Design, Bargaining, and the Law
Available avenues for JV partners to exit a joint venture is an important topic that should be incorporated into the joint venture agreement. As such, exit rights are subject to pre-contract bargaining (see Chapter 8). Although partners are naturally hesitant to negotiate conditions of termination when first setting up the joint venture, methods of exit are an important topic in preliminary bargaining because they can influence incentive bargaining strategies that depend on the threat of exit. JV partners must be cognizant of three points when bargaining over methods of exit. First, a partner that contributes resources essential to the joint venture’s operation may be able to gain an upper hand in bargaining over the sharing of control of the joint venture and/or the sharing of total return. Second, bargaining over the sharing of total return is influenced by the terms that govern partner recovery of invested capital at the time of exit. Third, the manner in which partners contribute resources to a joint venture may differ depending on whether contributed assets can be extracted when exiting the joint venture.
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