Week 7

Question 1

Purpose of external partnerships?

Answer 1

entering into, or optimizing performance in globalized markets.

Question 2

Means of external partnerships:

Answer 2

Partnerships with external companies may result from:

• License agreements,
• Franchise agreements,
• Joint ventures.

Question 3

Definition of License Agreement

Answer 3

Question 4

Definition of a Joint Venture

Answer 4

Question 5

Pros of a joint venture

Answer 5

Question 6

Cons of a joint venture

Answer 6

Question 7

Joint Venture Partnership

Answer 7

• A partnership does not have limited liability like corporations: each joint venturer is considered as a partner of the joint venture and is liable for the debts and obligations of the joint venture partnership.
• A partnership is fast and easy to set-up with less administrative set-up costs.
• Partners are not obliged to disclose certain documents to the public and thus can enjoy more privacy.
  
  • Normally for short-term JVs.

Question 8

Joint Venture Corporation

Answer 8

• Each joint-venturer is considered to be a shareholder and is liable for the debts and obligations of the joint venture corporation only up to their respective capital contributions in the JV corporation.
• Corporations are subject to more stringent regulations, disclosure requirements, and are more time-consuming to create.
• Relationships between shareholders are governed by a Shareholders’ Agreement.
  
  • Normally for long-term JVs.

Question 9

Russian roulette (a.k.a. shotgun): joint venture agreement

Answer 9

A Russian roulette clause for the resolution of a deadlock situation, usually in a 50:50 deadlocked joint venture where both parties are of broadly equal financial standing, whereby one party offers either to buy the shares of the other party or to sell its own shares to the other party (but not both) at a specified price. The party in receipt of the offer can either accept the offer or reverse the offer at the same price.

Question 10

Different kind of clauses can be provided for in the by-laws or in the shareholders agreement in order to restrain the possibility of transferring company shares. These include:

Answer 10

a) Drag along clause,
b) Tag along clause,
c) Standstill / Lock-in period,
d) Prior approval clause,
e) Put and call options,
f) Pre-emption rights.

Question 11

Drag along clause (Clause de sortie forcée)

Answer 11

Allows a JV company’s shareholder - usually the majority shareholder - to force the remaining shareholders to transfer their shares in case of an offer from a third party to purchase 100% of the company’s shares.

Minority shareholders are “dragged along” = forced to sell their shares at the same time and at the same price per share as the majority shareholder.

Question 12

Tag along clause (Clause de sortie conjointe)

Answer 12

Question 13

Standstill / Lock-in period

Answer 13

Shareholders agree not to transfer, directly or indirectly, any of their shares during a specific period of time.

→ Such clauses are provided to ensure the presence of a shareholder for a certain duration.

Question 14

Prior approval procedure

Answer 14

Question 15

Pre-emption rights

Answer 15

Grants to the shareholders a priority right on the acquisition of shares on terms no less favorable than those offered to a third party.