Kherkher Garcia Discuss Disputes In Joint Ventures: Causes And Solutions
Lots of businesses need more resources – money, knowledge, talent – than a single proprietor can provide. A joint venture lets multiple parties share ownership of a business. It also reduces each individual’s share of risk! But like any collaboration, a joint venture may lead to disputes according to Kherkher Garcia. Where do they come from, and what can you do about them? We asked Kherkher Garcia and they happily helped us create this piece of content.
Defining A Joint Venture
A joint venture (also called a “JV”) is any form of business arrangement allowing multiple parties to share ownership. The vehicle used to organize a JV can take several forms. Khekher Garcia advise that some of the most common are:
* A limited company, with shares assigned to each party
* A Limited Liability Partnership (LLP) with joint membership
* An unincorporated partnership as defined in the Partnership Act 1890
The Importance Of A Joint Venture Agreement
A written Joint Venture Agreement, or “JVA,” can do a great deal to avoid and resolve disputes. Your JVA can anticipate problems and provide clear instructions for dealing with them. The nature of your JVA will depend on the legal form of your business. For example:
* In a JV organized as a company, the JVA is a Shareholder Agreement
* In an LLP, the JVA is an LLP agreement
* In a traditional partnership, the JVA is a Partnership Agreement
Your JVA can define a host of different terms and conditions. The most important things to specify are the shares, responsibilities, and roles assigned to each party; the reward structure; and how a party can leave the JV (these are called exit arrangements).
Assembling a proper written JVA will usually cost money. Dispute resolution, if it becomes necessary, will be many times more expensive than drafting a JVA; this makes creating one a smart investment. It is wiser, simpler, and cheaper to defend yourself against disputes in advance rather than try to resolve them after they’ve occurred.
Joint Venture Disputes
Many things can cause the parties in a joint venture to fall out. For instance:
* Parties may disagree over the rightful distribution of rewards, i.e. income and capital growth.
* Parties may dispute what each of them is expected to contribute to the business in terms of commitment, input, or resources.
* Parties may contend that one party is diverting business away from the JV and toward a separate enterprise.
* Parties may disagree on where and how to expand the business.
* If some parties contemplate selling the JV, others may not want to or may dispute the suggested terms of sale.
* Parties may take exception to new parties entering the JV – either coming from outside or from inheriting another party’s share.
How Common Joint Venture Dispute Claims Work
If a JV dispute goes to Court, there is a range of resolution options. The type of dispute claim and the type of business are both strongly relevant to what steps the Court will choose to take. Here are a few examples broken down by business type:
* The Partnership Act obliges partners to uphold certain duties to each other. A traditional partnership dispute may revolve around determining liability for breach of those duties.
* Minority shareholders in JVs often claim for breaches of the Shareholder Agreement. Parties in this position may be able to use section 994 of the Companies Act 2006 to make an Unfair Prejudice Petition. A successful claim of this sort usually results in the Court ordering the majority shareholders to buy out the claimant.
* When a shareholder believes that other parties have caused a loss to the company rather than an individual loss, he or she can petition the Court to bring a Derivative Action. This allows the shareholder to proceed with the dispute as a representative of the company itself.
* If a party serving as a Director has reaped an inappropriate personal benefit or harmed the company, the other Directors can claim that the first party has breached his or her fiduciary duties.
JV disputes which have to be resolved legally have a great deal of destructive potential. The JV itself is often the most damaged. A measure of foresight devoted to anticipating potential disputes and agreeing on solutions that are incorporated into the JVA can save all the parties a great deal of time and money in the long run.
Alternative Dispute Resolution
If the parties in a JV find themselves with a dispute they cannot resolve themselves, arranging mediation is strongly encouraged. This involves turning the dispute over to an unbiased third party in an attempt to settle the dispute and either split the business or arrange for one party to buy out the disputant’s share. Mediated settlements offer a great deal of flexibility, cost far less than litigation, and can at least in theory, do less damage to the joint venture.