the cost of employer deductions and with limitations.

Unless the transfer is part of a merger of two corporations into one legal entity or a contract provides otherwise, an employee transferred from one employer to another is deemed to have terminated his employment with the first employer, which may result in the loss of unvested rights in the first employer's share option plan.

U. Do Foreign Nationals Require Work Permits and, if so, How Difficult Are They to Obtain and How Long Does the Process Take?

A work permit is required for all foreign nationals working in the United States. The difficulty and time required to obtain a work permit varies depending on the type of work permit sought and the original citizenship of the individual.

V. Are There Any Restrictions on Foreign Managers or Directors for Companies in Your Jurisdiction?

There are no restrictions.

W. Are There Any Circumstances in Which Directors or Managers Can Be Personally Liable in Respect of the Actions of a Joint Venture Company That Is Incorporated in Your Jurisdiction? There is a wide variety of circumstances in which a director or manager may be personally liable for the actions of a company. Examples of instances when an individual director or manager may be liable for actions taken within the context of his employment/directorship include if he:

■ Engages in unlawful discrimination.

■ Violates certain wage laws.

■ Violates securities laws.

■ Violates health and safety laws.

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VI. Tax

A. Are Partnerships Tax Transparent in Your Jurisdiction?

Yes, with certain limited exceptions, items of partnership income, gain, loss, deduction and credit accrue directly to the partners of a partnership for US tax purposes. However, US partnerships and certain non-US partnerships engaged in a US trade or business are required to file annual partnership returns.

Partners are taxed currently on their distributive share of partnership taxable income regardless of whether any distributions are made, and current losses sustained by the partnership are passed through and deductible (subject to limitations) at the partner level.

B. Can Losses of a Foreign Partnership Be Offset Against the Profits of a Corporate Partner That Is a Tax Resident in Your Country?

Yes, subject to certain limitations, losses of a foreign partnership can be offset against profits of a US partner, provided all the requirements of Subchapter K of the US Internal Revenue Code (Code), which governs the character, timing and amount of income and loss allocated to each partner, are met.

C. Do Partnerships That Are Tax Resident in Your Country Generally Receive Similar Benefits to Companies under Double Tax Treaties?

No. US partnerships generally are not eligible for treaty benefits. However, partners of a partnership may be eligible for treaty benefits in respect of partnership allocations, subject to any eligibility requirements and limitation on benefits provisions in the relevant treaty.

Yes, the United States has thin-capitalisation principles under which the Internal Revenue Service (IRS) may attempt to limit the deduction for interest expense if a corporation's debt to equity ratio is too high. Loans to thinly-capitalized corporations may be re-characterized by the IRS as equity. Depending on the nature and activities of the entity, a debt to equity ratio of 3:1 or less is usually acceptable to the IRS, provided the taxpayer can adequately service its debt without the help of related parties. Under certain circumstances, a higher ratio may be acceptable.

Further, a deduction can be disallowed for certain "disqualified" interest paid on loans made or guaranteed by related foreign (or other US tax-exempt) parties that are not subject to US tax on the interest received. This disallowed interest may be carried forward to future years and then allowed as a deduction. No interest deduction is disallowed under this provision if the payor corporation's debt-to-equity ratio does not exceed 1.5:1.

In addition, corporations owing payments to foreign related parties must report the payments on a cash accounting basis. As a result, if the US payor and the foreign recipient are related, interest payments may not be deducted until actually paid.

As a general rule, no gain or loss is recognized on a transfer of property to a corporation in exchange for stock of the corporation if the transferor, alone or together with others making contemporaneous transfers, owns at least 80% of the total combined voting stock and at least 80% of all other classes of stock of the corporation immediately after the transfer.

When, however, the transferor is a US person and the transferee is a foreign corporation, the Code severely limits the ability to transfer property without recognizing gain. Thus, a transfer of property (including stock or securities) to a foreign corporation (in an exchange as described above), will be taxable, unless the transaction falls within one of the exceptions

For more ACC InfoPAKs, please visit http://www.acc.com/infopaks 42 Joint Ventures International Transaction Guide: United States provided by the Code and Treasury regulations. Generally, the Code and Treasury regulations provide exceptions that may allow the tax-free transfer of stock or securities to a foreign corporation under certain conditions. These exceptions generally allow corporate restructuring while protecting the right of the United States to collect taxes when deferred gains are finally recognized. Further, transfers of certain types of assets to be used by a transferee foreign corporation in the active conduct of a trade or business in a foreign country may be tax-free provided certain requirements are met.

