There are two main reasons why the parties to the joint venture need withdrawal and termination provisions: in the case of a Delaware LLC, The Delaware Limited Liability Company Act (DLLCA) provides that «the Court of Chancery may decide, at the request of a member or officer, to dissolve a limited liability company, if it is not reasonably possible to proceed with the transaction pursuant to a limited liability partnership contract» (DLLCA 18-802). If the impasse is not resolved, the only option may be to remove one of the parts of the joint venture. This could be done in different ways: a 2009 Court of Chance case shows what can happen if there are no explicit exit provisions. In the enterprise agreement of Fisk Ventures, LLC v. Segal, the Fisk Ventures enterprise agreement required a board of five executives to manage their affairs, but with many measures subject to the approval of 75% of its members. The court found that the company`s history showed that it was suffering from a state of almost eternal stalemate. The lack of good exit provisions appears to have contributed to more than five years of discord before one of the members finally called for the dissolution of the tribunal. In its decision, the Tribunal emphasized the compelling argument for the inclusion of explicit exit provisions and stated: «In this case, this is a long-standing corporate dispute that has led to a devastating impasse for [the board of directors] of the company and the loss of considerable value to all parties involved. [Society] The Board of Directors is hopelessly blocked and the LLC agreement does not anticipate this risk by imposing a solution to the board`s dispute» (Fisk Ventures, LLC v. Segal, 2009 WL 73957 at `16 (Del. J.C.
13, 2009)). Typically, a joint venture is created to treat a specific project with specific objectives. Such an undertaking will run naturally and will end with mutual agreement when the project is completed. The parties may not agree on an issue or approach during the joint venture. It is customary for the Joint Enterprise Agreement to transfer disputes to a designated senior official of each partner for settlement, and if they are unable to resolve the issue, or as an alternative, and when it is a technical matter (for example. B, legal or accounting), to an independent expert. Sometimes the JVs have no deadlock rules. The incentive then is for the parties to solve the problem in order to prevent the project from stagnating.
The joint venture is a publicly traded company. From a practical point of view, the parties to the EC normally recognize that a deadlock is not in the interests of one of the parties. Business is rowless, which undermines its value. This is a situation of loss of fate. The parties will want to negotiate a solution. Well-developed withdrawal and termination provisions can be a starting point from which the parties can negotiate a solution that they would not otherwise be able to achieve without these provisions. When a deadlock is created in a joint venture, the first step in trying to resolve it is often an escalation procedure. An escalation provision applies when the issue has already been discussed by the Board of Directors (in the case of companies) or by the Board of Directors (in the case of LCs) but has not been resolved. A party that wants to break the deadlock must send a message to the other party and the problem is then submitted to the senior officials of each part of the joint venture. These officials must then try to resolve the impasse for a period of time. A buy-sell commission is often used in combination with a deadlock.
It is also frequently used, with certain modifications, when the other party significantly violates a joint enterprise agreement or undergoes a change of control.