Entity formation and registration
Form the JV entity in the chosen state. File the certificate/articles of incorporation or organization with the state and obtain an EIN from the IRS. If the JV will operate in other states, file for foreign qualification in each such state. Satisfy any initial state filing requirements (publishing notices, initial reports, etc., depending on the state). If applicable, register with industry regulators (for example, registering as an investment adviser, broker-dealer, or obtaining a specific business license) as a prerequisite to operations.
Governing documents and structure
Draft and execute the definitive JV agreement and other organizational documents. For an LLC, this means an Operating Agreement; for a corporation, a Shareholders’ Agreement (and charter and bylaws); and for an LP, a Partnership Agreement. These documents must spell out the governance and control arrangements in detail.
Define the management bodies (e.g., a board of directors or managers, management committee) and their composition (each JV partner’s right to appoint members). Set clear rules for meetings, quorum, and voting. Identify reserved matters that require unanimous, supermajority, or shareholder/member approval (for example, amending the charter; approving the budget and business plan; hiring, terminating, and compensating the C-suite; issuing new equity; incurring significant debt; entering/exiting major contracts; mergers; voluntary bankruptcy; or dissolution). Include provisions for the appointment of officers or managers and outline their authority.
It is also important to address fiduciary duties and potential conflicts of interest—in an LLC or LP, duties of loyalty/care can be modified by agreement, whereas in a corporation, officers and directors will have non-waivable fiduciary duties. Ensure the governance structure complies with any foreign ownership constraints (e.g., if a foreign partner must remain a minority for regulatory reasons, reflect that in the ownership split and possibly cap their board representation). Address audit rights of JV partners and access to JV documents. Include indemnity provisions under which the JV indemnifies the JV partners in disputes with third parties.
Capital contributions and financing
Formalize each party’s capital contribution obligations. The JV agreement or an ancillary investment agreement should list the initial contributions of each JV partner—whether in cash, IP, technology, real property, or other assets—and the agreed value of each contribution (if not cash). If contributions are in-kind, execute the necessary transfer documents or IP assignment agreements at closing and contemplate, in the JV agreement or elsewhere, what happens with these and other assets of the JV upon a dissolution. Clearly document each partner’s equity interest in exchange for their contribution. Provide for the JV’s initial capitalization to fund startup operations.
Also address future financing: will additional capital contributions be required or optional? Will funding needs be satisfied by capital contributions or will shareholder loans be acceptable, and if so, on what terms? Set terms for capital calls, including whether they are capped or open-ended, and what happens if a party does not fund its share (e.g., opportunity for the other party to fund and dilute the non-contributor’s stake).
Consider preemptive rights for existing owners if JV raises capital by issuing additional equity to third parties. If external debt or third-party financing is envisioned, specify how guarantees or collateral will be provided (and by whom). The agreement may also stipulate that each JV partner’s major funding obligations could be backed by a parent guarantee to ensure follow-through.
Transfer restrictions and exit
Align early on with other JV partners on investment horizon and liquidity expectations. Partners are typically restricted from transferring their interests in the JV for an initial lock-up period to ensure long-term commitment during the JV’s strategic ramp-up phase. Following expiration of the lock-up period, consider if any proposed sale by a JV partner should first be offered to the other partner(s) on a pro rata basis and on the same price and terms (i.e., a right of first offer/refusal), to allow existing partners to maintain control and prevent unwanted third-party entrants.
In addition, consider whether, even after the expiration of a lock-up period, there should be an outright prohibition on transfers to certain competitors of the parent companies (how such competitors are identified will be the subject of discussion, i.e., a list or categorical). In JVs with a majority partner, such partner will typically have an ability to compel (or “drag along”) minority partners to sell their interests on the same terms in a bona fide third-party sale of the entire JV (a pre-agreed valuation method or pre-defined floor protections can be designed to ensure predictability and fairness).
Also consider impact of a change of control of a partner’s parent company on the JV to avoid misalignment or transfer of JV interests to a competitor or non-strategic party. If a partner owns its interest in the JV through a “blocker” for tax purposes, consider negotiating the circumstances in which such partner may transfer its interest in the blocker in connection with an exit and the impact, if any, of a blocker transfer on the consideration that is received by such partner in the exit. Finally, while most JVs are not formed with short-term exit in mind, the JV agreements may provide for periodic liquidity reviews, IPO drag rights, or mechanisms to permit partial monetization after a specified maturity date.
Regulatory approvals and notifications
Before the JV commences operations or any asset transfer, obtain all necessary regulatory consents:
- Antitrust: If an HSR filing was required, ensure the waiting period has expired or early termination was granted before consummating the JV. Document any antitrust clearance or state attorney general approvals for the JV (certain industries like healthcare may have state antitrust review).
- CFIUS: If the JV triggers a CFIUS review (e.g., a foreign partner gaining control of a U.S. business in a sensitive sector), file the declaration or notice and wait for clearance prior to closing. Negotiate and adhere to any mitigation agreements or conditions imposed by CFIUS to address national security concerns. (Front-load this process as needed, since a CFIUS review can be lengthy.)
