362 10 Exit of Shareholders
10.3.3 Termination of a Joint-Venture
A commercial joint-venture typically involves the coordinated use of strategic as-
sets from two or more parties to achieve a result that benefits all parties. A com-
mercial joint-venture is not a mere financial investment. Typically, the business
venture has a value even separated from its owners. The change of one owner will
not have to mean the end of the business venture. Such business ventures range
from unincorporated joint-ventures to incorporated limited-liability companies.
Regardless of the form of the joint-venture, the parties have typically regulated
their mutual relations in a joint-venture agreement.
Exit plans. The exit plans of the parties depend on the purpose of the joint-
venture. For example, a product-specific joint-venture will expire commercially at
the end of the product life, a joint-venture for the development of a market for a
product can end through the joint sale of the joint-venture or an IPO, and a joint-
venture for the integration of complementary products or services can result in a
merger. The joint-venture can thus expire as a business venture on termination,
survive the termination, or be merged into one of the parties.
In a two-party joint-venture, a party could, in principle, realise the full value of
the joint-venture either through obtaining control or through the sale of its inter-
ests in the joint-venture. A party may buy or sell shares, or be forced to buy or
forced to sell the shares. A party could, in principle, sell its interests either to the
other party or to a third party. A party may have agreed on a duty to offer its inter-
ests to the other party. When selling its interests to a third party, that party may act
jointly with the other party or unilaterally. A party may thus buy or sell the shares,
or be forced to buy or forced to sell the shares.
Contractual regulation of exit and termination. The termination of a joint-
venture can be triggered by many things.
Some of the events that can trigger termination are common to all long-term
contracts. Default by the other party can give the aggrieved party a right to termi-
nate the contract. A party can have a right to terminate the contract in the event of
change of control of the other party. Material adverse change may be listed as a
general termination event, and a general material adverse change clause may be
complemented by clauses on failure to achieve the purpose of the joint-venture or
its failing financial condition.
There are also particular termination clauses used in joint-ventures. The parties
will need to address the risk of deadlock situations and regulate the situation
where one party wants to exit the joint-venture before the expiry of the agreed
term of the contract.
As a commercial joint-venture is not a mere financial investment, exit terms be-
long to core terms of the joint-venture agreement, and there are particular ways to
agree on questions of exit and removal in this context. Three special situations
arise in a joint-venture controlled by two parties: exit by both parties; exit by one
party; and removal of the other party.
Exit by both parties. Both parties may want an exit. In this case, unilateral ac-
tion by one party might exclude some forms of exit and prevent the other party
from obtaining a high price. The joint-venture contract can therefore contain re-