With high interest rates and tightening credit, joint ventures (JVs) have become an important and frequent source of financing for capital intensive businesses in multiple industries, including real estate and healthcare. Given the reduced access to capital (both equity and debt), capital partners in JVs in the current market garner more influence and have stronger negotiation leverage, often demanding more favourable economic and governance terms. Venturers are also seeking greater flexibility to exit a JV that is deadlocked or is not performing up to expectations. This is likely driven in large part by the current uncertain economic environment.

In addition, the overall regulatory environment has become more intense. From wider antitrust enforcement to increased scrutiny (where there are non-US investors) by the Committee on Foreign Investment in the United States (CFIUS), JVs are grappling with complex and increased regulatory considerations.

The following industries have been active in the JV arena.

• Real estate: JVs have been and remain crucial for real estate projects, where developers and operators frequently seek investors to fund the majority of capital needs, although the financing environment has introduced more friction into the deal-making process. JVs for developing data centres also have been active recently.
• Healthcare: Many healthcare providers are pursuing JVs through which resources and experience may be combined or shared, all while managing antitrust risk.
• Media: The changing media landscape has forced many media companies to look for strategic partnerships (eg, Disney/WarnerBros, Vice Media/Savage Venturers).
• Financial services: The number of private credit and financing source JVs, structured to share risk, is exploding.

Oxford Languages defines a “joint venture” as “a commercial enterprise undertaken jointly by two or more parties which otherwise retain their distinct identities”. While the term “joint ventures” is sometimes limited to enterprises for a discreet, specific project, for the purpose of this chapter, JVs are not as limited. Each party to a JV – whether a member of a limited liability company (LLC), a partner of a general partnership, a limited or general partner of a limited partnership (LP), a shareholder of a corporation or a party to a contractual JV) – is referred to in this chapter as a “venturer”. The following vehicles are frequently used.

LLCs

LLCs continue to be the vehicle of choice for most JVs because, subject to certain exceptions, the members and managers of an LLC are not personally liable for its liabilities. LLCs are flexible and allow wide latitude to the venturers to define their JV relationship. There are no restrictions on the types of owners: they can be natural persons or any type of entity. Governance, economics and risk sharing can be tailored to the vVenturers’ needs. Unless they elect to be taxed as a corporation, LLCs are pass-through entities taxed as partnerships for income tax purposes. This means the venturers are allocated their shares of the income, gain or loss of the LLC with no tax at the LLC level, thus avoiding the double taxation that is typical for corporations. In cross-border transactions, caution should be taken before using an LLC, as certain non-US tax laws do recognise or treat an LLC as a partnership, instead viewing it as a corporation subject to double taxation. With current corporate rates at 21% and Internal Revenue Code (IRC) Section 199A, which, subject to certain exceptions, allows non-corporate venturers in an LLC, partnership or S corporation (S-Corp) to deduct up to 20% of their qualified business income from their taxable income, a tax advisor needs to determine whether a particular JV would save taxes as an LLC (or partnership) versus as a corporation.

LPs

LPs are another relatively common type of entity for many of the same reasons that LLCs are favoured. They provide limited liability to the limited partners, allow flexibility in defining the partners’ relationship and, unless they elect otherwise, have pass-through taxation. LPs often are used in lieu of an LLC for non-US tax purposes where there are non-US partners from certain jurisdictions. LPs require at least one general partner, each of whom has unlimited personal liability for the obligations of the partnership. This concern is commonly addressed by:

• having a general partner that is an LLC or a corporation that is a single-purpose entity (SPE) with no assets, other than its interest in, and possibly any fees or distributions it receives from, the LP; and
• giving the general partner no economic interest (if permitted in the jurisdiction of formation) or a nominal economic interest (0.1% to 1%) in the LP – alternatively, in many jurisdictions, an LP may elect to be a limited liability limited partnership (LLLP).

LLLPS

In certain jurisdictions, including Delaware, an LP may file with the secretary of state or similar body (the “secretary of state”) to become an LLLP. This status provides the general partner with the same protection against the liabilities of the LP that is afforded to its limited partners. Caution should be taken to ascertain whether the jurisdiction of formation authorises LLLPs, and whether each jurisdiction in which the LLLP conducts its business recognises LLLP status (and the limitation of liability) for an LLLP formed elsewhere.

General Partnerships

Although prevalent historically, general partnerships are now less common because each partner is a general partner with joint and several unlimited personal liability for the obligations and liabilities of the partnership.

LLPs

While general partnerships do not register with any secretary of state, many states permit the partnership to register to become a limited liability partnership (LLP), which limits the liability of each general partner to that of a limited partner. Where there is shared management by the partners and an LLC cannot be used, an LLP may be a desirable form of JV entity, provided it is authorised in the jurisdiction of formation and recognised in all other jurisdictions in which the JV conducts business.

Corporations

Corporations are less common JV entities due to double taxation – a corporation, other than a subchapter S-Corp, is subject to income tax on its income, and its shareholders are taxed on distributions paid to them by the corporation. Certain corporate formalities must be followed in order to shield the shareholders from the liabilities of the corporation, including adopting by-laws, appointing directors and officers and holding and documenting annual shareholders’ and directors’ meetings. Corporations are also more rigid structures than LLCs with respect to capital calls and distributions. Additionally, the officers and directors of a corporation owe a fiduciary duty to the corporation and its shareholders that cannot be waived or limited, as may be permitted by state laws for LLCs and partnerships. One advantage of corporations (including S-Corps) is the greater ability to minimise self-employment tax on the earnings of the corporation.