- Industry licenses: Obtain any licenses or permits required for the JV’s business. For example, if the JV is in a regulated field like banking, insurance, telecom, energy, pharma, etc., ensure the JV entity itself secures the necessary operational licenses/registrations (or that existing licenses can be transferred or extended to it). This may involve regulatory filings and approvals at federal and state levels (e.g., FCC approval for transferring spectrum licenses to a JV, FDA establishment registration, state public utility commission approval for energy JVs).
- Foreign investment, SEC and other reporting: If not already done, make any required post-formation notifications. A newly formed U.S. entity with significant foreign ownership (≥10% by a foreign person) must file an initial report with the Bureau of Economic Analysis (Form BE-13) within 45 days. (Even if exempt from detailed reporting due to size, an exemption claim filing may be required.) Mark calendar reminders for ongoing filings like annual or quarterly BEA surveys as applicable. Additionally, if any partner is a public company, coordinate any SEC disclosures (e.g., 8-K reporting of the JV formation, if material, and ongoing accounting for the JV as an affiliate).
- OISP: If the JV triggers a notification requirement under the Outbound Investment Security Program (e.g., a U.S. person forming a JV with a China-organized business, with the intention of developing certain advanced technologies), file a notice with the U.S. Department of the Treasury within 30 days of the transaction’s completion date.
Tax structure implementation
Put into effect the desired tax structure. For example, if forming an LLC intended to be taxed as a corporation, file any necessary IRS Form 8832 (Entity Classification Election) to confirm corporate status for U.S. tax purposes. Ensure mechanisms are in place for handling cross-border tax issues: have the foreign partner provide a W-8BEN-E form to claim any treaty benefits for U.S. withholding tax; register the JV for state and local income and non-income taxes; and if the JV is a pass-through, decide which partner will serve as the “partnership representative” under IRS audit rules.
Ensure that any tax elections, including those required by the JV agreement, are made on a timely basis. The JV agreement should also cover tax matters such as allocation of profits/losses, tax distributions (distributing cash to cover owners’ tax liabilities, if a pass-through), and cooperation on tax filings and audits. Ensure compliance with transfer pricing for any related-party transactions occurring as part of the initial JV formation or the JV’s ongoing operations.
Intellectual property and confidentiality arrangements
Secure the legal rights around IP, data, and confidential information at the time of formation:
- IP contributions/licenses: Ensure the JV entity has the rights to use all IP necessary for the business. If a JV partner is contributing IP ownership to the JV, execute and record (if necessary or advisable) assignment agreements, and consider whether to license such IP back to the contributor if it needs to continue to use that IP, subject to field of use limitations to give effect to any agreed exclusive rights of the JV.
More commonly, a JV partner may license IP to the JV rather than assign it. If so, craft a license agreement that is sufficiently broad and permissive that the JV has the rights it needs to use, develop, and otherwise commercialize the IP for as long as it operates its business. The IP owner will want to narrowly define the JV’s permitted field of use and retain ownership of improvements outside the JV’s business.
Address whether the IP should be licensed on an exclusive basis (whether in a field of use, territory, or otherwise), Also, address what happens to that assigned IP if the JV is dissolved, or to that licensed IP if the licensor exits (e.g., a springing license on more permissive terms or an option to acquire the licensed IP).
- New IP development: Include provisions in the JV or any ancillary agreement on ownership of IP that is created by or on behalf of the JV through its employees or contractors (commonly referred to as “foreground IP”), or developed by or on behalf of the JV from IP that was contributed by a JV partner (such contributed IP is commonly referred to as “background IP”).
Generally, the JV would own foreground IP, but it is not uncommon for the JV partners to jointly own such foreground IP, particularly if it will be created by the JV partners’ employees. JV partners usually seek to own developments of their background IP, which are then licensed to the JV, and also seek licenses to foreground IP, subject to field of use or geographic limitations.
Address what happens to the foreground IP if the JV is dissolved, or to the license to a JV partner that exits. Also address the requirements for the filing, maintenance, and enforcement of IP, including control, costs, and consent or veto rights.
- Confidentiality and trade secrets: The definitive JV agreements should contain confidentiality obligations requiring both the JV and the JV partners to protect all non-public information and data (including trade secrets) that are exchanged. If the JV partners will continue to exchange information or data with the JV, consider a standalone mutual confidentiality and non-disclosure agreement between the JV and each JV partner. The confidentiality obligations under the foregoing agreements should survive a JV partner’s exit and dissolution of the JV for appropriate periods of time (including survival with respect to trade secrets for so long as they remain trade secrets).
Protect against sharing competitively sensitive information that may have antitrust implications, as well as any inadvertent IP contamination through information sharing. Ensure that all employees and contractors of the JV sign an agreement with appropriate confidentiality obligations, and an irrevocable and present assignment to the JV of all IP they create, invent, or otherwise develop. The JV can subsequently assign such IP to the relevant JV partner in accordance with the relevant agreement(s).
