Saturday, 28 July 2012

Negotiating the Joint Venture Parameter

Once  the partners have been chosen, the next most important  step is to select a prime spokesperson from your company as well as a key person  in your company’s  law firm and accounting firm, each  of whom must be kept fully informed  so as to ensure  consistency of decision-making throughout the joint venture negotiations. Since tax considerations are inevitable  in any international joint venture,  you should  select a tax advisor with a reasonable knowledge of your home  business  affairs to assist and participate  in the international structuring.  The most successful  negotiations  in international joint venture  transactions take place when  a 'negotiating committee' is established. If there are a large number  of joint venture partners, each  joint  venture  partner  would  typically  appoint  one  spokesperson to that  committee  to handle  all negotiations  (business  points  and  the legal documentation). If the venture  partner  group  is on a smaller scale,  then it is more typical to have a legal and business  representative from each  joint venture  partner participate  as the negotiating  committee. Nothing is engraved  in stone and whatever  is the most efficient manner   of completing the  negotiations, the  joint  venture  documentation and  the  business  transition process  should  be  adopted. It is not  unusual  in many  international joint  venture  situations  to see  the negotiating  committee  (however  large  or small) being  appointed in the  Joint Venture  Agreement  as a “transition  planning  committee” whose  role it is to ensure  a smooth  transition  of the business,  following the  closing,  from  a  group  of separate   co-venture   partners  into  an  operation cohesive   business.  The negotiating  committee  is best suited for this task since they have worked together prior to the closing and have all been  involved  in the many issues facing the joint venture  partners from the outset.
The next step in a typical joint venture negotiating  process is to settle a non-binding "letter of intent" which sets out a time frame within  which  the negotiations  are to be completed, a list of the agreements to be settled and a general  outline  of the items to be put into the definitive Joint Venture Agreement.  Although it is noted above that the letter of intent is 'non-binding', it is crucial that at least two items be agreed upon (and binding) in the letter of intent:

1.  Exclusivity during the time period  stated in the letter of intent. In other words, the parties
negotiating should agree that they will not pursue other similar ventures or discussions  with
anyone  else until the letter of intent has lapsed  or has resulted  in a binding  Joint Venture
2.  Confidentiality All parties negotiating  must agree that all discussions,  information disclosed  and documentation exchanged during the negotiations  stage shall at all times remain confidential and not disclosed,  copied  or distributed  to third parties nor used in any manner  or for any purpose  except for purposes  of the joint venture  discussions.
  Once  the letter of intent has been signed the "Committee" referred to earlier then has them task of resolving all issues and settling the legal documentation. One  important  thing to ascertain  in advance and to keep in mind  throughout the joint venture  discussions determine and focus on the issues that are important and do not get sidetracked in negotiations  on issues that are not crucial. Unfortunately, many joint venture transactions reach  the door of the closing room only to come  apart at the last minute  due to one or the other of the joint venture  participants 'digging their heels in' on a fairly minor point. The very essence  of a joint venture project or joint venture business is a collective  decision  making process and as such, each partner  must learn to focus on prioritizing  its business  and legal issues and giving in to your partners  on issues not essential  to your goals in the joint venture.
Winston Wambua

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