Transfers of intangible property, such as copyrights and patents, are generally treated as though the property had been licensed to the transferee foreign corporation for a royalty payable over the property's economic life. This is the case, even when the property will be used in an active business of the transferee in a foreign country.

In addition to tax at the federal level, some states may also levy transfer or other similar taxes on the transfer of assets. The application of state taxes will vary depending on the state in which the relevant assets are located.

F. Is Any Tax or Duty Payable on the Issue of Shares by a Company That Is Incorporated in Your Country?

Generally there is no federal tax payable on the issue of shares by a company, although state tax may apply depending on the state of incorporation.

G. What Rate of Tax Do Companies Pay in Your Jurisdiction and How Is It Assessed?

The standard rate of federal corporation tax is 35%. An alternative minimum tax (AMT) may be imposed at a flat rate of 20% on alternative minimum taxable income. Corporations are required to pay the higher of the regular corporation tax or the AMT. The AMT is designed to prevent corporations with substantial economic income from using preferential deductions, exclusions and credits to substantially reduce or eliminate their tax liability.

Many states and localities levy income or capital-based taxes, in addition to the taxes listed above.

H. Can Losses of a Company That Is Tax Resident in Your Country Be Surrendered for Tax Purposes to Another Company? If so, What Conditions Apply? Can Losses Be Carried Forward for Tax Purposes?

Losses of one member of an affiliated group may be used to offset the income/gain of other members filing a consolidated income tax return. The term "affiliated group" refers to one or more chains of "includible" corporations connected through stock ownership (at least 80% of vote and value) with a common parent corporation. A foreign corporation is excluded from the definition of an includible corporation.

In general, losses may be carried back two years and forward 20 years to offset taxable income in those years. Limitations apply in using losses of acquired corporations. Capital losses may be carried back three years and forward five years to offset capital gains in such other years.

I. Are Interest Payments Tax Deductible in Your Country?

Yes, interest, unlike dividends, is tax deductible, subject to thin-capitalisation rules (see Section VI.D), and registration requirements that generally limit deductibility to payments of interest on instruments that are in registered form for US tax purposes.

1. Dividends, Interest and Royalties Dividends, interest and royalties paid by a US corporation to foreign persons are subject to US withholding tax at a rate of 30% to the extent that the amounts constitute US-source income not effectively connected with the conduct by the foreign recipient of a US trade or business.

The 30% withholding tax rate may be reduced or eliminated by the application of a double tax treaty. In addition, with proper structuring, a statutory exemption from withholding

For more ACC InfoPAKs, please visit http://www.acc.com/infopaks 44 Joint Ventures International Transaction Guide: United States may apply with respect to interest paid to certain foreign persons, if such interest is paid in respect of an instrument that is treated as registered for US tax purposes.

2. Other Taxes In addition, foreign corporations engaged in a US trade or business may be subject to branch profits or branch interest taxes at a rate of 30%. These taxes are intended to place US branches of foreign corporations in a position similar to that of US subsidiaries of foreign corporations vis-à-vis the US withholding tax on dividends and payments of interest. Branch taxes may be reduced or eliminated by treaty provided certain conditions are met.

3. FATCA Withholding Provisions of the Code commonly referred to as the Foreign Account Tax Compliance Act (FATCA), enacted in 2010, have expanded the US information reporting and withholding regime, and by extension many non-US information reporting regimes.

Generally, FATCA imposes a 30% withholding tax on certain US-source payments to foreign financial institutions (FFIs) that do not enter into a compliance agreement with the IRS to identify, track and disclose any financial accounts (including certain debt and equity interests, as well as depositary and custodial accounts) held by US persons or US-owned foreign entities.

