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China joint ventures. Are you on the same page?

by Dan Harris in 'China Law Blog'

When it comes to forming China joint ventures, the biggest issue is obviously whether or not it makes sense to form one. The most important question relating to whether it makes sense to form a China joint venture is usually whether you will be able to work well with your putative Chinese joint venture partner.  And the most important question relating to whether you will be able to work well with your Chinese joint venture partner is whether you and that partner share the same goals and have the same operational plans for the joint venture.

Thus, the quickest way to determine whether it makes sense for you and your potential joint venture partner to delve deeper into negotiating the terms of a joint venture is to determine whether you two are on the same page in terms of goals and operational plans.  A few years ago, a client that was about to meet for a second time with its potential joint venture partner to move further in determining whether to enter into the joint venture and, if so, on what terms, asked me to list out the important issues it should discuss at that meeting.  Earlier this week, I was asked that same thing by another client about to fly off to China for a joint venture meeting.  I was able to find my previous list and I set that out below.

Here are my thoughts on the big picture issues you will want to raise at your meeting:

(1) The business objectives.  Why are you forming the joint venture and what will its goals be?

(2) What will each of you do for/with the joint venture?  Who will be doing what?

(3) Who will be making decisions for the joint venture and what will be the mechanism for those decisions to be determined?

(4) What will each of you be contributing to the joint venture?  Property, technology, intellectual property, money, know-how, employees? What if the joint venture loses money, who will be responsible for putting more money in?

(5) How will disputes be resolved?  It’s relatively easy to write a provision saying that the parties will seek to work out any issues among themselves and if they cannot do so, they will arbitrate in Switzerland.  That’s lawyer language. The tougher question is how will the two of you deal with day to day disputes in a way that the joint venture does not fall apart over litigation?

(6) Confidentiality. Can both parties use JV information for their own businesses? Or can neither do that? Can your own businesses compete with the JV?  Can your own businesses do business with the JV?

(7) How will the joint venture end?  What if one side wants to buy the other out?

This list is obviously meant to be more a list of talking points than a comprehensive negotiation tool, but I would nonetheless love to get your feedback on it. The old saying about joint ventures is “same bed, different dreams.” My thinking on the above was that posing these questions at least tests out the dreams.  Am I missing anything?  Did I include anything that does not really belong?

Dan Harris is founder of the Harris & Moure law firm, a boutique international law firm focusing on small and medium sized businesses that operate internationally. China is the fastest growing area for the firm. Dan writes as a source of China legal and business information.


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