S-Corps

Unlike a standard corporation, but similar to an LLC or a partnership, S-Corps generally have pass-through taxation. They lack the flexibility of an LLC or an LP because there can only be one class of stock, with each shareholder having the same economic rights to receive dividends that are proportional to its ownership interest. Unlike an LLC or a partnership, ownership of an S-Corp is limited to no more than 100 shareholders. In addition, each shareholder must be a citizen or legal resident of the United States, and an individual (or certain trusts and estates or tax-exempt entities). An S-Corp may be beneficial for a smaller, simple JV where the type and number of owners is not restricted and there are pro rata distributions, or where self-employment tax minimalisation is desired. An S-Corp lacks a certain degree of flexibility with respect to tax considerations in connection with restructurings or the recapitalisation of its investments, and a JV that loses its S-Corp status because of impermissible actions may face severe tax penalties.

Contractual JVs

A contractual JV is a JV among two or more venturers that is solely set forth in a contractual arrangement without forming a separate entity that is owned by the venturers. These arrangements are often effective when there is a specific strategic rationale driving the relationship. For example, a contractual JV may be appropriate for certain industries – such as the airline industry – where the venturers often are not making a capital investment into a common enterprise but rather are creating a strategic contractual alliance in their operations and profit sharing. Typically, these arrangements are easier to exit as there’s no sale of assets or dissolution of the JV entity. Instead, the venturers part ways and terminate the alliance.

Another common example of a contractual JV is a profit participation agreement. In this structure, the profit participant (eg, the seller of real property) is provided the contractual right to receive a negotiated portion of the profits or cash flow of the buyer entity rather than becoming an owner of that entity. This structure is desirable to the buyer because, except as negotiated in the profit participation agreement, the profit participant does not receive the statutory, common law and operating agreement protections that are afforded to an owner of a JV, including rights to inspect the books and records of the entity.

The primary drivers for choosing a type of vehicle or a contractual JV are typically the following:

• limitation of liability to all of the venturers;
• flexibility to determine and implement economic terms;
• tax structuring considerations and efficiency;
• governance structure; and
• exit rights.

In most cases, unless there is a special need to have a partnership, a corporation or contractual JV, an LLC likely will be the preferred choice for a JV.

In addition to the federal, state and local laws that govern a particular business conducted by the JV, the following are some key regulatory considerations affecting JVs.

State Entity Law

Regardless of where it will conduct business, a JV entity may be formed under the laws of the particular US state (“jurisdiction”) of its choosing or the District of Columbia.

In general, the statute of the jurisdiction governing the specific type of JV entity will regulate that entity, except to the extent, if any, that the statute allows the governing documents of the JV to modify the statutory provisions. LLC and LP statutes provide default rules for the relationship of the venturers and the formation, governance, operation and dissolution of the entity that apply where the governing documents are silent on a specific topic. Each LLC and LP statute, however, provides for certain enumerated “non-waivable” provisions that cannot be varied by contract. The non-waivable provisions provide a baseline of statutory protection for the owners. Through expansive non-waivable provisions, many jurisdictions take a paternalistic approach to protect unsophisticated investors from fraud or grossly unfair operating agreement provisions. The scope of the non-waivable provisions varies from jurisdiction to jurisdiction. Corporate statutes are binding on corporate JVs, except for provisions that are expressly permitted to be modified through the corporation’s governance documents.

If the JV conducts business in any jurisdiction other than its jurisdiction of formation, it will usually need to register with the secretary of state in each such jurisdiction as a “foreign” entity. Certain affairs of the JV will be governed by its jurisdiction of formation and each jurisdiction in which the JV is registered to do business. As there is an annual fee and reporting requirements for registering to conduct business in a foreign jurisdiction, the venturers may desire to form the JV in the jurisdiction in which it will conduct business. This is often the case for smaller, less sophisticated JVs doing business in a single jurisdiction.

To choose the jurisdiction of formation, the venturers should have a good understanding of the applicable statutory provisions governing the JV, including the non-waivable provisions, and evaluate whether the applicable statutes are attractive for the particular JV.

For most sophisticated JVs, Delaware generally is the jurisdiction of choice for formation, regardless of where the JV will do business. For LLCs and LPs, the Delaware entity statutes expressly recognise the venturers’ right to contract as they please, with very few non-waivable provisions. It is one of the only states that permits the complete waiver of fiduciary duties, other than the implied contractual covenants of good faith and fair dealing.

To compete with Delaware and attract business formations, on 1 September 2024, Texas opened its first “business court”, becoming the 32nd state to have a specialised court to handle complex business litigation. With no state income tax and state business statutes that offer similar protections to businesses formed in Delaware, Texas, Nevada, Wyoming and Florida are vying to be attractive alternatives as JV jurisdictions of formation.

