A joint venture can take many forms. In essence, it is a strategic arrangement between two or more businesses, where resources are pooled, to work together on a specific project or an ongoing basis. Joint ventures are a useful way of collaborating with other businesses and to combine different areas of expertise for targeted or general business purposes. The agreement sets out the terms of the joint venture and the roles and responsibilities of both parties. Joint ventures can come to an end when they have either fulfilled their purpose or where either or both party wants to bring the agreement to an end. In this article, how to terminate a joint venture agreement, we take a look at the process and mechanisms involved.
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How to terminate a joint venture agreement
The method of bringing a joint venture to an end is governed by the termination clause in the joint venture agreement. The agreement should contain comprehensive provisions as to how the parties can exit the joint venture and this will minimise the risk of any disputes.
A joint venture agreement will usually allow termination by one of the following means:
- Agreement between the parties to end the joint venture before it has fulfilled its original function
- Expiry of the fixed term of the joint venture
- Unresolved deadlock on a material issue.
- Completion of the specified joint venture project
- Exit by sale of shares in a company joint venture through the sale of shares by one party to the other
- By a material breach of the joint venture agreement which has not been remedied to the satisfaction of the non-breaching party
- Insolvency of a party to the joint venture
- Change of control of a party to the joint venture or a change of control of a company joint venture
There are four main methods of terminating the joint venture and these are:
Consensual termination – the assets are distributed by returning the asset to the party that acquired or funded the asset. Alternatively, the assets are sold to the highest bidder.
Sale of interest – this provision may be included in the agreement to facilitate the sale of shares by ‘tag along and drag along rights’. This provision enables one party to sell its shares in the company joint venture to a third party, provided the third party purchases the shares of all the other joint venture parties. As all parties interests are sold, the joint venture is terminated.
Winding up – a court can order a winding-up of the joint venture.
Voluntary Liquidation – the joint venture agreement can include a procedure for voluntary liquidation. On liquidation, it is usual for the assets of the joint venture to be distributed to the party that contributed them.
When entering a joint venture agreement it is important to carefully consider all the termination options and negotiate clauses that suit your business interests.
How we can help
We have a proven track-record of helping clients exit joint ventures no matter the size. We will guide you through all the necessary legal due diligence in a comprehensive and timely manner. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
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It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of reducing risk, saving you money and ensuring you achieve a positive outcome.
To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or allow a member of the team to get back to you by filling in our online enquiry form. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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