(ii) Party contributions and management of the JVC
Contributions in kind. Many joint ventures involve a contribution by a party of assets, property, technology or services, or associated distributorship or supply arrangements. These will often require “ancillary contracts” to spell out detailed terms (e.g. price, specification, limitation of liability). In a simple, lean joint venture, contributions ‘in kind’ can be included in the joint venture agreement (see the ITC Model Contract, Article 9). However, in most cases, it is more appropriate to provide for these in separate contracts, (and other ITC Model Contracts can be used for this purpose).
If a postponed closing or completion is planned, it is important to agree on (the key items of) such ancillary contracts at the time of signing the joint venture contract (and attach them in ‘agreed form’ – see the ITC Model Contract, Article 4.4). The JVC and the appropriate party or parties will then sign on the closing date.
Cash contributions. In many JVC’s, each party makes an initial financial contribution to the capital of the JVC. The amount may differ per party: a large contribution in kind by one party can be balanced by additional cash from the other party. It is important to stipulate whether or not a party will have any subsequent obligation to provide further finance to the JVC. Article 5 envisages that any future finance requires mutual consent.
JVC management. Overall direction and management of the JVC is usually in the hands of the JVC board of directors: an executive team of representatives from each of the joint venture partners. They will (attempt to) manage any conflicting interests among the partners and ascertain that the partners do what they have agreed to do. They coordinate the parties’ performance, represent their appointing party within the JVC, and manage the JVC (like a business unit of a company). This list of responsibilities makes it clear that the board of directors has a complex task.
Decision making. Obviously, it is impossible (if even desirable) to foresee in advance and include in the joint venture contract everything that will eventually need to be settled. Nevertheless, it is important to clarify at the outset the balance of decision-making power. Decision making within a JVC affects: (a) the parties as shareholders, (b) the board, and (c) individual executives of the JVC. It is common to specify that certain “Reserved Matters” will require the mutual consent of the parties, either as shareholders or on the board.
Business-related matters are not necessarily the subject of decision making by the shareholders, but this is almost inevitably the case for actions or policies affecting:
- the financial commitments and obligations of each party (including applicable accounting policies, especially if the JVC is consolidated in the accounts of one or both parties);
- the creditworthiness of the JVC;
- the shareholding percentage;
- the freedom of a party to compete and the freedom of the JVC to enter new markets and territories;
- litigation (affecting the name or reputation of a party);
- key employee related aspects; and
the JVC’s freedom to merge, take over other companies, initiate reorganisations and to apply for insolvency proceedings.