Securities and Exchange Commission (SEC) and State Securities Laws

An equity interest in a JV may be considered a security under federal and/or state securities laws. Accordingly, the structuring of any JV needs to consider applicable federal securities laws (and any applicable exemptions), as well as the state security statutes in the jurisdiction in which each of the venturers reside. If a JV is making investments, rules governing investment companies and investment advisers may also be implicated. Applicable federal securities statutes include, without limitation, the Securities Act of 1933 and Regulation D thereunder, the Investment Company Act of 1940 and the Investment Advisers Act of 1940. The application of securities laws to JVs can be nuanced and depends highly on the structure of the transaction and the governance of the vehicle.

FinCEN

The CTA, promulgated by the Financial Crimes Enforcement Network (FinCEN), went into effect on 1 January 2024 and, subject to certain exemptions, was originally applicable to most entities formed both in the USA (“domestic” entities) and those formed outside of the USA that are registered to do business therein (“foreign” entities). On 21 March 2025, FinCEN issued an interim final rule that exempted domestic entities (including JVs) and made the CTA solely applicable to foreign entities (including JVs).

FTC

The Federal Trade Commission (FTC) and the Department of Justice (DOJ) have the authority to review certain JV transactions and may enforce competition laws against the venturers and the JV if they are engaged in certain anti-competitive practices.

The AML regulations applicable in the USA include:

• the Foreign Corrupt Practices Act of 1977, as amended;
• the USA Patriot Act, as amended, and various executive orders thereunder;
• the US Department of the Treasury’s Office of Foreign Assets Control (OFAC), including the Specially Designated Nationals and Blocked Persons List and Sectoral Sanctions Identification List;
• the Entity, Denied Persons and Unverified List maintained by the US Department of Commerce; and
• the Corporate Transparency Act.

CFIUS allows the US government to review non-US investments in US businesses for national security concerns, and the President can block risky transactions. Its application is more common today across multiple industries, including real estate. No statute of limitations applies to CFIUS reviews, unless previously approved

OFAC administers the US sanctions programmes, which preclude JVs from doing business with certain blocked non-US venturers or venturers from embargoed countries

In addition to federal laws, many states also have regulations to address national security issues, including the following.

• In May 2023, Florida enacted Chapter 692, Florida Statutes, which restricts, with limited exceptions, certain “foreign countries of concern” from directly or indirectly owning, having a controlling interest in or acquiring any interest in real property in Florida. Foreign countries of concern include China, Russia, Iran, North Korea, Cuba, Venezuela and Syria. Similarly, Texas passed the Lone Star Infrastructure Protection Act, prohibiting certain investments from countries of concern that would affect critical infrastructure.
• Other states are in the process of restricting ownership of real property by China and certain other countries. The existing and proposed laws of each jurisdiction in which the JV conducts business must be analysed where there are Chinese (or other specified non-US) venturers.

Venturers need to consider applicable US antitrust regulations, which include the following:

• the Sherman Act – prohibits certain anti-competitive practices, such as price-fixing, market allocation and customer allocation;
• the Clayton Act – regulates activities that lessen competition and lead to monopolies;
• the Federal Trade Commission Act – prohibits unfair competition and deceptive practices;
• the Hart-Scott-Rodino Act – may require a filing with the FTC and DOJ before entering into certain JV formations and transactions; and
• state laws – most states have their own unfair competition laws, and healthcare-related JV transactions may be subject to review and filing requirements under applicable state statutes.

In general, where antitrust challenges are at issue, the JV must have a legitimate pro-competitive purpose, such as new product creation, a reduction in price for customers and market efficiencies. This is measured against venturers’ market power through the JV that would not otherwise exist. Restricting the venturers’ ability to compete outside of the JV and other anti-competitive conduct can raise antitrust scrutiny.

There is no applicable information in this jurisdiction.

Corporate Transparency Act

Original CTA

Effective 1 January 1, 2024, with certain exceptions, each US legal entity that was created by a filing with a secretary of state (“domestic” entity) and each entity formed outside of the US that qualified to do business through a secretary of state filing (“foreign” entity) was considered a “reporting company” that must file a “CTA report” with FinCEN.

Revised CTA

After a flurry of activity in late 2024 and early 2025 by FinCEN and a number of federal courts, as well as a new administration, on 21 March 2025 FinCEN promulgated an interim final rule that exempted domestic entities from having to file CTA reports. It also excludes US persons (defined in the IRC), including individual citizens and residents who meet certain residency requirements and domestic entities that are beneficial owners of foreign reporting companies. Accordingly, only foreign entities are now reporting companies, and only non-US persons must report as beneficial owners. FinCEN stated that it will consider post-issuance comments on the interim final rule before it issues the rule. The interim final rule exempts more than 32 million existing domestic entities, and the CTA now only applies to foreign JVs (of which there are approximately 20,000).

State Transparency Acts

States beneficial ownership reporting laws are in a state of flux after the promulgation of the CTA interim final rule.

The New York LLC Transparency Act, as amended on 1 March 2024, goes into effect on 1 January 2026 and is based on the CTA (as originally enacted) but only applies to LLCs. Unlike the CTA, it requires a filing to claim an exemption. It applies to both domestic and foreign LLCs that are formed or registered to do business in New York, and unlike the interim final rule, it includes domestic entities.

