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International Business Law. Prof. Andrea Moja Academic year 2011/2012 LIUC University – Castellanza. JOINT VENTURE. INTRODUCTION. What does the term “Joint Venture” stand for ?. “ Joint Venture ” is not a strict legal term, but a description of a certain business relation .

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International Business Law

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    1. InternationalBusinessLaw Prof. Andrea Moja Academic year 2011/2012 LIUC University – Castellanza



    4. Whatdoes the term “Joint Venture” stand for? • “Joint Venture” is not a strict legal term, but a description of a certain business relation. • The term describes a business situation where 2 or more parties join their capacities in order to achieve a certain common objective with a benefit for every party and mostly over a long period of time. 4

    5. Joint ventures have become an important strategic option for many businesses. Due to increased globalisation, the proliferation of modern technology as the means of conducting business, and increased international travel, businesses are now operating in a world without borders, albeit that there are still cultural and language issues. This guide summarises the key considerations in establishing a joint venture or other strategic partnership.

    6. The term ‘joint venture’ is an umbrella term which describes the commercial arrangement between two or more economically independent entities. In practice, the legal form of a joint venture is likely to be determined by a number of factors including the nature and size of enterprise, the anticipated length of the venture, the identity and location of the venturers and the commercial and financial objectives of the participants.

    7. market competitors “friends” 9

    8. The partiesalwayshopetosavemoney and timebyunifyingtheircapacitiestoachieve a common target and profit both

    9. Negative aspectsof the Joint Venture

    10. 13

    11. 14


    13. The Parties, in the determinationof the contentof the Joint Venture, haveto pass through a negotiationphase, asfollows: as the Joint Venture is a complex business, thatinvolves high investmentcosts and generally a long periodoftime, therewillbe the needforsubstantialresources and othercapacities 17



    16. 20

    17. Verifyfeasibility

    18. Then the partieshavetoverify the economic, technical and commercial feasibilityof the JV. Thesefeasibilitystudies are based on assumptionsabout the market and principallyregard the financialburdensofconstituting the JV and positioningit on the market. 22

    19. Three basic legal structures can be used for joint venture, these being:

    20. PARTNERSHIP A partnership is the relation which subsists between persons carrying on a business in common with a view to a profit. There are also certain “hybrid” vehicles or arrangements, such as a limited liability partnership, with characteristics from more than one of the above categories.

    21. In any case people are getting used to distinguish 2 main different ways to set up a Joint Venture by establishing a company by contract Contractual Joint Venture Equity Joint Venture

    22. Bothforms (i.e. contractual and equityJ.V.) requiredifferentsolutionsforsimilarproblems, suchas: attributionofinvestmentcosts, attributionofcontrollingpowers, distributionofrisks and profits, dissolutionof the JV. Eachformis more suitablefor a certain business target



    25. PURPOSES OF THE AGREEMENT The objectivesdetermine the targetsof the JV; whatitwasconstitutedfor. They show what the future shouldbring. The purposeofthis Agreement istoprovidefor the establishment, ownership and operationby the Partiesof the New Company, whichshallbe the exclusivevehicleof the Partiesfor the manufacturing, marketing and sale of Commercial Products and Components in the Territory and the supplyingoftechnicalassistance and service in relation thereto


    27. IN CASE IT SURVISES: one party leaves the JVC, ifitisprofitable and the other party wantsto continue work. Thisisoftenmadebygrantingput or calloptionsto the remaining or leaving part The JV can survive or it can bedissolved THE DISSOLUTION oftenresults in itsliquidation in casesofhardship or deadlock, asalsoruled out bylaw in manyjurisdictions.

    28. DEADLOCK This reference stands for a standstill resulting from the opposition of two unrelenting forces or factions.

    29. Deadlock can arise either in a 50/50 joint venture where the shareholders’ appointed directors take opposing views or where a director appointed by a minority shareholder exercises the right to veto. Similarly, deadlock can arise at shareholder level in relation to matters which require shareholder approval.

    30. It is helpful to have a policy to revert to when an insoluble deadlock arises. The aim of the policy should be to ensure that a sensible compromise is reached before the deadlock occurs. When there is an insoluble deadlock, the following options are usually available: Transfer of shares – a deadlock could serve as a trigger leading one party to transfer its shares to a third party subject to pre-emption rights. Voluntary liquidation – the assets of the venture will be sold and the venturers will share the proceeds according to their equity interest

    31. Furthermore, the JV agreement hastodetermine the price of the shares. In case ofnon-performanceofone party the price mighthave a penalizingcharacter. A situation of dispute can arise in determining the party whohastoleave the JV. Especially in casesofdeadlockitisnot easy to decide which party can stay. Such a dispute isoftensolved in anauction procedure (alsocalledRussian roulette) or by the decisionthat the minority party hastoleave.

    32. PUT OPTION After the occurrenceof the Completion and during the continuanceofthis Agreement, providedthat a TerminationEventoccursashereinafter set forth in article……..withoutprejudicetoanyfurther right toclaimfordamages, shallhave the right to sell its New Company's Sharesto NN and NN shallbeboundtopurchasesaidShares, the transfer price beingequalto the actualvalueof the Shares at thattimeownedby AA asassessed at thattime in accordancewith the price formula(s) hereinreferredto in Enclosure <...>.

    33. CHINA