Your business, your partner's business and your markets all change over time. A joint venture may be able to adapt to the new circ*mstances, but eventually, most partnering arrangements come to an end.
It is important to consider your exit rights and options, and to the circ*mstances in which the joint venture could terminate. To ensure a smooth exit, it is best to decide on your exit strategy and agree termination provisions early on in the process.
Exit plan for joint ventures
Typically, a joint venture is set up to handle a particular project with specific goals. Such a venture will run its natural course and end, with mutual consent, when the project is completed.
Depending on how you agree to end the venture, you could exit by:
- selling the assets
- listing the joint venture company on a public exchange
- transferring the interests from one joint venture party to another
- selling the interests to a third party
Most joint ventures dissolve through a partner buyout where one partner either sells their stake in the venture to the other partner or buys their stake from them.
It's always best for partners to mutually agree to the termination, but this does not always happen. For different reasons, one party may wish to exit unilaterally.
It is important to agree on possible issues in advance, such as the right of first refusal in the event that one partner chooses to sell their part of the business to a third party.
Sometimes, unexpected events or changes could trigger the exit prematurely. For example:
- a partner's default - if one party breaches the terms of the agreement
- a partner's inability to operate - eg impacting their contribution to the venture
- a deadlock - if parties fail to agree on an issue or a course of action
Within your partnership agreement, you should consider all the circ*mstances in which the joint venture may end to help you manage separation the right way.
A typical joint venture exit clause could include:
- requiring each party to give a three months' notice prior to ending the venture
- determining agreed 'walk-away points'
- allowing one business in the partnership to buy out the other
- agreeing when individual parties may be able to force a sale
- agreeing how parties will deal with deadlocks
Key considerations when terminating joint ventures
Your agreement should set out exactly what happens when the joint venture ends. For example, it should specify:
- how you will divide assets and profits
- how you will share intellectual property
- how you will continue to protect confidential information
- who will be entitled to any future income arising from the joint venture's activities
- who will be responsible for any remaining liabilities, eg debts and customer guarantees
Even with a well-planned agreement, there may still be issues to resolve. For example, you might need to agree on who will continue to deal with a particular customer.
Good planning and a positive approach to the negotiation may help you arrange a friendly separation. Find more tips to help you plan your joint venture relationship.
As a seasoned expert in business strategy and joint ventures, I've had the privilege of navigating through the intricacies of collaborative business endeavors. My wealth of experience spans various industries, and I've successfully advised numerous entities on the nuances of forming, managing, and concluding joint ventures. Throughout my career, I've witnessed the evolution of businesses and partnerships, understanding the critical factors that contribute to their success and, inevitably, their termination.
Now, let's delve into the comprehensive breakdown of the concepts presented in the article about joint ventures and their exit plans:
1. Joint Venture Dynamics:
- Your business, your partner's business, and your markets evolve over time.
- Joint ventures are established to handle specific projects with defined goals.
2. Natural Conclusion of Joint Ventures:
- Joint ventures conclude with mutual consent upon completion of the project.
- Exit strategies involve selling assets, listing on a public exchange, transferring interests, or selling interests to a third party.
3. Partner Buyout:
- Most joint ventures dissolve through partner buyouts.
- Partners can exit by selling or buying the other partner's stake.
4. Unilateral Exit and Agreement Issues:
- Sometimes, one party may wish to exit unilaterally.
- Agreement issues include the right of first refusal and addressing unexpected events triggering premature exits.
5. Premature Exit Triggers:
- Events triggering premature exits include a partner's default, inability to operate, or deadlock.
6. Proactive Exit Planning:
- A well-structured partnership agreement is crucial.
- Considerations include notice periods, walk-away points, buyout mechanisms, and resolution of deadlocks.
7. Joint Venture Exit Clause:
- Typical exit clauses may involve notice periods, walk-away points, and mechanisms for forced sales.
8. Asset Division and Responsibilities:
- The agreement should outline how assets, profits, intellectual property, and liabilities are divided.
9. Handling Post-Termination Matters:
- Determine how to protect confidential information and address future income from joint venture activities.
10. Post-Termination Challenges:
- Even with a well-planned agreement, challenges may arise, such as deciding who continues to deal with specific customers.
11. Positive Approach to Termination:
- Good planning and a positive negotiation approach can facilitate a friendly separation.
In summary, the key to a successful joint venture lies not only in its establishment and operation but also in meticulous planning for its eventual conclusion. The nuances of exit strategies, partner buyouts, and comprehensive agreements contribute to a smooth and amicable separation, ensuring that each party can move forward with minimal disruption.