Whether other states, such California and Maryland, that previously were considering adopting their own transparency legislation will do so after the promulgation of the interim final rule is unclear.

Since its adoption, the CTA has been fraught with interpretive issues. FinCEN promulgated regulations, FAQs and other guidance and offers a virtual portal to submit inquiries. JVs and their counsel, however, struggled with numerous questions that have were not addressed by FinCEN. FinCEN’s adoption of the interim final rule on 21 March 2025, exempting domestic entities and US persons from CTA reporting, greatly reduced the number of JVs that have filing requirements, but issues still remain for foreign JVs that must file CTA reports.

NDA

A confidentiality or nondisclosure agreement (NDA) is critical any time that prospective venturers are sharing confidential information. It should be entered into prior to negotiating the terms of the JV and a venturer providing sensitive information regarding any other venturer. A customary NDA will typically restrict a party or its representatives from disclosing the existence of the JV negotiations and the confidential information of the other party, and from using the other party’s confidential information other than in furtherance of the evaluation and negotiation of the potential transaction.

Term Sheet

Most JVs must be contractually tailored to the needs of the venturers. Negotiating a detailed term sheet, letter of intent or memorandum of understanding (each a “term sheet”) is often advisable at the outset of negotiations to facilitate alignment between the venturers. A term sheet is much shorter, with less detail, than a JV agreement. Accordingly, a term sheet setting the material terms of the JV will save substantial time and resources in negotiating and preparing the JV agreement, as well as setting the parties’ expectations. Most term sheets will address equity ownership, capital funding requirements, distributions, governance, and transfer and exit provisions. Term sheets are usually legally non-binding, except for certain binding provisions such as the allocation of expenses to negotiate and prepare the term sheet and other deal documents, confidentiality, governing law and, if applicable, an exclusivity period during which the prospective venturers are obligated to negotiate exclusively with each other. The scope of each term sheet and which material issues are included (versus negotiating them in the JV agreement) is a question of strategy and negotiation leverage. In some cases, it may be better to save a problematic issue for the JV agreement after the venturers have signed the term sheet and are more invested in the JV rather than risking killing the deal at the term sheet stage. In other cases, bringing these difficult issues up at the term sheet stage may ensure that the parties are in fact aligned on these issues.

Certain basic information regarding each JV that is an LLC, LP or corporation (such as the entity type, name, address and registered agent) is filed with the secretary of state of its jurisdiction of formation and, if applicable, in every other jurisdiction in which it is qualified to do business as a foreign JV. In addition, an annual report is also required to be filed with the secretary of state of such jurisdictions, which, depending on the jurisdiction, usually includes the identity of at least one JV manager. This filed information is of public record. Additional information, including the fact that an entity may be a JV, the identity of the venturers and the scope, terms, business and operations of the JV, is not required to be disclosed through these filings and remains confidential. General partnerships do not file with a jurisdiction in order to come into existence and similarly do not file annual reports. The same is true for contractual JVs as there is no JV entity that needs to file.

The extent to which additional details regarding the JV may need to be disclosed depends on the characteristics of the JV and its venturers.

• The Corporate Transparency Act requires foreign JVs to file certain JV and beneficial owner information with FinCEN. This information is not publicly available.
• A public company is required to disclose to the SEC when it has entered into a material agreement or transaction. Depending on the nature of the JV and its materiality to the public company, the JV agreement and its terms may require disclosure.

If a JV is not required to disclose its status as a JV pursuant to SEC or other legal requirements, this fact may remain hidden from the public, unless and until the venturers desire to make such disclosure. The ability of a venturer to disclose non-public confidential information regarding the JV or any other venturer is often restricted by an NDA, a term sheet or a confidentiality provision in the JV agreement.

Conditions precedent to closing a JV transaction are most likely to be relevant if the JV parties are contributing, selling or otherwise transferring assets to the JV. Before the JV parties are willing to transfer assets to a JV, they will seek assurances that the other parties are ready to perform their obligations. This may include depositing funds and documents into escrow arrangements and receiving certificates from executive officers that representations made in the transaction documents are true and correct. In addition, if regulatory approvals (such as antitrust approvals) or other third-party consents are required, the JV parties may agree that the JV transaction will not close unless such required approvals and consents have been obtained within a certain period of time. If these conditions have not been satisfied before an agreed-upon outside date, the parties may be excused from continuing to seek to close the JV transaction.

A JV that is an entity is set up by filing an appropriate formation document with the secretary of state in its jurisdiction of formation. For example, in the State of Delaware, an LLC is formed by filing with the secretary of state of Delaware a “certificate of formation” signed by an authorised person. The venturers would enter into a JV agreement (which is not filed) to govern their relationship with the JV.

A JV that will conduct business activities in a jurisdiction other than its jurisdiction of formation will likely be required to register in the applicable jurisdiction to do business as a foreign entity. If the JV will file a federal tax return or other tax-related documents, it will need to obtain a federal tax identification number for the JV by filing a Form SS-4 with the Internal Revenue Service.

The venturers of a JV that is an LP or an LLC would execute an operating agreement (“JV agreement”) in the form of an LP agreement (LPA) or limited liability company agreement (LLCA). If the JV is a corporation, it would file a certificate of incorporation and adopt by-laws, and the shareholders may enter into one or more shareholder agreements. The shareholders would elect or appoint directors who would in turn appoint officers of the corporation. A “close corporation” under certain state statutes may be managed by the shareholders without a board of directors.

