The Independent Counsel

International Sales


The International Joint Venture — Planning its End Game


The Final of Three Parts


BY WILLIAM C. MUNROE

Faithful readers may recall that previously I covered the reasons to create a foreign joint venture, the form that it should take, and the type of partner to choose (Part One, Issue No. 3). Later, we reviewed some contentious issues involved in setting up the joint venture with a foreign partner (Part Two, Issue No. 4). Here, I discuss the importance, when negotiating the joint venture, of keeping its eventual termination in mind.

Why plan for a joint venture's demise, one may ask? Because managements change, companies and divisions are sold, parties fail to fulfill their obligations, original projections prove faulty, product lives end, and changing economic and political conditions impair competitiveness. In short, the termination of a joint venture at some point is almost inevitable.

Ways to End a Joint Venture

There are essentially three ways to end a joint venture by agreement:

A means to ensure that the parties will agree upon an exit strategy is to prescribe the procedure in the original joint venture agreement. Care should be taken in negotiating such a clause, however, in order to avoid sowing mistrust between the parties at the beginning.

Local, Legal Exit Barriers

Because of the scrutiny often given by local governments to foreign joint ventures, local laws may block a desired purchase, sale or dissolution even if all parties agree fully upon its terms.

Conclusion

The break up of a joint venture can be painful and carry unplanned consequences. However, your company can minimize the burden of a break up by taking into account the inevitability of modification or termination in a carefully drafted joint venture agreement.

Your company's choices of partner, the rules of operation for the venture, and the cash, personnel, equipment and technology to put at risk in a foreign environment all require the making of difficult and risky decisions. Yet, international joint ventures persist because teaming with an overseas partner oftentimes proves to be the best, or perhaps the only way to enter new markets profitably, and thereby achieve desired business goals.

Comment: Before deciding to set a foreign joint venture, check the local laws and regulatory climate of a potential host country as they might affect its eventual dissolution. Then take those laws into account when deciding on to the extent of your company's commitment to its venture, and in any agreement that you make with your foreign partner.

Part II


© ASSOCIATION OF INDEPENDENT GENERAL COUNSEL 1996; (all rights reserved). This article is not intended as legal advice. Consult a qualified attorney for assistance concerning a specific issue or problem.