- Assumes that the joint venture is a two party venture between two corporate parties with a majority shareholder (“XXXXX”) and a minority shareholder (“YYYYY”), where both parties participate in the running of the joint venture company’s (JVC) business. The document can be adapted for use in, for example, a 70:30, 75:25, 80:20, etc joint venture).
- Includes optional clauses, where appropriate (highlighted in bold), which may be used to adapt the agreement for a multi-party joint venture, where there are more than two parties to the venture comprising a majority shareholder and two or more minority shareholders. If the agreement is to be used in a multi-party joint venture, it will need to be reviewed carefully to ensure that it reflects the position of each of the parties to the venture, and other consequential amendments will need to made, for example to refer to parties in the plural, wherever appropriate.
- Assumes that the majority shareholder transfers a business and assets to the JVC and the minority shareholder grants a licence in respect of some complementary technology to the JVC and agrees to provide support, pursuant to a support agreement, for the technology. Both of the shareholders’ contributions to the JVC are made in consideration for the issue of shares in the JVC. One party may also make a cash contribution to make up for any valuation shortfall.
- Assumes that the number of directors to be appointed to the board of the JVC is dependent on the relative percentages of shares in the JVC held by each of the shareholders, but the majority shareholder’s appointed directors will have control of the board.
- Includes protection provisions for the minority shareholder, including:
- a requirement for the attendance of a director appointed by the minority shareholder at a board meeting in order for the meeting to be quorate (unless the minority shareholder’s nominated director is prevented from participating in the meeting, for example because the meeting is being held to authorise his conflict of interest in accordance with the provisions of the JVC’s articles of association); and
- a list of actions which cannot be done by the board of the JVC without the prior written agreement of both shareholders.
- For additional minority protection provisions, see Standard document, Minority shareholder protection.
- Contains deadlock provisions triggering a right for the party that has not caused or created the deadlock to buy the shares of the other party.
- Assumes that the share transfer provisions, including pre-emption rights on transfer (other than for intra-group transfers) and other minority protection rights, such as tag along rights, will be included in the articles of association of the JVC rather than the shareholders’ agreement.
- Assumes that the JVC has no subsidiaries (see If the JVC has subsidiaries below).
- Is drafted on the basis that completion of the joint venture will be conditional upon the satisfaction of one or more conditions within a specified period following execution of the agreement.
- Assumes that the agreement is governed by the laws of England and Wales.
- This document deals with the formation of the joint venture and ongoing governance issues. Sometimes formation may be dealt with in a separate agreement, often known as a subscription agreement.
JVC’s Articles of Association
- The shareholders’ agreement should be drafted in conjunction with the JVC’s Articles of Association. Legal support should be sought if you are unfamiliar with this.
- Some provisions may be included in either document (or both). However, more effective remedies are likely to be available for breach of the articles, for example, the remedy for breach of pre-emption provisions on transfer where these are included in a shareholders’ agreement may be limited to damages (which could be difficult to quantify). Yet if the same transfer breaches pre-emption provisions in the articles, the transfer may be void or the articles may provide, for example, that all rights attaching to the shares are forfeited.
If the JVC has subsidiaries
- This document assumes that the JVC has no subsidiaries. If the parties contemplate it having subsidiaries, various provisions will need to extend to the subsidiaries. For example:
- The parties should be restricted from seeking the custom of clients of (and, if appropriate, suppliers of), and from enticing away the employees of, the JVC or any of its subsidiaries (Clause 9).
- The parties may also want to ensure that each of the JVC’s subsidiaries do not engage in any activity, practice or conduct that would constitute an offence under the Bribery Act 2010 (Bribery Act), and that each of them has, and will maintain in place, Adequate Procedures designed to prevent any Associated Person from undertaking any conduct that would give rise to an offence under section 7 of the Bribery Act (Clause 10).
- The business plan (Clause 11) should relate to the business of the JVC and its subsidiaries.
- The parties will probably want the definition of financial year (Clause 4.3(k)) to apply to the JVC and its subsidiaries.
- The obligation to maintain accounting records (Clause 12) should apply to the JVC and its subsidiaries.
- The parties will want access to, for example, the books of the JVC’s subsidiaries and copies of the audited accounts of those subsidiaries (Clause 12.2 and Clause 12.3).
- If the agreement terminates, the parties may want their names removed from the JVC and its subsidiaries (Clause 19.5).
- The parties should be required to keep information they receive about the business of the JVC’s subsidiaries confidential (Clause 22).
You can find a template Articles of Association (suitable for a JV of this kind subject to any further tailoring) on this site but do take care as actual legal support is advised when tinkering with documents of this kind. You are a welcome to Request-a-Quote for legal support from our expert lawyers.
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