Foreign Joint Venture Negotiation – CU210807 Baker & McKenzie Ltd. is a member of Baker & McKenzie...

Foreign Joint Venture Negotiation – CU210807

Baker & McKenzie Ltd. is a member of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.

NEGOTIATING AND DOCUMENTING JOINT VENTURE AGREEMENTS: A THAI PERSPECTIVE

Presented by

Kitipong UrapeepatanapongAugust 21, 2007

©2006 Baker & McKenzie 2

Foreign Joint Venture Negotiation – CU 210807

Foreign Shareholding RestrictionsForeign Shareholding Restrictions



Foreign Shareholding Restrictions – OverviewForeign Shareholding Restrictions – Overview

(1) Foreign Business Act B.E. 2542 (1999) (“FBA”)

(2) Specific laws governing certain business sectors



Foreign Shareholding Restrictions :Introduction to the FBA

Purpose: To prohibit or restrict foreigners from engaging in certain businesses in Thailand

Implications: “Foreigners” are required to obtain permission (so-called “Foreign Business License”) in accordance with the FBA before conducting restricted businesses.



Foreign Shareholding Restrictions: Definition of “Foreigner”

The FBA governs “Foreigners” which is defined to mean:(1) individuals of non-Thai nationality; or(2) legal entities not registered in Thailand; or(3) Legal entities registered in Thailand with any of the

following characteristics:(a) having one-half or more of their capital shares held by persons or entities under (1) or (2), above, or having persons or entities under (1) or (2) investing half or more of total capital;(b) in case of limited partnerships or registered ordinary partnerships, having a person under (1), above, as the managing partner or manager; or



(4)Legal entities registered in Thailand having one-half or more of their capital shares held by persons or entities under (1), (2) or (3), above, or having persons or entities under (1), (2) or (3) investing half or more of total capital.

Foreign Shareholding Restrictions:Definition of “Foreigner”

Proposed new FBA to include “voting” and “management control” both appointment of Board or power to direct the company



Foreign Shareholding Restrictions : Prohibited and Restricted Businesses

Under the FBA, the prohibited or restricted businesses are categorized in 3 schedules:

1. Schedule One

2. Schedule Two

3. Schedule Three



Foreign Shareholding Restrictions Foreign Shareholding Restrictions Prohibited and Restricted Businesses (Con’t)Prohibited and Restricted Businesses (Con’t)

Schedule One

Principle: Businesses under this schedule are strictly prohibited for special reasons and cannot be engaged by foreigners.

Implications: Permission to conduct these businesses cannot be obtained.

• Newspaper business or radio or television station businesses

• Lowland farming, upland farming or horticulture• Raising animals• Forestry and wood processing from natural forest• Trading in land• Etc.

Businesses #1:



Foreign Shareholding Restrictions : Foreign Shareholding Restrictions : Prohibited and Restricted Businesses (Con’t)Prohibited and Restricted Businesses (Con’t)

Schedule Two

Principle: Businesses under this schedule are restricted because they relate to national safety and security, art and culture, tradition and folk handicraft and/or natural resources or the environment.

Implications: A foreigner can conduct these businesses if permission is granted by the Commerce Minister with the approval of the Cabinet.



Businesses #2: • Businesses concerning national security or safety (e.g., production, sale, overhaul and repair of fire-arms or ammunition, domestic transport by land, water or air, etc.)

• Businesses with an adverse effect on art and culture, custom, and native manufacture/handicrafts (e.g., trading in antiques, production of Thai silk, Thai musical instruments, articles of gold, etc.)

• Businesses that have an adverse effect on natural resources or environment (e.g., production of sugar from sugarcane, mining, wood processing for furniture and wares, etc.)





Schedule Three

Principle: Businesses under this schedule are restricted are restricted because it is deemed that Thai nationals are not ready to compete in these businesses.

Implications: A foreigner can conduct these businesses if permission is granted by the Director-General of Department of Business Registration, the Ministry of Commerce, with the approval of the Foreign Business Committee.



