Joint Venture Strategies

Joint Venture Strategies

Design, Bargaining, and the Law

Zenichi Shishido, Munetaka Fukuda and Masato Umetani

Although they have the potential to create synergies, joint ventures by their nature contain inherent risk. Therefore, each partner in a joint venture needs to incentivize each other in order to maximize their own payoff. Extensive pre-contractual and post-contractual bargaining is essential. This book provides successful bargaining strategies from the point of view of each partner company. Using game theoretical framework to analyze joint venture strategy, it describes practical and legal issues that arise when creating synergies and incentive bargaining in a joint venture. With a particular focus on intellectual property law, including analysis based on many real cases, the book covers issues relating to creating synergies, corporate law issues of conflicts of interest, and antitrust law issues relating to cooperation between independent companies.

Chapter 9: Legal measures for finalizing bargains

Zenichi Shishido, Munetaka Fukuda and Masato Umetani

Subjects: economics and finance, game theory, law and economics, law - academic, company and insolvency law, law and economics

Extract

Having discussed in detail the rationale behind JV partners’ incentive bargaining with each other (Chapters 2 and 6) and the subject matter thereof (Chapters 3–5 and 7), we now look at how partners legally finalize the results of their incentive bargaining. This is ultimately done in the form of a joint venture agreement between shareholders – an agreement which is negotiated through a step-by-step process (see Chapter 8 for details). A joint venture agreement’s content encompasses both (1) transactional agreements involving the joint venture’s business and (2) governance processes that constitute the JV company’s organizational management framework. Portions of the joint venture agreement are finalized and given legally binding effect and enforceability by the JV company’s charter/articles of incorporation, ancillary agreements, and laws that apply to the joint venture’s business organization form. When finalizing the details of the joint venture agreement, the parties should be aware of: (a) contract culture and draftsmanship, (b) incomplete contracts and relational contracts, and (c) binding effect and enforceability. We briefly summarize these issues below. Differences in contract culture and draftsmanship between Asian and Western companies can become an issue when Asian companies form business alliances with European and American companies.

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