Hukumonline - Workshop Joint Venture Agreement 1

Legal Aspects of
Joint Venture:
Drafting a JV Agreement
By: Mutiara Rengganis
6
AYMP | 2
Introduction: What is a Joint Venture
• Textbook Definition:
A joint venture (JV) is a business

arrangement in which two or more parties
agree to pool their resources and
collaborate in carrying on a business activity
with a view to mutual profit.
• The JV itself is a separate entity from the

participants' other business interests.
• JV can take on various legal structures. The

most commonly used is in the form of a
limited liability company (perusahaan 2
Purpose of Joint Venture AYMP |3
Matching the expectations:
- Spirit of the venture; expand new market,

gain more capital, create new product,
combine resources, etc
- Business plan; distribution of dividend
- Contributions of the parties; monies, assets,

or supply of goods or services
- Different class of shares; preferred shares

for sleeping partner
- Achieving early exit for short-term investor

3
The Importance of Adequate AYMP | 4
Documentations
• Main Documentations
- Difference between JV Agreement and

Shareholders Agreement
- Certain provisions to also be conferred in

the Articles of Association
• Objective
“To describe with precision the substance

of the meeting of two minds, in language that
will be interpreted by each subsequent
reader in exactly the same way”
4
AYMP | 5
Basic Principles of a Contract
• Pacta sunt servanda
• Freedom of contract  meaning?

• Comply with legal requirements of a
contract (Art 1320 ICC)
• Does not violate prevailing laws,
general norms and public order
• Performed in good faith (bona fides)
5
Key Elements in Drafting a Contract AYMP | 6
Key Elements In A Contract
Accuracy
- Sequence logically by chronology of events
- Precisely address the important issues
- Note the relevant regulations
Brevity
- Balance precision with simplicity
- Repeat only when repetition is necessary to improve clarity
Clarity
- Define important terms when first used and be consistent
- Avoid terms/words with more than one meaning (ambiguity)
- Write as if the judges would have understood it
6
Areas of Concern: AYMP | 7
Minority Protections
• Why minority protection is needed?
• Vetoes applicable to a minimum shareholding
• Typical minority vetoes:
 Change in the nature of business

 Change in share capital
 Business Plan and CAPEX
 Sale of business or material assets
 Merger and/or acquisition
 Making loans and give guarantees
 Transaction with related party
 Management contracts and the like
 Transfer or issuance of shares
 Liquidation
7
Capital Call
• Reference to the agreed Business Plan
• Source of financing; loan v. equity
• Security over the assets
• Common issue; financial credibility of the

partner
• Funding default  consequences?
8
Corporate Governance
Elements of Corporate Governance

• Establishment of the JV company
• Definition of business to be carried out
• Amount of capital investment
• Nomination of directors and commissioners
• General meeting of shareholders; quorum/voting
• Transfer of shares
• Issuance of new shares
• Reserved matters
9
Deadlock
- Why this needs to be regulated?
- Possible causes of deadlock:

 Change in the nature of business
 Change in share capital
 Business Plan and CAPEX
 Sale of business or material assets
 Merger and/or acquisition
 Making loans and give guarantees
 Transaction with related party
 Entry of management contracts and the like
 Transfer or issuance of shares
 Liquidation
- Resolving deadlock; amicable settlement by senior executives, exercise of call

option
10
Call and Put Options
• Call and Put Options, what and why?
- Deadlock  exit mechanism
- Funding default  punishment
- Material breach (other than funding default, e.g. non-

competition, winding up/ liquidation, suspension of payment)
• Consideration for the option shares  discount
• Manner of exercise; how to ensure completion?
11
Early Exit
• Possible restriction of share transfer
• Sale of shares:
- Right of first refusal
- Shares price; fair market value
- Offer from a third party; same T&C, drag

along and tag along rights
- Manners of shares transfer
• Initial Public Offering  support by

management
12
Termination and Its Consequences
Termination and Its Consequences
- As result of a shareholder exiting the JV
- Enforcement against transferee and new

shareholder; deed of accession
- Repayment of loans
- Release of existing guarantees and

replacement of new ones
13
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Legal Aspects of

By: Mutiara Rengganis

A joint venture (JV) is a business

• The JV itself is a separate entity from the

• JV can take on various legal structures. The

Matching the expectations:

- Spirit of the venture; expand new market,

- Business plan; distribution of dividend

- Contributions of the parties; monies, assets,

- Different class of shares; preferred shares

- Achieving early exit for short-term investor

- Difference between JV Agreement and

- Certain provisions to also be conferred in

“To describe with precision the substance

• Pacta sunt servanda

• Freedom of contract  meaning?

Key Elements In A Contract

• Why minority protection is needed?

• Vetoes applicable to a minimum shareholding

• Typical minority vetoes:

 Change in the nature of business

• Reference to the agreed Business Plan

• Source of financing; loan v. equity

• Security over the assets

• Common issue; financial credibility of the

• Funding default  consequences?

Elements of Corporate Governance

- Possible causes of deadlock:

- Resolving deadlock; amicable settlement by senior executives, exercise of call

Call and Put Options

• Call and Put Options, what and why?

- Deadlock  exit mechanism

- Funding default  punishment

- Material breach (other than funding default, e.g. non-

• Consideration for the option shares  discount

• Manner of exercise; how to ensure completion?

• Possible restriction of share transfer

- Right of first refusal

- Shares price; fair market value

- Offer from a third party; same T&C, drag

- Manners of shares transfer

• Initial Public Offering  support by

Termination and Its Consequences

Termination and Its Consequences

- As result of a shareholder exiting the JV

- Enforcement against transferee and new

- Release of existing guarantees and

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