• Brokerage and agency businesses• Internal trade concerning indigenous

agricultural produce or products not prohibited by any present law

• Retail of all types of products which has minimum capital of less than Baht 100 Million or an minimum capital for each store of less than Baht 20 Million

• Wholesale with minimum capital for each store of less than Baht 100 Million

• Hotel business, except for hotel management services

• Other service businesses

Businesses #3:




Foreign Shareholding Restrictions:Foreign Shareholding Restrictions:Conditions imposed upon a Foreign Business LicenseConditions imposed upon a Foreign Business License

(1) Minimum capital/loan ratio (this ratio is currently 1:7)

(2) At least one authorized director/responsible person must have domicile or residence in Thailand

(3) Minimum capital amount

Permission for foreigners to engage in businesses listed in Schedule Two or Three of the FBA, if granted, will generally impose the following conditions:



Foreign Shareholding Restrictions : Foreign Shareholding Restrictions : Exemptions from Restrictions under the FBAExemptions from Restrictions under the FBA

1. Exemption granted by Thai government or by virtue of a Treaty

2. Exemption for U.S. companies under the U.S.-Thai Treaty of Amity

3. Exemption granted by the Board of Investment (BOI) and the Industrial Estate Authority of Thailand (IEAT)

Foreign Joint Venture Negotiation – CU210807

Baker & McKenzie Ltd. is a member of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.

Proposed Bill Amendment of Proposed Bill Amendment of Foreign Business ActForeign Business Act : :

What to do?What to do?



Latest development of definition of “Foreigner”

• Second reading by the NLA on 8 August 2007, • a majority of NLA members voted in favour of expanding the

definition of “foreigner”• The proposal is to add further criteria on top of voting rights,

namely

(a) the power to appoint or remove a majority of directors,

(b) the power to direct the company’s business affairs, and

(c) in the case of a multi-tier holding company structure being used, a proposal was made to watch each tier in the structure as “foreigner”.

• The NLA accepted these counter-proposals by a vote of 76 to 64.


Example:Example:

ThaiThaiThaiThai

HoldingCompanyHolding

Company

OperatingCompanyOperatingCompany

Foreigner with the power to

appoint or remove a majority of directors or direct the company’s

business affairs

51%

51%

49%

49%

The above holding and operating company will be considered as “Foreigner” regardless of the voting right of the foreign shareholder due to the power to appoint or remove a majority of directors or to direct the company’s business affairs.



Power to appoint or remove a majority of directors or to direct the company’s business affairs:

Chairman or Managing Director is a foreigner or nominated by foreign shareholder?

Will the company become “foreign company”?



““Voting right and Control by Voting right and Control by foreigner” for level:foreigner” for level:

“A” is a foreign company under Section 3(3)(a)

“B” is a foreign company under Section 3(4)

“C” is a foreign company under Section 3(4) or C is not a foreign company as C is not a foreign company under Section 3(3) or (4)

ForeignForeign

AA

BB

CC

ThaiThai

49%49% 51%51%

49%49%

49%49%

51%51%

51%51%

Multi Tier Holding Company



Foreign Law on Restricted Foreign BusinessForeign Law on Restricted Foreign Business

Foreign Business Law

• Many countries included the control / power “power to appoint or remove a majority of directors but not “direct the company’s business affairs” in the definition of “foreigner”.

• Restricted business are much less than those provided under the current FBA.



Example:

Country

Definition of Foreigner

Restricted BusinessVoting Right

Management Control

Japan Manufacturing of:- aircrafts- weapons- explosion- nuclear energy- electricity power- passenger carriage- railways carriage- broadcasting- chemical weapons



Country



Management Control

Malaysia investment of MYR 10 million (equivalent to Baht 100 million) in company

incorporated in Malaysia acquisition of company incorporated in Malaysia resulting in the transfer of ownership or management to foreigner

company with 15% foreign voting right or 30% voting right by a group of foreigner



Country



Management Control

Malaysia increase of:(i) foreign voting right to 15% (ii)voting right of a group of

foreigner to 30%

- company incorporated in Malaysia with foreign voting right more than 50% regardless of investment capital less than MYR 10 million (less than Baht 100 million)

- merger and acquisition of company incorporated in Malaysia by either Malaysian or foreigner



Country



Management Control

Australia - Australian company having AUD 100 million (equivalent to Baht 2,840 million)

- new investment having initial capital of AUD 10 million (equivalent to Baht 284 million)

- investment in the communication business in the Australian Stock Exchange from 5% or more or other investment n the communication business regardless of the size of investment



Country



Management Control

Australia - Direct investment of the foreign government or foreign government agency

- Residential or commercial ownership of land

- Sensitive business i.e. real estate, banking, civil aviation and airport, shipping, media and telecommunication business



Proposal :

• Relaxation of the restricted business by amending the list of business under Lists One, Two and Three

• Amendment to section 13 of the FBA – specific business should be governed by specific law and not fall under FBA (e.g. banking, land transport, recruitment service, etc.)