The definition of an FFI under FATCA is widely cast and specifically drafted to include depositary and custodial institutions, as well as certain investment vehicles and funds. FFIs that have entered into a compliance agreement with the IRS may also be required to withhold on non-US source "foreign passthru payments" to non-compliant FFIs, as well as any account holder that refuses to provide certain identification information. Foreign passthru payment withholding is yet to be fully defined and would begin no earlier than 2017.

The US has initialed or signed an intergovernmental agreement (IGA) to facilitate the implementation of FATCA with over 100 countries.

Generally, an FFI in an IGA signatory country will be treated as exempt from FATCA withholding provided that it reports certain information in respect of its account holders to its home government, or to the IRS (depending on the terms of the relevant IGA) or is otherwise exempt from FATCA withholding under the relevant IGA and implementing legislation.

K. What Is the Tax Treatment of Dividends Paid by a Company That Is Tax Resident in Your Country to a Corporate Shareholder (Domestic or Foreign)?

US corporate shareholders are generally taxed on dividends from US corporations at the regular corporate income tax rates (see Section VI.G above). However, dividends received by a US corporation from other US corporations generally qualify for a 70% dividends- received-deduction (DRD), subject to certain limitations and holding period requirements. The DRD is increased to 80% if the recipient corporation owns at least 20% (but generally less than 80%) of the stock of the distributing corporation. Dividend payments from members of an affiliated group of US corporations (generally 80% or more common ownership) to other members of such affiliated group qualify for a 100% DRD.

As noted above under Section VI.J, foreign corporate shareholders are subject to US withholding tax on dividends paid by a US corporation, subject to any available reduction under a double tax treaty.

L. What Is the Tax Treatment of Dividends Received by a Company That Is Tax Resident in Your Country from a Foreign Company?

US corporations are subject to US net income tax on their worldwide income. Accordingly, a US corporation is generally subject to tax on dividends received from a foreign corporation. A US corporation may treat foreign withholding taxes (and, in the case of a corporate shareholder owning 10% or more of the shares of the foreign corporation, underlying taxes) as a deduction against US taxable income, or, alternatively may elect to credit the foreign tax against its US tax liability, subject to limitations.

Yes, under certain circumstances, undistributed income of foreign subsidiaries is taxable to US shareholders on a current basis, as if the foreign subsidiary distributed a dividend on the last day of its taxable year. The two primary regimes for the imputation of undistributed profits are the controlled foreign corporation rules under Subpart F and the passive foreign investment company rules.

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1. CFC Rules/Subpart F In general, US persons holding 10% or more of the voting stock of certain foreign corporations are subject to a complex statutory regime known as Subpart F. Subpart F requires certain US persons to pay current US taxes on certain types of income of the "controlled foreign corporations" (CFC) of such US persons.

In general, a US person is taxable under the CFC/Subpart F regime only if that US person owns 10% or more of the voting stock of a foreign corporation that meets the test to be treated as a CFC for US tax purposes. A non-US corporation generally is a CFC only if US 10% shareholders own more than 50% of the stock (either by vote or value) of such corporation. Subpart F targets for current taxation certain types of income and activities, including (among others) dividends, interest, royalties, rents, annuities, net gains from certain property transactions, net gains from certain commodities transactions, and certain foreign currency gains. Another major trigger for current taxes under Subpart F is the investment of earnings by a CFC in certain types of US property (including, tangible property located in the United States, stock of a US corporation, obligations of US persons and certain items like patents and copyrights used in the United States).

2. PFIC Rules The passive foreign investment company (PFIC) regime restricts the deferral of tax on offshore income. The PFIC rules apply to US shareholders of foreign corporations with a high percentage of passive income or assets held for the production of passive income (including dividends, interest, royalties, rents and gains from commodities and securities transactions). US persons owning shares of a PFIC generally are subject to special rules imposing current US taxation, reporting requirements and in some circumstances other adverse consequences.

N. Does Your Country Have Transfer Pricing Rules? If so, Please Explain Broadly How They Apply?

Yes. In general, the tax liability of related parties may be recomputed, if it is necessary to prevent the evasion of taxes or to clearly reflect income. Related taxpayers are required to deal among themselves on an arm's length basis. The best transfer pricing method is determined on a facts and circumstances basis. Transfer pricing methods that may be acceptable include uncontrolled price, resale price and profit split. It is possible to reach transfer-pricing agreements in advance with the IRS.

