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