• Let new government decide



What Action Foreign Companies need to do?

1. Ensure that your structure is not regarded as “Nominee” under Section 36

2. Seeking “Benefit of Grandfather” clause

3. Restructure the holding company or operating company to comply with the law



Foreign Shareholding Restrictions : Foreign Shareholding Restrictions : Specific Business SectorsSpecific Business Sectors

Type of Businesses Restrictions imposed by Specific Thai Laws

1. Food & Lifestyle • No shareholding restriction

2. Financial Services

2.1 Commercial Bank(The Commercial Banking Act B.E. 2505 (1962))

• No person shall hold shares in a commercial bank for more than 5%

• Foreign shareholders are subject to a foreign shareholding limit of 25%

2.2 Finance Business(The Act on the Undertaking of Finance Business, Securities Business and Credit Foncier Business B.E. 2522 (1979))

• No person shall hold shares in a finance company for more than 10%





2.3 Credit Foncier Business(The Act on the Undertaking of Finance Business, Securities Business and Credit Foncier Business B.E. 2522 (1979))

• No person shall hold shares in a credit foncier for more than 10%


2.4 Securities Company (The Securities and Exchange Commission Act B.E. 2535 (1992))

• Any person who intends to hold shares in a securities company is required to seek an approval from the Office of the Thai SEC

• No foreign shareholding restriction

2.5 Non-Bank Business • No shareholding restriction

Foreign Shareholding Restrictions : Foreign Shareholding Restrictions : Specific business sectors (Con’t)Specific business sectors (Con’t)




2.6 Casualty Insurance Company(The Casualty Insurance Act B.E. 2535 (1992))

• Foreign shareholding must not exceed 25% for companies engaging in casualty insurance business

2.7 Life Insurance Company (The Life Insurance Act B.E. 2535 (1992))

• Foreign shareholding must not exceed 25% for companies engaging in life insurance business

3. Manufacturing & Automotive • No shareholding restriction

4. Marine and Ports

4.1 Marine(The Thai Vessels Act B.E. 2516 (1971))

• Foreign shareholding must not exceed 30% for the company owning a Thai vessel operating in Thai territorial waters

• Foreign shareholding must not exceed 49% for the company owning a Thai vessel specifically used in international marine transport

Foreign Shareholding Restrictions: Foreign Shareholding Restrictions: Specific Business Sectors (Con’t)Specific Business Sectors (Con’t)




4.2 Ports • No shareholding restriction

5. Aviation & Logistics

5.1 Air Transport(The Announcement of the National Executive Council No. 58 dated 26 January 1972 and The Air Navigation Act B.E. 2497 (1954))

• Foreign shareholding must not exceed 49% for the company engaging in commercial aviation business

• Foreign shareholding must not exceed 49% for the company owning a Thai registered aircraft

• Foreign shareholding must not exceed 49% for the company engaging in service businesses concerning aircraft parking or aviation mechanics

Foreign Shareholding Restrictions :Foreign Shareholding Restrictions :Specific business sectors (Con’t)Specific business sectors (Con’t)




5.2 Land Transport(The Land Transportation Act B.E. 2522 (1979))

• Foreign shareholding must not exceed 49% for private companies and 50% for public companies engaging in the business of fixed route transport, non-fixed route transport and transport by small vehicle

5.3 Warehouse(The Announcement of the National Executive Council No. 58 dated 26 January 1972)

• No shareholding restriction.• However, for commercial warehousing

business, the director of the company must hold at least 1/5 of the total shares issued

6. Bioscience & Healthcare • No shareholding restriction

Foreign Shareholding Restrictions : Foreign Shareholding Restrictions : Specific business sectors (Con’t)Specific business sectors (Con’t)




7. Energy & Resources • No shareholding restriction, but a concession or permission is required.

• In mining business, foreign shareholding is only allowed up to 75%, and such foreigners are required to obtain a Foreign Business License before conducting this business

