Design, Bargaining, and the Law
Joint ventures are characterized by a lack of separation between ownership and management. Key management matters are therefore determined through bargaining between JV partners. The purpose, form, guiding principles, and practicalities of bargaining differ depending on the stage of a joint venture’s lifecycle. Joint venture governance also changes dynamically over a joint venture’s life. The joint venture lifecycle can be broadly divided into four stages. The first stage is the preparatory stage, where prospective JV partners discuss going into business and prepare to establish a joint venture together, ultimately closing a joint venture agreement (Section 8.2). The second stage is the establishment stage, where the partners execute a joint venture agreement giving rise to the joint venture (Section 8.3). The third stage is the operation of the joint venture. During this stage, partners monitor each other to ensure that the other is complying with its contractual obligations. The joint venture agreement is sometimes renegotiated during the third stage if the operating environment has changed since the joint venture’s inception (Chapter 10). And finally, the fourth stage is the transformation or termination of the joint venture (Chapter 12). During the preparatory stage, JV partners discuss and decide upon the joint venture’s business model, the scheme for establishing the joint venture, ways to maximize the three types of return and basic policies regarding the sharing of control and total return. They then prepare to execute the joint venture agreement.
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