When you have a project and you want funding, the last thing you wish for is for an interested party to walk out of a meeting not in agreement with you or vice versa. This is an unfortunate event which we have witnessed when two or more parties meet at negotiation stage of a joint venture agreement. Why do this happen? What went wrong? Is there a remedy?
At Clique Joint Ventures Kenya, we have seen and we can guarantee you that more parties will disagree more often at this stage. A simple reason may joint venture deals in Kenya fail is where one party refuses to transfer the land ownership to the Special Purpose Vehicle (SPV) Company. This along is a deal break in a joint venture arrangement. So let’s see some of these deal breakers just to prepare you before you meet with a potential joint venture party.
Governance and Conflict Resolutions
When entering into a joint venture, you need to look at the Joint venture governance critically to avoid future problems. Some of key elements of joint venture governance include control. Who has control of a joint venture?
Normally there are two or three levels of control in any company not just in Joint Venture Kenya Company. These include Board of directors, Management team and shareholders. Sometimes management team can include board of directors.
What are some of the agreements which must be put in writing concerning board of directors/management team?
What will the minimum/maximum number of directors be?
Who can appoint a director?
Who is eligible to become a director?
Will there be equal representation from each JV party?
Concerning the day to day business of the board, some considerations should be looked into, including;
How often will the board meet?
Who must attend?
How will decisions be made?
Another aspect of governance is managing key actions/issues. How do JV parties protect key actions or issues?
What issues are considered key and must be handled with JV partners?
How will conflict of interests be addressed?
Other aspects of JV governance issue relate with sharing of information between the JV parties.
Who is responsible for providing information and how often?
Who has access to the information and are there any confidentiality issues to consider?
What happens in a deadlock situation?
If these issues are not well addressed, it can break a deal before the project is concluded.
Joint Venture Agreements
This becomes a source of problem when it missed on covering certain elements which later one party is not comfortable or agreeing with. A JV Kenya agreement may also carry some clauses which later proved not friendly to one party and this can star problems.
This has the potential of breaking a deal before its signed or later in the course of life of the project, trigger problem with a clause or clauses in the agreement.
Exit clause must be developed in depth and with all possible scenarios considered.
An exit strategy may be needed to; Close down a non-profitable business, execute an investment or business venture when profit objectives are not met, close down a business in the event or a significant change in market conditions, sell an investment or a company, sell an unsuccessful company to limit losses as well as reduce ownership in a company or give up control.
Commonly used types of exit strategies include;
Initial Public Offering (IPO)
You need to discuss and agree on all potential exit clauses so that you get started knowing very well the existence of exit clauses.
Are you interesting in getting into a joint venture arrangement? Looking for a joint venture Kenya partner? Your search should stand and end with Clique Joint Ventures Kenya. At Clique Joint Ventures Kenya, we specialize in making deals happen. Talk to us today and let’s help you realize your dream.
- 3 Deal Breakers during Joint Venture Negotiation Stage February 11, 2021
- What is a joint venture and why consider it? February 4, 2021