O. About the Authors of Section VI

1. Dave Lewis, Partner Allen & Overy LLP

T +1 212 756 1147 F +1 212 610 6300 E [email protected] W www.allenovery.com

Professional qualifications.

■ Bar of the State of New York, 2009

■ Bar of the State of Maryland, 1998

■ Bar of the District of Columbia, 1998

■ United States Tax Court, 1999 Areas of practice. Tax

Non-professional qualifications.

■ LL.M. in Taxation, New York University School of Law, 1998

■ J.D., cum laude, University of Maryland School of Law, 1997

■ B.B.A., Emory University, 1994 Recent transactions. Dave has significant experience in domestic and international tax planning, corporate mergers and acquisitions, private equity transactions, domestic and international joint ventures and global capital markets transactions. He has advised on the U.S. federal income tax aspects of structuring and implementing: global mergers and acquisitions, spin-offs, divestitures, restructurings and bankruptcies, private equity and real estate fund formations and investments, global securities offerings, asset securitizations and cross-border financing. He has significant experience advising on general tax aspects of financial instruments and derivatives, global tax planning and cross-border structural analyses. Dave was ranked as a recommended lawyer in Legal 500 USA, 2014.

Languages. English

Publications.

■ “U.S. Treasury Provides Grandfathering Relief, Clarifies Withholding on Dividend-Linked Payments (March 10, 2014)

■ “FATCA IGA between the Netherlands and the US” (December 23, 2013)

For more ACC InfoPAKs, please visit http://www.acc.com/infopaks 48 Joint Ventures International Transaction Guide: United States

■ “Selected tax and corporate considerations in mergers of UK and U.S. companies (November 1, 2013)

■ “FATCA Practice Point Series: Derivatives” (August 7, 2013)

■ “U.S. Releases Second Model Intergovernmental Agreement” (November 22, 2012)

■ “New FATCA Guidance Extends Scope of Grandfathering” (October 26, 2012)

■ “US and UK Announce Intergovernmental Agreement for FATCA Implementation” (September 20, 2012)

■ “ISDA Published Protocol to Implement New FATCA Withholding Tax Allocation” (August 17, 2012)

■ “U.S. Releases Model Intergovernmental Agreement for FATCA Implementation” (July 30, 2012)

■ "IRS Issues Guidance on HIRE Act Changes Affecting Bearer Debt Securities" (March 9, 2012)

■ "Proposed Regulations Issued Under FATCA" (February 10, 2012)

2. Caroline Lapidus, Associate Allen & Overy LLP

T +1 212 756 1123 F +1 212 610 6300 E [email protected] W www.allenovery.com

Professional qualifications. Bar of the State of New York, 2009

Areas of practice. Tax

Non-professional qualifications.

■ J.D., Fordham University Law School, 2009

■ B.A. Princeton University, 1998 Caroline has experience in domestic and international tax planning, corporate M&A, taxation of capital markets (including financial instruments and derivatives), banking and real estate transactions, and the formation and operation of investment funds.

Languages. English and French

Publications.

■ “U.S. Treasury Provides Grandfathering Relief, Clarifies Withholding on Dividend-Linked Payments (March 10, 2014)

■ “FATCA Practice Point Series: Derivatives” (August 7, 2013)

■ “U.S. Releases Second Model Intergovernmental Agreement” (November 22, 2012)

■ “New FATCA Guidance Extends Scope of Grandfathering” (October 26, 2012)

■ “New U.S. Treasury Regulations Liberalize Qualified Reopening Rules” (September 27, 2012)

■ “US and UK Announce Intergovernmental Agreement for FATCA Implementation” (September 20, 2012)

For more ACC InfoPAKs, please visit http://www.acc.com/infopaks 50 Joint Ventures International Transaction Guide: United States

VII. Deadlock and Termination

Under Delaware law, an LLC can be dissolved by the terms for dissolution provided for in the LLC Agreement, or in the absence of an LLC Agreement, by the terms for dissolution provided by statute. LLC statutes commonly provide for the disassociation of a member by withdrawal, death, expulsion, or bankruptcy. There is also a limited ability to dissolve an LLC "when it is not reasonably practicable" to carry on the business in conformity with the LLC Agreement (such as in an unresolved dispute resulting in deadlock). An LLC may also be dissolved if formed for a limited duration, upon expiration of that period. Finally, an LLC may be dissolved by decree of court or upon consent of all of the owners.

