Strategic Alliances & Joint Ventures Martin B. King, Esq. Gorman & Williams

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

Joint Venture: (1) An express or implied agreement; (2) A common purpose that the group intends to carry out; (3) Shared profits and losses; and, (4) Each member’s equal voice in controlling in the project. A business undertaking by two or more persons engaged in a singe defined project. The necessary elements are: Black’s Law Dictionary

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

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

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

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

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) Characteristics of Strategic Alliances (Non JV Alliances)

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

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)

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

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

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

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

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

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