Regardless of the type of JV entity or its industry, JV agreements are likely to cover the following topics.

• Governance: A JV may be (i) co-managed by the unanimous decision of the ventures; (ii) managed by a managing venturer (or its affiliate), with the other venturers having consent rights over certain major decisions; (iii) managed by an executive committee or board of managers, directors or venturers appointed by the venturers to collectively manage the JV; and/or (iv) managed via the appointment of officers of the JV.
• Capital contributions (for LLCs and LPs): Here, topics include how capital contributions are made (in cash or in kind), future capital contribution requirements (capped or unlimited) and who can call capital (see also 6.3 Funding). For corporate JVs, shareholders fund capital by acquiring more shares and may want pre-emptive rights (rights to participate in any share offering) to avoid dilution (reduction in its percentage ownership interest).
• Distributions (for LLCs and LPs): At issue here is whether cash distributions are made pro rata among venturers or whether a distribution waterfall provides an order of priority and/or a performance incentive for a managing venturer. Corporate JVs require that all shareholders of the same class receive the same per-share distributions.
• Allocations and other tax provisions: For LLCs and partnerships, IRC Section 704 and the complex Treasury Regulations thereunder allocate income, loss, gain and the components thereof among the venturers. Each LLC or partnership must appoint a venturer or third party as the “partnership representative” with the authority to represent the JV and the venturers in IRS audits. A partnership representative that is an entity must include an individual designee. A tax attorney well versed in partnership taxation should prepare or approve all tax provisions in each JV agreement.
• Affiliate transactions: These authorise transactions between the JV and any venturer or its affiliate, and the terms thereof.
• Indemnification: This pertains to exculpation and indemnification provisions with respect to the venturers as well as fiduciary duties (the required standard of care and the ability to compete with the JV) of the ventures and managers.
• Major decisions: typically, each venturer that is not managing the JV will have certain negotiated major decision rights to approve certain actions by the JV.
• Deadlock resolution process: This dictates what happens if the venturers cannot agree on a JV course of action, resulting in deadlock. See also 6.4 Deadlocks.
• Transfers and other exits: This relates to whether a lock-out period exists before any exit, the transfer rights of each venturer (to affiliates and non-affiliates), the rights of first refusal or first offer, and drag-along and tag-along rights;
• Confidentiality: This pertains to the information each venturer is prohibited from disclosing.

Decision-making depends on the management structure of the JV. For an LLC or LP, the following applies.

• If a venturer or its affiliate, such a manager or managing member of an LLC or a general partner of a partnership (a “manager”), manages the JV, day-to-day decisions would usually be made by the manager, with certain major decisions requiring the approval of one or more non-managing venturers.
• A board comprising individual representatives of each venturer (or manager if more than one), acting similarly to the board of directors of a corporation, could be responsible for managing the JV or voting on major decisions, with day-to-day functions carried out by officers of the JV (if any) or delegated to a manager or venturer.
• Officers of a corporate JV manage under the oversight of the board of directors. See also 7.2 Duties and Functions of JV Boards and Directors.

See 6.4 Deadlocks with regard to resolving deadlocks.

JVs are typically funded by equity capital contributed by the venturers but may also incorporate in kind contributions and/or debt from venturers or third parties.

• Initial capital contributions: The venturers typically fund capital to the JV for initial start-up activities.
• Additional capital contributions: (i) These may be mandatory or optional – or mandatory under certain circumstances (such as up to a specific capped amount) and optional otherwise – and are generally funded on a pro rata basis based on the venturers’ ownership percentages of the JV. (ii) Capital contributions that are mandatory would typically follow an approved budget/business plan or other specific circumstances described in the JV agreement, such as emergency or non-discretionary expenses (eg, debt service, taxes and other mandatory payments). (iii) The managing venturer may be required to fund certain cost overruns in excess of the budget/business plan.
• Default: If a capital contribution is mandatory, the JV agreement will typically include punitive consequences for a venturer who fails to fund. These may include punitive (non-pro rata) dilution, default loans by the non-defaulting venturer(s) at escalated interest rates, the ability by the non-defaulting venturer(s) to buy the defaulting venturer’s interest at a discount, lost voting rights and/or, if applicable, removal as the manager. Mandatory capital contributions may also be guaranteed by a deep-pocket affiliate of a venturer.
• Debt: JVs may also incur debt (by venturers or third parties) to fund the business, which is often a major decision. A venturer (or its affiliate) may provide guaranties to the lender, and the JV agreement should address how liability is allocated among the venturers if a guaranty is triggered.

How deadlocks are resolved is highly negotiated and specific to each JV. There is no single approach, and common ways to resolve deadlocks include the following.

Status Quo Prevails

It may be appropriate for certain deadlocked decisions to result in nothing happening if the Venturers cannot agree. For example, if the Venturers cannot agree on a new budget, then the old budget may continue to apply to the JV until the deadlock is resolved.

Escalation to Senior Management

Escalation to senior management is aprocess where the deadlocked issue is escalated to the upper management of each venturer to resolve the issue.