8. Information Technology • No shareholding restriction

Foreign Shareholding Restrictions:Foreign Shareholding Restrictions:Specific Business Sectors (Con’t)Specific Business Sectors (Con’t)




9. Business Process Outsourcing

• No shareholding restriction

• Recruitment services is subject to the Employment Agencies and Employment Seekers Protection Act B.E. 2528 (1985), which requires that:

(i) Foreign shareholding must be less than 50% for the company engaging in domestic recruitment service

(ii) Foreign shareholding must not exceed 25% for the company engaging in recruitment of workers to work abroad

Foreign Shareholding Restrictions : Foreign Shareholding Restrictions : Specific Business Sectors (Con’t)Specific Business Sectors (Con’t)




10. Telecommunications & Media

10.1 Telecommunications(The Telecommunications Business Act B.E. 2544 (2001) (as amended))

• Foreign shareholding must be less than 50% for the company operating telecommunication business under Type 2 or Type 3.

10.2 General Media(Constitution of The Kingdom of Thailand B.E. 2540 (1997))

• A newspaper or other mass media business must be owned by a Thai national





10.3 Newspaper business(The Press Act B.E. 2484 (1941))

• Foreign shareholding must be less than 50% for the company engaging in newspaper business. However, if approval is obtained from the pertinent official, a newspaper business may be wholly owned by foreigners.

10.4 Radio & Television Station (The Radio and Television Broadcasting Act B.E. 2498 (1955))

• Foreign shareholding must be less than 50% for the company engaging in radio and television station business




ได้�รั�บการัทาบทามจากนั�กลงท�นัชาว

ต่�างชาต่�

แสวงหาข้�อม�ล

เบ��องต่�นั ต่�ด้ส�นัใจ

เบ��องต่�นั

ไม�สนัใจ

สนัใจ

ต่�ด้ต่�อก�บนั�กลงท�นั

ชาวต่�างชาต่�

- ต่อบรั�บการัทาบทาม

- ข้อข้�อม�ลและรัายละเอ!ยด้

- ท"าส�ญญารั�กษาข้�อม�ล

เป็&นัความล�บ

แผนภู�มิ�กระบวนการเจรจาต่�อรอง และการทำ�าสั�ญญา



- ต่��งท!มว�เครัาะห(

- แบ�งหนั�าท!)ว�เครัาะห(

- (ควรัแต่�งต่��งนั�กกฎหมาย

ให�ความเห+นั)

เต่รั!ยมการัเจรัจา เจรัจา ข้�อต่กลง


ไม�เหมาะท!)จะ

เข้�ารั�วมท�นั

ควรัเข้�ารั�วมท�นั

รั�างส�ญญ

า

เจรัจา

ส�ญญา

ลงนัาม

ส�ญญา

- ก"าหนัด้บ�คคลเข้�ารั�วมเจรัจา

- ก"าหนัด้ป็รัะเด้+นั เจรัจา (ควรัให�นั�ก

กฎหมายรั�วมเสนัอป็รัะเด้+นัเจรัจา)

- การัจ�ด้ท"าบ�นัท.กรัายงานั การัป็รัะช�ม (อาจไม�จ"าต่�อง ให�นั�กกฎหมายเข้�ารั�วมในัข้��นั นั!�ก+ได้� ) หากม!นั�กกฎหมาย

ป็รัะจ"าบรั�ษ�ทควรัให�นั�กกฎหมายเข้�ารั�วมด้�วย

(อาจไม�ต่�องม!ข้��นัต่อนันั!�ได้�)

(ข้��นัต่อนันั�บแต่�รั�างส�ญญาเป็&นัต่�นัไป็ควรัให�นั�กกฎหมายม!ส�วนัรั�วมให�มากท!)ส�ด้)


ว�เครัาะห(



DRAFT CHECKLIST FOR NEGOTIATING

A JOINT VENTURE AGREEMENT

a. Parties

b. Preamble (i) Purposes of joint

venture described and goals

of each partner.

c. Definition (i) Define the necessary references and key

terms.



d. Incorporation (i) Name/address of the Joint Venture.

(ii) Memorandum and Articles of Association (to be

agreed/forms annexed/principles

to be incorporated).

Spell out the purpose and

objects of the joint venture here.



e. Capital (i) Registered/Paid-up.

(ii) Percentage divisions/Classes.

