Strategic Alliances & Joint Ventures

1. Strategic Alliances &Joint Ventures Martin B. King, Esq. Gorman & Williams www.gandwlaw.com

2. Strategic Alliance: A coalition of persons in the same or complimentary business to gain long-term financial, operational, and marketing advantages without jeopardizing competitive independence. Black’s Law Dictionary

3. Joint Venture: A business undertaking by two or more persons engaged in a singe defined project. The necessary elements are: • An express or implied agreement; • A common purpose that the group intends to carry out; • Shared profits and losses; and, • Each member’s equal voice in controlling in the project. Black’s Law Dictionary

4. Partnership: A voluntary association of two or more persons who jointly own and carry on a business for profit. Under the Uniform Partnership Act, a partnership is presumed to exist if the persons agree to share proportionally the business profits or losses. Black’s Law Dictionary

5. Why Strategic Alliances or Joint Ventures? • Opportunity for growth • Opportunity to share risk / resources • Access to markets not otherwise available • Possibility of broader brand recognition • Opportunity to expand capabilities • Access to technology and business methods

6. Examples of Strategic Alliances • Co-marketing Agreements • Joint Product Development Agreements • Distribution Agreements • Licensing Agreements • Teaming Agreements • Franchising Agreements • e-commerce Agreements • Joint Ventures

7. Characteristics of Strategic Alliances(Non JV Alliances) • Usually non-equity relationship between the parties • No contribution of capital by either party • No creation of new legal entity • Relationship of the parties governed by contract • Generally, less formal documentation

8. Characteristics of Strategic Alliances(Non JV Alliances) • Each party retains its independence • Each party responsible for certain agreed upon costs / expenses (e.g. Marketing; Sales; Inventory, etc.) • Fairly straight forward process to terminate the alliance (e.g. defined term of alliance)

9. Characteristics of Joint Ventures • Likely, but not required, to result in the creation of a new legal entity • Corporate JV • Partnership JV • LLC JV • Contractual JV • “Partners” of the JV will contribute capital (assets) to the newly formed entity in exchange for equity in the JV entity

10. Characteristics of Joint Ventures • Managed by all parties to the JV • Formal agreements governing the operations of the JV (e.g. partnership agreement or LLC operating agreement) • Often created to perform a specific project (e.g. perform under a specific contract)

11. Advantages of Joint Ventures • Opportunities for growth (new markets) • Shared Risk (possibly minimize exposure) • Greater access to resources (human capital and financial capital)

12. Disadvantages of Joint Ventures • Potential for high capital contribution • Must have management and staff fully dedicated to the JV • Potential for corporate / business cultural differences • Possibly more difficult to exit

13. Elements of a Joint Venture Agreement • Identity of the Parties • Business and Purpose of the JV • Management / Voting Rights • Board of Directors • LP / GP • Manager / Members

14. Elements of a Joint Venture Agreement • Capital Contributions • Ownership Percentages • Additional Capital Contributions • Withdrawal of Capital • Accounting; Tax; and Distributions • Transfer of Interests • Right of First Refusal • Admission of new JV member • Change of Control

15. Elements of a Joint Venture Agreement Restriction on Competition Confidentiality Termination Dispute Resolution Indemnification Exit Strategy

16. Ancillary Agreements Contribution Agreement Technology Licensing Agreement Management / Administrative Services Agreement Marketing Agreement