Arbitration or Mediation

In certain industries and/or for certain issues, binding arbitration or non-binding mediation may work better than in others. The JV agreement may designate which deadlocks are mediated or arbitrated and which deadlocks would trigger other resolution mechanisms, as well as who is the arbitrator or mediator.

Buy/Sell

This refers to the case where one venturer buys the ownership interest of the other venturer(s), thereby breaking the deadlock. In common “shotgun” buy/sell, one venture offers to buy the other venture(s) at a certain price, and each venturer that receives the offer can choose to either:

• sell its interest to the offering venturer; or
• purchase the interest of the offering venture at a price based on a valuation of the JV determined from the purchase price in the offer.

Often, there is a lockout period at the start of the JV during which the venturers cannot exercise their buy/sell rights. This gives the JV a chance to ramp up its operations and appreciate in value. A buy/sell may not be a fair deadlock resolution procedure, however, when one venturer lacks the same financial ability to buy the other venturer(s).

Forced Sale

One or more venturers may have the right (which may follow a lockout period) to force the marketing and sale of the JV or its assets to a third party. If a forced sale is triggered, the venturer(s) that do not trigger the forced sale may have a right of first refusal or first offer to acquire the JV or its assets.

Dissolution

The JV could be forced to liquidate its assets and dissolve.

Any number of agreements may be appropriate depending on the type of JV.

• Contribution agreements: If a venturer will contribute assets to the JV (such as real estate, equipment or IP), a contribution agreement may be appropriate; this provides the terms by which a venturer contributes the property to the JV in exchange for equity interests in the JV.
• IP licences: If one of the venturers has IP that the JV needs in its business, such venturer may want to retain ownership and license the IP to the JV (rather than contributing it) by means of an IP licence. See also 8.1 Ownership and Use of IP.
• Guarantees: A guaranty from a credit-worthy affiliate may be appropriate if the venturer lacks the financial ability to satisfy its monetary obligations under the JV, such as mandatory capital contributions and/or indemnification obligations.
• Services agreements: If a venturer or its affiliate will be providing services to the JV, then an agreement providing the terms relating to the services and any compensation therefor may be appropriate.

Typically, the rights and obligations of the venturers are negotiated in the JV agreement (topics are discussed in 6.1 Drafting and Structure of the Agreement). No specific legal requirements exist for distributions and allocations of profits or losses (other than the tax-related requirements set forth in 6.1 Drafting and Structure of the Agreement), and they are negotiated by the venturers. The distributions are often made on a pro rata basis in accordance with the percentage interests of the venturers. Where a venturer may be providing services to the JV, it may receive incentive distributions with respect to such services. The venturers’ liabilities for the debts and obligations of the JV depend on the type of JV entity (as further discussed in 2.1 Typical JV Structures).

In a JV where one of the venturers has managerial control of the JV either through majority ownership or negotiated terms (such as being the manager or general partner of a JV), the non-managing venturer will usually have rights to approve certain actions to be taken by the JV, such as mergers or other sales of the JV or its assets, the admission of new venturers, transfers of interests in the JV by the other venturers, approval of the budget and business plan, instituting or settling litigation and incurring debt. These “major decision” rights are highly negotiated and may be very detailed.

In international JVs, neither side wants disputes to be resolved through litigation in the other venturer’s home court and under its substantive and procedural laws. The venturers will want substantive law that favours neither party and has well-established commercial law. Procedurally, the process needs to be mutually fair and timely, and to have decisions enforceable in the jurisdiction of each venturer.

Most sophisticated international JV agreements provide for mandatory international arbitration rather than litigation. The largest international arbitration organisations for JV disputes include:

• the International Chamber of Commerce, with millions of members in over 100 countries;
• the International Center for Dispute Resolution (the international branch of the American Arbitration Association);
• the London Court of International Arbitration (for complex and financial sector disputes); and
• the Singapore International Arbitration Centre.

Each organisation has its own procedural rules unless the JV agreement amends those rules. Examples of possible rule changes include the scope of disclosure, manner of selecting arbitrators, review of awards and providing for interim relief. Each forum has a different mechanism to review awards and manage the selection of arbitrators. The chosen seat for international arbitration is often in major financial centres such as Paris, London, Singapore or Geneva. In the United States, New York is the most frequently chosen arbitral seat, followed by Miami, Washington, DC and Houston. The selected situs is important because it determines the procedural law and the courts that parties may need to rely on to compel arbitration and enforce their rights. Federal law has a strong public policy favouring arbitration, and awards are generally enforced.

The chosen arbitral institution plays an important part in the management of cases and ensuring parties are afforded an efficient process. The court or arbitration body generally applies its own procedural rules, which may materially differ from each venturer’s expectations, create uncertainty and adversely affect enforceability, the timing of the resolution, discovery, confidentiality, evidentiary matters and the right to appeal. This could lead to forum shopping by each venturer, in turn leading to differing, conflicting rulings and additional litigation to resolve.

International arbitration awards are enforced in the USA under one of two treaties, depending on the jurisdiction of the foreign venturer(s):

• the 1975 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), which is a UN treaty for its 172 state members; or
• the Inter-American Convention on International Commercial Arbitration (the “Panama Convention”), which has 19 member states throughout the Americas.