Employment, labor and immigration
Formally establish how the JV will handle human resources:
- Hiring or secondment: If employees are being transferred from the parent companies to the JV, execute secondment or transfer agreements (unless the employees are employed by an entity being contributed to the JV). For secondees, outline the terms (e.g., duration, who pays salary and benefits, reimbursement by JV), and clarify that day-to-day supervision will be by the JV (to avoid co-employment issues). If instead the JV is hiring new employees, set up payroll, benefits, and compliance infrastructure for the new entity (register for unemployment insurance, workers’ comp, etc. in the state of operations).
- Labor law compliance: Ensure compliance with all relevant employment laws in the JV’s operations. If the JV involves unionized employees, honor any successorship clauses or negotiate new agreements as needed. If a large-scale transfer of employees is occurring, consider whether the WARN Act (mass layoff/plant closure notice) or similar state laws could be triggered.
- Immigration: For any non-U.S. citizens who will work for the JV in the U.S., secure appropriate work visas or secondment arrangements. A regulated industry may have restrictions on who can perform certain roles (e.g., security clearance requirements if defense-related).
- Policies and benefits: Adopt an employee handbook or set of HR policies for the JV that covers code of conduct, anti-harassment, safety, etc., in line with legal requirements. Establish benefit and incentive plans or determine if employees will remain on a parent’s plans via secondment.
- IP creation and protection: Ensure all JV employees sign necessary IP assignment and confidentiality agreements, as mentioned above. If the JV employees are shared with a JV partner, appropriate processes, procedures, guardrails and contractual obligations may be required to avoid IP contamination.
- Regulatory considerations: If the JV is in a sector where regulators oversee “key persons” (for example, financial services or healthcare), submit any required personnel information to regulators and ensure secondment does not blur accountability—regulators may require that key individuals be formally employed by the licensed entity.
Dispute resolution mechanisms
Incorporate agreed-upon dispute resolution and deadlock-breaking procedures into the JV agreements. Specify the governing law for the JV agreements and choose a forum for resolving disputes (courts or arbitration). For cross-border JVs, arbitration in a neutral venue is common; if so, include the arbitration clause (rules, seat, language). Define a process for resolving deadlocks on major decisions: for instance, require escalation of the issue to the CEOs of the parent companies if the JV board cannot agree; if that fails, possibly mandate mediation or arbitration for deadlocked matters.
Many JVs also build in a buy-sell provision (“shotgun” clause) or other exit mechanism to break a deadlock—e.g., one partner can offer to buy the other out at a certain price, and the other must either sell or buy at that price. Tailor the deadlock remedy to the specific JV (keeping in mind that a shotgun buy-sell may not be viable if one party lacks the financial capacity to buy out the other). Also consider including a provision for expedited arbitration or status quo preservation for urgent deadlocks (like budgeting impasses where the last approved budget continues by default).
Ancillary agreements
Alongside the main JV agreement, execute any ancillary contracts that will govern the relationships around the JV:
- Share or unit purchase agreement: If the JV involves one partner buying into an existing entity or one partner transferring assets in exchange for equity, a purchase or subscription agreement may be used to detail those terms and representations and warranties regarding such contributed assets.
- Assignment agreement: As noted above, if IP is contributed, a separate assignment agreement that can be recorded with the appropriate IP offices should be signed.
- IP license agreements: As noted above, if IP is licensed rather than contributed, a separate license agreement should be signed.
- Services or supply agreements: If a JV partner (or its affiliate) will provide services, goods, or technology to the JV (or vice versa), put those agreements in place at formation. This could include technology support services, transitional services (if the JV is carved out from an existing business), or supply/offtake agreements where, for example, one parent will buy the JV’s output or supply raw materials to the JV. These contracts should be on arm’s-length terms to withstand scrutiny (important for transfer pricing, financing, and fairness to all venturers).
- Real estate leases: If the JV will use facilities or real estate owned by a parent, negotiate a lease or license agreement.
- Financing documents: If the parents are lending funds to the JV or guaranteeing its debts, sign the loan agreements or guarantees.
- Insurance: Arrange for necessary insurance coverage in the JV’s name. At a minimum, the JV should have general liability insurance and any industry-specific coverage (e.g., product liability if manufacturing, malpractice if healthcare). Also strongly consider Directors and Officers (D&O) insurance to protect the JV’s officers and board members (especially since they may be executives of the parent firms). Determine which party will procure and pay for these policies, and list the JV (and sometimes the JV partners) as insureds as appropriate.
Initial compliance setup
As the JV launches, institute compliance measures from day one. For example, register the JV for federal, state, and local tax IDs and licenses; set up an accounting system and internal controls (particularly if one parent company will consolidate the JV’s financials into its own statements). If the JV will handle personal data or sensitive data, implement privacy and security policies and agreements in line with applicable laws (such as GDPR if EU data is involved, state privacy laws like CCPA/CPRA if applicable, HIPAA if protected health information, etc.).
Also establish an anti-bribery policy consistent with applicable anti-corruption laws—the JV and its personnel should be trained not to offer any improper payments, especially if operating in high-risk countries or interacting with government officials, since both the JV and the parent companies could face liability in certain circumstances.