LLC Agreements usually include a provision that if the parties are deadlocked on a certain issue, either party may require that the matter be submitted to mediation and/or arbitration. Another method of addressing a deadlock situation is for the LLC Agreement to include a buy/sell arrangement whereby one of the members purchases the interest of the other member.

1. Insolvency of Shareholder Delaware law provides that a party ceases to be a member on the occurrence of any of the following events, unless otherwise provided in the LLC Agreement or with the consent of all remaining members. The member:

■ Makes a voluntary assignment of his interest in the LLC for the benefit of creditors.

■ Files a voluntary bankruptcy petition.

■ Is adjudged bankrupt or insolvent or an order for relief is entered against the member in any bankruptcy or insolvency proceeding.

■ Seeks or agrees to have a receiver, trustee, or liquidator appointed for such member or the member's properties.

■ Files a petition or answer seeking a reorganisation, arrangement, composition, readjustment, liquidation, dissolution, or similar relief.

■ Files an answer or similar pleading in any such proceeding that admits or does not deny allegations against the member. There are grace periods of 90 to 120 days in which the member may remedy the situation causing the involuntary withdrawal.

2. Change of Control of Shareholder Unless prohibited in the LLC Agreement, an LLC interest is fully assignable. Unless the LLC Agreement provides otherwise, a member may not resign from an LLC prior to dissolution and winding-up.

3. Material Breach of the Shareholders' Agreement or Bye-Laws The Delaware statute permits an LLC Agreement to provide for penalties or other consequences if an LLC member fails to perform in accordance with the LLC Agreement.

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D. Is It Common in a Joint Venture Company to Impose Restrictions on the Transfer of Shares? If so, What Sort of Restrictions Are Commonly Imposed and in Which Document Are They Likely to Be Drafted?

Yes. LLC Agreements commonly limit the members' ability to transfer membership interests in the LLC. For instance, many LLC Agreements require that the members consent to the transfer of a member's interest in the company to a third party. Alternatively, LLC Agreements may provide for restrictions on transfer of membership interests, except under certain circumstances. To balance such restrictions, the LLC Agreement may include a right of first refusal or right of first offer.

For instance, a right of first refusal provision may be used to permit a transfer to a third party only after the LLC or other members have been given an opportunity to purchase the interest or membership rights proposed to be transferred. Alternatively, a right of first offer operates like a right of first refusal but is not triggered by a third party offer. Instead it is triggered by a member's notice of his desire to transfer an interest. The member may transfer his interest to a third party only after giving notice to the other members of his desire to transfer the interest and allowing the LLC or other members a sufficient amount of time to purchase the interest.

E. If Shares Are Transferred to a Third Party in Breach of Restrictions on Transfer (in a Shareholder's Agreement or Bye- laws), What Remedies Are Available to the Remaining Party?

Under Delaware law, the LLC Agreement may provide that any transfer that is not in strict compliance with the terms, provisions, and conditions of the LLC Agreement will be null and void and of no force or effect.

The admission of a transferee should be addressed in the LLC Agreement. A limited liability company interest is personal property. A member has no interest in specific limited liability company property. The LLC Agreement should specify whether the transferee of a limited liability company interest will:

■ Be automatically admitted as a member; or

■ Not be admitted without a vote of the members, preferably unanimous.

Upon the winding-up of an LLC, the Delaware Limited Liability Company Act provides for the distribution of assets as follows:

■ To creditors to satisfy liabilities of the LLC.

■ Unless otherwise provided in the LLC Agreement, to members and former members in satisfaction of liabilities for distributions.

■ Unless otherwise provided in the LLC Agreement, to members: • for the return of their contributions; and • respecting their limited liability company interests, in the proportions in which the members share distributions. If the LLC Agreement contains a provision requiring the transfer of certain assets to a specific shareholder, it must be consistent with this aspect of Delaware law.

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