Because international arbitral awards are enforced through these treaties, arbitration is favoured to ensure JV obligations can be enforced in a foreign jurisdiction. The United States is not a party, however, to any international treaty to enforce foreign court judgments. While no federal law applies, state law governs the enforcement of foreign judgments, often pursuant to the Uniform Foreign-Country Money Judgments Recognition Act or its predecessor, the Uniform Foreign Money Judgments Recognition Act. Courts in the United States will generally enforce foreign judgments, but procedural and due process defences may be raised and hinder the enforcement of foreign judgments.

Unless it is a “close corporation” that elects otherwise, a JV that is a corporation must have a board of directors. The rights of the venturers to elect or appoint board members would be subject to significant negotiation by the venturers. Unless otherwise provided in the certificate of incorporation, each shareholder will have one vote per share, and board members are elected by a majority of the votes. Different classes of stock, such as preferred versus common equity, may have different voting rights.

Directors of a corporation may have different voting rights, but those rights need to be set forth in the certificate of incorporation in accordance with applicable statutes.

If the corporate JV has multiple classes of stock, one class may have greater approval rights per share than another (which may be non-voting or have limited voting rights). Shareholders may enter into a shareholder or voting agreement that provides each shareholder with rights to appoint members to the board of directors or approve certain matters.

Because of formalities that must be observed with respect to corporate entities, venturers more commonly elect to form a JV as an LLC or LP, which provide more contractual and governance flexibility. These entities may be also structured with a governing board but without all the statutory requirements applicable to corporations.

The directors of a corporate entity owe fiduciary duties to the corporation and its shareholders, comprised of a duty of care and a duty of loyalty. These duties cannot be waived. In a corporate JV, these duties must be exercised by a director notwithstanding that a director may also have a duty to the venturer who appointed him/her or to other parties. To avoid liability, a director who has competing duties should carefully consider in what capacity he/she is acting when making a decision with respect to the JV.

A corporate board may create committees and subcommittees to which it would delegate certain managerial functions.

For LLC or LP JVs, the manager will have certain fiduciary duties under the applicable statute or case law. The JV agreement, however, can modify or eliminate those duties (to the extent permitted by applicable law), and the venturers have flexibility to create bespoke mechanisms for making decisions and resolving conflicts.

In the corporate context, a director who has a conflict of interest must disclose that conflict of interest to the entire board and recuse themselves from the applicable decision.

For LLCs and LPs, conflicts of interest should be addressed in the JV agreement. Most LLC statutes provide the default rule that such conflicts must be approved by the non-conflicted venturer(s), and this is generally an appropriate JV agreement provision. Conflicted transactions may also be required to be on arms-length market terms. The JV agreement should provide that rights on behalf of a JV under an affiliated agreement are exercised solely by the non-affiliated venturer. Otherwise, the affiliated venturer could vote against the JV, enforcing the agreement against it or its affiliate.

In some cases, venturers may elect to waive the fiduciary duty of loyalty so that each venturer can make JV decisions in their own best interest. If not waived or limited in the JV agreement, the default duty of loyalty (which generally prohibits competing against the JV) under the laws of the applicable jurisdiction would apply to the manager, and possibly the venturers.

Each JV must have the right to use the IP it needs to conduct its business, which may include rights to use the names, marks or other IP owned by one of the venturers. IP can either be contributed in kind to the JV via an IP assignment or licensed to the JV. If a venturer is licensing the IP, the other venturers will want to make sure the licence is available for as long as the JV operates and address what happens if the licensor leaves the JV. The licensing party will want to specifically set out applicable usage restrictions and fields of use that govern the JV’s use of any licensed IP.

With respect to any IP that the JV develops, the JV agreement should address who owns it and who has a right to use it. In general, if the JV develops IP using its own employees or contractors, the JV will likely have rights to such IP. The JV agreement should delineate each venturer’s IP rights, including use by each venturer, licensing to third parties and enforcement of the JV’s rights against third parties. Each venturer may have the exclusive right to use the IP within a specified field of use.

The JV agreement should address how IP developed by the JV will be owned and used upon the JV’s termination if a venturer leaves the JV. The venturers could jointly own the IP, with a separate agreement outlining their respective uses. Alternatively, one venturer could own the IP and license it to the other, subject to usage restrictions. If there are pending patent applications, an issue is who controls and pays for their prosecution.

In general, if a venturer has valuable IP, it will want to keep ownership of the IP, in which case it would provide a licence to the JV to use it for specific purposes. The licensing venturer needs to balance the need to maintain ownership of valuable IP while still granting the JV a licence that is sufficient to enable the JV to independently operate. Also, the licensor should consider the JV’s right to assign any licence to a third party.

An important issue with any licence or assignment is protection of the IP. For instance, if a JV is only licensing IP material to its business, the licence should contain terms ensuring the owner will take sufficient steps to stop third-party infringers.

A licensor of IP will also want to consider whether it will receive royalty payments for the licence or whether the licence will be royalty-free.

Contributing ownership of IP to the JV through an assignment is less common because the assignor would cease to directly own the IP. One way to address this issue is for the JV to obtain ownership of the IP but then enter into a broad “licence back” to the contributing venturer.