(iii) Subscribers and Subscription.

(iv) Form of payment.

(v) Place of payment/Bank.

(vi) New issues/New participants.

(vii) Transfer restrictions and buy/sell options.



f. Assets (i) Particulars of Assets to be

contributed (Annexed/To be prepared and submitted).

(ii) Acceptance of valuation/Independent

party to determine in

case of disagreement.

(iii) Direct contribution/Contribution of cash and concurrent sale of

assets.



(iv) Obligation of local party to assist legal

process

of transfer of assets/condition

that legally acceptable.

(This provision is required

in case of the transfer to

the joint venture of

an existing business.)



Management/Administrative

(i) Number of Directors and by

whom appointed.

(ii) Particulars of appointment of the Chairman.

(iii) Particulars of appointment of Managing

Directors and designation of

their responsibilities (business

and labour policies, and

financial management).



(iv) Proper maintenance of statutory records and proper accounting procedures.

(v) Choice of auditors/solicitors.

(vi) Financial year/frequency of reporting.

(vii) Access to books/rights to audits (at whose expense).



(viii) Quorums/voting/special majority required to

pass resolutions for designated purposes.

(ix) Policy on distribution of profits/dividends (priorities).

(x) Treatment of preliminary expenses/apportionment if not chargeable.



Method of Financing

(i) Debt/equity ratio.

(ii) Local financing or offshore.

(iii) Who will be responsible for future equity

infusions if needed?

(iv) Security given.



Responsibilities of Local Party

Representations need to be made as to the local party's ability to provide administrative services and facilities, especially:

(i) Incorporation with minimum delay.

(ii) Obtain necessary operating licenses, etc.

(iii) Obtain exchange control approval for

repatriation of capital investment/profits/fees.



(iv) Procure local financing/provide guarantees.

(v) Acquire appropriate premises.

(vi) Obtain work permits for expatriate

personnel (numbers and positions) and

necessary immigration visas, etc.

(vii) General assistance in establishing the

business.



Technical Management, Licencing or Know-how

(i) What is the technical assistance or know-

how provided by the foreign investor?

(ii) Who is responsible for the day-to-day

management and supervision of the

use of technology?



(iii) Who selects technical personnel and

determines conditions of employment?

(iv) Who does budgets, pricing, etc.?

(v) Agreements for technical assistance.

(vi) Royalties, fees, etc.



Supply of Products

- Agreement on price, method of payment, sales

terms.

Non-Competition

- Period/Location



Governmental Approvals

- List approvals which must be granted as a pre-

condition to the agreement taking effect.

(Incorporation, work permits, control, Board of

Investment, import approval for machinery.)

Directors Expenses and Remuneration

- Travel; accommodation; number and purpose of

trips; remuneration (amount/who determines).



Work performed by Foreign Party outside

Thailand

- Nature; how charged; amount (trademark/know-

how etc./sales/supply agreement).

Taxes

- Who will be responsible for taxes. Is a Double

Taxation Treaty available for use? Can one be

used?



Publicity/Confidentiality

- Information pertaining to both parents and

the joint venture.

- Survival of confidentiality after termination.

Assignment and Benefit

- Limitation on assignments etc./for whose benefit

will it inure



Indemnification

- Any potential claims arising from former

associates, business partners of local party;

or any loss of value or defect in assets

contributed.

Waiver

- Failure to insist on performance is not a waiver

of breach.



Termination

- Automatic (bankruptcy)/immediate on

notice/grace period to remedy/form of notice.

- Concurrent termination of ancillary agreements?

- Effect of termination - Put or call Option (at what

price)/dissolution and winding up, right of first refusal.

Be sure to specify administrative details: notice

periods, response deadlines, etc.Note: in Thailand, winding-up takes years to accomplish.



Notices

- Address for/form in which given and when deemed given.

Headings

- Effect of headings on interpretation.

Enforceability

- Obligation to exercise respective votes to give

effect to terms of the agreement.



Governing Law- Choice of governing law.

Arbitration- Description of arbitral issues.

- Enforcement of award.

- Appointment of arbitrators.

- Language.

- Governing law/rules of arbitration.

- Time limits.

- Location.

- Costs.

- Appointment of arbitrators.



