International Joint Ventures: Testing the Dream

With international joint ventures, the biggest issue is invariably whether or not it makes sense to form one. One of the most important questions relating to whether it makes sense to form a joint venture is whether you will be able to work well with your putative joint venture partner.  And the most important question relating to whether you will be able to work well with your joint venture partner is whether you and that partner share the same goals and have the same operational plans for the joint venture.

Thus, the quickest way to determine whether it makes sense for you and your potential joint venture partner to delve deeper in negotiating the specific terms of your potential joint venture arrangement is to determine whether the two of you are on the same page in terms of goals and operational plans. A client that was about to meet for a second time with its potential joint venture partner to move further in determining whether to enter into the joint venture and, if so, on what terms, recently asked me to list out the important issues it should discuss at that meeting, and I set that out below:

Here are my thoughts on the big picture issues you will want to raise at your meeting:

1. The business objectives.  Why are you forming the joint venture and what will its goals be?

2. What will each of you do for/with the joint venture?  Who will be doing what?

3. Who will be making what decisions for the joint venture?

4. What will each of you be contributing to the joint venture? Property, technology, intellectual property, money, know-how, sweat, employees? What if the joint venture loses money, who will be responsible for putting more money in?

5. How will disputes among the two of you be resolved?  It’s relatively easy to write a provision saying that the parties will seek to work out any issues among themselves and if they cannot do so, they will arbitrate in Switzerland.  That’s lawyer language. The tougher question is how will the two of you deal with day to day disputes in a way that the joint venture does not fall apart over litigation?

6. Confidentiality. Can both parties use JV information for their own businesses? Or can neither do that? Can your own businesses compete with the JV?  Can your own businesses do business with the JV?

7. How will the joint venture end?  What if one side wants to buy the other out?

This list is meant to be more a list of talking points than a comprehensive negotiation tool. It is meant to determine whether to keep talking, not to be the talking itself.

The old saying about international joint ventures is “same bed, different dreams.” Posing these questions at least tests out how closely your dreams align in the real world.

What do you think?

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