Outside of public company context, there are no unified federal ESG regulations. However, many states have ESG-related regulations applicable to the entities formed or operating within such state. Caution should be taken to review state regulatory requirements before the formation of a JV to ascertain that the JV will be able to comply with such requirements.

ESG Materiality

A party considering entering into a JV should first consider whether ESG will be material to the transaction. Certain industries, such as oil and gas, may be subject to more ESG-related concerns, which may require evaluating how ESG may impact the JV.

ESG Goals

If one venturer has ESG-related goals, there should be discussions at the outset by the venturers as to how ESG will affect the JV’s business and operations. Careful due diligence on such venturer and its goals would be needed in negotiating the JV agreement.

ESG-Related JV Provisions

The JV agreement will need to set out desired ESG reporting requirements and monitoring functions, require the adoption of ESG-related policies and targets, and provide for approval or blocking rights related to certain activities that implicate ESG.

Venturers should carefully consider at the outset when and how a JV may be terminated. Many JVs are intended for a specific purpose. For example, a real estate development JV may have the purpose of developing land, constructing buildings thereon and selling the buildings upon completion. Other JVs are created to operate a business without a specific planned termination. Many JV agreements provide that the JV has a term that is perpetual pending an express termination event. Others will set forth a termination date.

Dissolution and Exit

For JVs that are LLCs or partnerships, the applicable entity statute of the jurisdiction of its formation will set forth certain default events for dissolution of the JV. These need to be carefully reviewed, as the statute may permit some or all of these events to be waived or changed by the venturers in the JV agreement. The dissolution events for JVs often include:

• the disposition of substantially all of the JVs’ assets;
• the decision of venturers owning a requisite percentage of ownership interests; and
• a case where there are no ventures.

Most JVs are illiquid investments. Accordingly, in addition to the dissolution provisions, the JV agreement should address the ways in which a venturer may exit the JV. Depending on the relationships of the venturers and their goals, one or more of the following rights may be appropriate.

• Buy/sell or put or call rights: Under specified circumstances, these give one or more venturers the right to acquire or sell ownership interests from or to the other venturers.
• Rights to transfer ownership interests: Generally, each venturer would prefer to have unlimited rights to transfer its ownership interest, or as few restrictions as feasible, so it can exit the venture when desired. On the other hand, each venturer would want to restrict the other venturer’s transfer rights to ensure the transferee is an appropriate venturer. Accordingly, many JVs restrict transfer rights other than to affiliates of the venturer.
• Forced sale rights: These permit one or more venturers, after any applicable lock-out period, to cause the marketing and sale of the assets of the JV to third parties, often combined with the right of first offer to the other venturer(s).
• Registration rights: These are used to register and sell a venturer’s ownership if the JV has an initial public offering of its equity interests.

Post-Termination Asset Distribution

If a JV is terminated, the venturers need to consider what happens to its assets. In many cases, it may be appropriate to liquidate the assets and distribute the proceeds to the venturers. If, however, they do not want to liquidate certain assets, such as newly developed IP, the venturers will need to determine how the ownership and use of these assets can be shared among or allocated to one or more venturers.

A terminating JV will need to wind down its business by liquidating its assets, terminating or transferring existing contracts, terminating licences or registrations and paying off creditors. In addition, as required by its entity statute, the JV will need to reserve funds or make provision to pay for any future known or contingent liabilities (eg, indemnities related to a sale of an asset) and file final tax returns, if applicable.

The distribution of the liquidated proceeds will also need to be carefully considered, particularly if there is a waterfall that requires distributions in a particular order of priority. If a venturer has the right to receive distributions based on performance, it may be entitled at liquidation to receive additional proceeds. If the JV has not been successful, or if at the end of the venture a venturer has received more distributions than it was otherwise entitled to, there may be a required “claw-back” (ie, repayment) of certain distributions it previously received. Claw-backs are often guaranteed by a deep-pocket guarantor affiliate of the applicable venturer.

The distribution of assets in kind is often a major decision for the venturers. When making in-kind distributions, the JV agreement should provide a valuation mechanism for the assets to ensure they are distributed consistent with the distribution provisions and the economic arrangements of the venturers. If the venturers cannot agree on a value, they may need a third-party appraisal.

If a venturer contributes in-kind assets to the JV, it may want the right to receive them back through distributions, at an appraised or an agreed-upon value, when the JV terminates or that venturer exits.

If assets have been created or developed by the JV, the venturers need to decide how to share or allocate ownership of those assets when the JV terminates. For example, the rights and responsibilities of the venturers related to jointly developed IP should be carefully spelled out to avoid potential conflict.

Exit rights should be thoughtfully considered and carefully drafted into the JV agreement. In most common forms of JVs, such as LLCs, the venturers are generally granted wide latitude under applicable law to agree upon exit rights (common exit rights are described in 9.1 Termination of a JV).

A common issue related to exit rights is how to value the JV, particularly if one of the venturers will buy out the other venturer’s JV interest. The venturers should set forth in the JV agreement how value will be determined, such as through an independent third-party appraiser or through a buy/sell mechanism. Many ways exist to measure a JV’s value, and it may be appropriate to engage a sophisticated financial advisor to help determine the most appropriate valuation methodology at the time the JV is formed.