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Strategic Alliances &
Joint Ventures
Martin B. King, Esq.Gorman & Williams www.gandwlaw.com
Strategic AllianceStrategic 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 VentureJoint 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
PartnershipPartnership::
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 Why Strategic Alliances or Joint
Ventures?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 AlliancesExamples 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 Characteristics of Strategic
AlliancesAlliances
(Non JV 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 Characteristics of Strategic
AlliancesAlliances
(Non JV Alliances)(Non JV Alliances)
Characteristics of Joint VenturesCharacteristics 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 VenturesCharacteristics 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 VenturesAdvantages 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 VenturesDisadvantages 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 Elements of a Joint Venture
AgreementAgreement
Identity of the Parties
Business and Purpose of the JV
Management / Voting RightsBoard of Directors
LP / GP
Manager / Members
Elements of a Joint Venture Elements of a Joint Venture
AgreementAgreement
Capital ContributionsOwnership Percentages
Additional Capital Contributions
Withdrawal of Capital
Accounting; Tax; and Distributions
Transfer of InterestsRight of First Refusal
Admission of new JV member
Change of Control
Elements of a Joint Venture Elements of a Joint Venture
AgreementAgreement
Restriction on Competition
Confidentiality
Termination
Dispute Resolution
Indemnification
Exit Strategy
Ancillary AgreementsAncillary Agreements
Contribution Agreement
Technology Licensing Agreement
Management / Administrative Services Agreement
Marketing Agreement