Contents of a Technology Transfer Agreement

Any agreement for technology transfer must address the following points:

a) definition of the property or right which is transferred;

b) limitations on the use of the property or rights;

c) territory over which the license is granted;

d) exclusivity or non-exclusivity;

e) sub-licensing permitted or not;



f) confidentiality (not only must the contracting

party promise confidentiality, but it must promise

to make third parties such as employees promise

confidentiality as well);

g) technology developed by the licensee: must this

be shared with the licensor? whose property is it?;

h) confirmation of confidentiality after life of

agreement expires;

i) penalties in case of breach;

j) payment: Will there be royalty fees or is the

technology given as part of equity? Perhaps

a combination?



ได้�รั�บการัทาบทามจากนั�กลงท�นัชาว

ต่�างชาต่�

แสวงหาข้�อม�ล

เบ��องต่�นั ต่�ด้ส�นัใจ


ไม�สนัใจ

สนัใจ

ต่�ด้ต่�อก�บนั�กลงท�นั

ชาวต่�างชาต่�

- ต่อบรั�บการัทาบทาม

- ข้อข้�อม�ลและรัายละเอ!ยด้

- ท"าส�ญญารั�กษาข้�อม�ล

เป็&นัความล�บ




ว�เครัาะห(

- ต่��งท!มว�เครัาะห(

- แบ�งหนั�าท!)ว�เครัาะห(

- (ควรัแต่�งต่��งนั�กกฎหมาย

ให�ความเห+นั)

เต่รั!ยมการัเจรัจา

เจรัจา

ข้�อต่กลงเบ��องต่�นั

ไม�เหมาะท!)จะ

เข้�ารั�วมท�นั

ควรัเข้�ารั�วมท�นั

รั�างส�ญญา

เจรัจา

ส�ญญาลงนัาม

ส�ญญา- ก"าหนัด้บ�คคลเข้�า

รั�วมเจรัจา

- ก"าหนัด้ป็รัะเด้+นัเจรัจา

(ควรัให�นั�กกฎหมาย

รั�วมเสนัอป็รัะเด้+นัเจรัจา)

- การัจ�ด้ท"า

บ�นัท.กรัายงานั

การัป็รัะช�ม

(อาจไม�จ"าต่�อง

ให�นั�กกฎหมาย

เข้�ารั�วมในัข้��นั

นั!�ก+ได้�)

หากม!นั�กกฎหมาย

ป็รัะจ"าบรั�ษ�ทควรั

ให�นั�กกฎหมาย

เข้�ารั�วมด้�วย

(อาจไม�ต่�องม!

ข้��นัต่อนันั!�ได้�)

(ข้��นัต่อนันั�บแต่�รั�างส�ญญา

เป็&นัต่�นัไป็ควรัให�นั�กกฎหมาย

ม!ส�วนัรั�วมให�มากท!)ส�ด้)




Checklist for Joint Venture Agreements

A. Corporate Matters1. What will be the name of the Joint Venture Company (“JVC”)?

2. Where should the registered office of the JVC be located?

3. Who will be the parties to the Joint Venture Agreement (“JVA”) and what is the registered office/full address of each of the parties?

4. Should the JVC itself become a party to the JVA?



B. Business of JVC

1. What are the objectives of the joint venture?2. Is the joint venture to be restricted to geographical limits?3. Are any authorizations, consents or licenses required as conditions precedent for the joint venture?4. What ancillary contracts between the parties are required?5. Are any of the parties to supply:

- staff?- training?- premises?- assets other than cash?- other services?




C. Capital Structure1. What will be the registered capital of the

JVC?2. What will be the paid up capital of JVC?3. What will be the percentage of the total

issued capital to be subscribed for by each shareholder.

4. Should there be different types of shares in the JVC i.e. ordinary shares versus preference shares?




5. Should the parties’ different interests in the JVC be reflected in disproportionate voting rights and/or preferential dividend?

6. Should there be different classes of shares, i.e. Class A Shares, Class B Shares etc. to distinguish between the shareholders of the JVC?




7. Will the shares subscribed for by each shareholder be paid up in cash or in kind e.g. by contributing assets?

8. If payment takes place in kind, who will valuate the contribution?

9. Should there any restriction with respect to the increase, issue and alteration of the share capital of JVC?




D. Funding of JVC1. Should the finance of JVC be raised by way of issue of shares or by way of loans?2. If finance is raised by way of issue of shares, should payment in kind be accepted?3. If finance is raised by way of loans, should security be given or should the debt be subordinated?




