Transcript JOINT VENTURES: SOME FUNDAMENTAL PRINCIPLES James P. O’Sullivan & May Lu Tiffany & Bosco, P.A. Camelback Esplanade II, Third Floor 2525 E.

JOINT VENTURES: SOME
FUNDAMENTAL PRINCIPLES
James P. O’Sullivan & May Lu
Tiffany & Bosco, P.A.
Camelback Esplanade II, Third Floor
2525 E. Camelback Road
Phoenix, AZ 85016
(602) 255-6017
[email protected]; [email protected]
Disclaimer

Information presented here is general information.

Choice of the right legal strategies for your joint
venture depends on your fact situation and how the
law and market conditions apply to that situation.

Consult professional advisors such as your
accountant, insurance professional and business
attorney.
INTRODUCTION

Why Bother?
INTRODUCTION

“A business undertaking by two or more
persons engaged in a single defined project.”
(Black’s Law Dictionary 843 (Deluxe 7th ed. 1999).
INTRODUCTION

Elements:

Written or Oral Agreement

Common Purpose
INTRODUCTION

Elements:

Shared Profits and Losses

Shared Ability to Control Project?
STEP ONE

Assistance



Where do I Start?
Business Incubators
CPA/Attorney
STEP ONE

CONFLICTS!

Who Does Your CPA/Attorney Represent?
STEP TWO

Planning

Business Plan

Scope and Purpose of the Joint Venture

Parties Involved and Impact on Other
Businesses/Relationships
STEP TWO

Planning

Confidentiality
STEP TWO

Planning

Letter of Intent

Binding/Non-Binding
STEP TWO

Planning

Due Diligence

Would you Marry a Stranger?
STEP THREE

Choosing a Business Entity Form

Comparison of Business Structures Chart
Available Legal Forms

Sole Proprietorship

Partnerships

Corporations

Limited Liability Company
Sole Proprietorship

No reason to use, considering allowance of
one-member LLC in Arizona
Partnerships

General Partnership

Limited Liability Partnership

Limited Partnership
General Partnership

In a general partnership, all partners
subject to personal liability!

Innocent Partner Still Liable

“Thelma and Louise” Rule
Limited Liability Partnership

If general partnership or limited
partnership, easy and wise to switch to
LLP
Limited Partnership


Still need at least one general partner
 Usually ‘money’ person and ‘manager’
Unlimited liability for general partner
Corporations

‘S’ Corporation

‘C’ Corporation
C Corporation



Default whenever a corporation is created
Limited liability for shareholders
Corporate Formalities
S Corporation

Tax Election of a C Corporation or
Limited Liability Company

Protection still the same
S Corporation

Relatively confining requirements

Corporation of state or U.S. territory;

Partnerships and corporations cannot be shareholders;

No more than 100 shareholders;

Only citizens or residents of U.S. may be shareholders;

Only one class of stock (can have voting/non-voting).
Limited Liability Company



Limited Liability – Even for one member
Ability to Elect Federal Taxation as
Corporation or Partnership
History of LLC Statutes
STEP FOUR

Negotiating the Agreement

Partnership Agreement (Partnership)

Articles of Incorporation, Bylaws, Shareholder
Agreement (Corporation)

Articles of Organization, Operating Agreement
(Limited Liability Company)
Legal Considerations



Representations and Warranties
Non-compete Agreements
Confidential Information/Trade Secrets
Money Concerns

How does money come in?



Debt (Personal Guaranties)
Equity
Source
Money Concerns

How does money come out?



Return on Investment
Profits and Losses
Compensation
Governance and Management

Differences Among Business Entity Form



Board of Directors, Officers and Shareholders
Partners
Managers and Members
Governance and Management

You’re not the boss of me! (Are you?)

What duties and rights do the parties have?

A.R.S. Section 10-732
Governance and Management


When, Where and how do They Meet?
What Must They do to act?
Records and Oversight




Access to Internal Information
Audits
Financial Reporting
Tax
Protection From the Outside


Insurance
Indemnification
Protection From the Outside


Restrictions on Transferability
Spousal Provisions/Consents
Grounds for Divorce



Breaches
Dissolution
Release from Guarantor


Indemnification
Security for Payment
Grounds for Divorce

Exit and Termination

Triggering Events





Death, Disability
Divorce
Termination
Tag Along/Bring Along
Non-compete/Trade Secrets
Grounds for Divorce

Exit and Termination




Call Right?
Right of First Offer/Refusal?
Buy-Sell Rights?
Shotgun?
Saving the Marriage (or at least the business)

Alternative Dispute Resolution


Informal Negotiations
Formal Negotiations


Mediation
Arbitration
Saving the Marriage (or at least the business)

Litigation

Restraining Order/Injunction
More Legal Considerations



Choice of Law
Attorneys’ Fees
Attorney Representation Provision
QUESTIONS?