4. Should there be any obligation to make additional finance available and if there is such obligation, should there any limit to that obligation?

5. Should there be any special arrangements in case a party fails to provide further finance when due?




E. Management and Administration

1. What will be the number of directors of the JVC?2. What will be the composition of the Board of

Directors of JVC?3. What procedures should apply to the

appointment/removal of directors?4. Should there be provisions relating to the

appointment/removal of directors/representatives of a party to the JVA, e.g. a right to nominate a director/representative to the Board of Directors?

5. Who will be the authorized directors of JVC i.e. the directors who are authorized to bind the JVC?




6. Should a managing director be appointed?7. Should a chairman of the Board of Directors be appointed and by who should he be appointed? Should he have a casting vote?8. What should be the quorum for a board meeting?9. How ill resolutions of the Board of Directors be passed. e.g. by a majority vote/unanimous vote, etc.?10. What will be the notice period for meetings of the Board of Directors?




11. Should directors be given the opportunity to appoint proxies to replace them at a meeting?12. What restrictions will be placed on the power of the Board of Directors to adopt resolutions, i.e. are there any matters that require a resolution of the full Board of Directors?13. Is it necessary to include in the JVA provisions for the remuneration of the directors?14. Should there be any specific provisions relating to the appointment or removal of the auditors? Which firm should act as auditor of JVC?




15. Should there be any specific provisions relating to the keeping of accounting records?16. Should the JVA nominate a firm of solicitors to act as the JVC’s solicitor?17. Should the JVA nominate a specific bank to act as bankers for the JVC?



F. General Meeting

1. What should be the quorum for general meetings?2. How are resolutions of the general meeting passed?3. Who will act as chairman of the general meeting and

will he have a casting vote?4. Should the shareholders be given the right to appoint

proxies to represent them at general meetings?5. Will the shareholders have a right to be provided

with operational information such as the right to inspect the books of account and records of JVC, monthly/quarterly reports, management and financial information, etc.?



G. Dividend Policy

1. What should be the dividend policy of the JVC and when should dividends be paid?

2. Is it possible to alter the dividend policy?3. Is there to be a minimum distribution if

profits are available?4. Is there to be a provision for an interim

dividend?



H. Transfer of Shares

1. Should shares in the JVC be freely transferable?

2. If freely transferable to outsiders, should the JVA contain a right of first refusal?

3. Should shares be freely transferable between associated/parent/subsidiary companies?

4. Should shares be offered to other shareholders on a pro-rata basis at a ‘fair price’?

5. Who is to determine what is a ‘fair price’? If the auditor’s/arbitrator’s decision to be final?



H. Transfer of Shares

6. Should guidelines be given to the valuer as to what constitutes a ‘fair price’ e.g. reference to for instance the net book value?

7. Should it be a condition to any transfer to an outsider that the transferee covenants to comply with the terms of the JVA?

8. Will the departure of an existing participant have other consequences for the JVC, e.g. require a change of the name of the JVC?



I. Term and Termination1. Is there to be a fixed or minimum term for the

JVA?2. What provisions should relate to the termination

of the JVA upon breach, insolvency or otherwise?

3. Should the JVC liquidate in case the JVA is terminated?

4. If the JVC is liquidated, how should the assets be distributed?

5. Do the parties wish to cover deadlock in advance?

6. If so, how would the parties like the issue to be settled, e.g. by arbitration, by referring it to an independent third party or by granting buy/sell options, etc.?



J. Applicable Law and Conflicts

1. What should be the governing law?2. Is the JVA to contain an arbitration clause?

What will be the details of the arbitration?



K. Other Issuers

1. Will the JVC be affected by the change of management or control of either party?

2. Are the rights/obligations granted under the JVA assignable?

3. Should the JVA contain confidentiality clauses or provisions preventing one party from misusing information in possession?

4. Should the JVA include provisions for the preparation of annual budgets/forecasts?



Thank youThank you

Q&AQ&A

Foreign Joint Venture Negotiation – CU210807 Baker & McKenzie Ltd. is a member of Baker & McKenzie...

Documents

Transcript of Foreign Joint Venture Negotiation – CU210807 Baker & McKenzie Ltd. is a member of Baker & McKenzie...