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Forming Strategic Alliances – The Good, the Bad, and the Ugly   Austin AIA Annual Summer Conference Presented by Brenda Barrett Healey August 25, 2011 DALLAS · FT. WORTH · HOUSTON · AUSTIN · SAN ANTONIO
What is a strategic alliance? ,[object Object]
The Good
Why look for strategic partners? ,[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object]
Forms of Strategic Alliances  ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Contractual Relationship Joint Venture/Partnership Formation of an Entity/Business Description ,[object Object],[object Object],[object Object],[object Object],A general partnership may be formed without any governmental filing by oral or written agreement. Partners are taxed instead of partnership.  Partners of general partnerships share liability for debt obligations ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Start Up Costs Legal Fees to draft agreement that outlines the relationship (service agreement?  Independent contractor agreement?) Fees to draft Joint Venture/Partnership Agreement Typically greater than to draft service contract for contractual relationship because of multiple issues that need to be addressed in Joint Venture/Partnership Agreement Advise on appropriate form of entity to use (includes tax planning) Fees to draft organizational documents (see “Organizational Documents” below for list) Fees to draft any other initial documents not related to the formation (service contracts; employment agreements; etc.)
Contractual Relationship Joint Venture/Partnership Formation of an Entity/Business Initial Capital  Minimal to zero; Each side pays their share of start up expenses independently Depends on terms of agreement Enough to pay for initial start up expenses and to pay for expenses anticipated until entity is generating enough revenue to pay for expenses out of revenue Should fund with enough initial capital so that owners do not have make additional capital contributions or loans to the business Individual Liability Only liability is what is agreed to in the contract or under law No liability for liabilities of counter party’s business If construed to be a partnership, each partner has full liability for the liabilities of the partnership Assuming corporate formalities are maintained, generally not liable for debts and obligations of entity Participation in Management No participation in management of counter party’s business General partners have the exclusive right to manage the business of venture Provided by statute and governing documents of entity Transferability of Interest Interest in contract may be assigned unless prohibited by contract Generally, a partner may assign right to distributions, but the assignee can only become a partner if other partners consent Securities law restrictions on transfer and restrictions may also be imposed in the operating agreement
Contractual Relationship Joint Venture/Partnership Formation of an Entity/Business Organizational Documents Contract Joint Venture/Partnership Agreement Certificate of Formation Bylaws , Company Agreement or Limited Partnership Agreement (or appropriate variation) Organizational meeting minutes or consent SS-4 If corporation, may have S Election form If corporation – Stock certificates If Corporation – Shareholder Agreement Accounting No need to establish separate books for the relationship; but each party has to appropriately account for the costs paid and revenue received from the relationship Partnership should keep separate books and records  Must keep separate books and records Fiduciary Duties None Fiduciary duties to partners Governing body owes fiduciary duties to owners
Contractual Relationship Joint Venture/Partnership Formation of an Entity/Business Ownership of Work Created during relationship As specified in the contract Partnership generally Entity owns Termination of Relationship Defined term Must set a defined term when the relationship ends; can always be extended if things go well Can have a defined term but not required Is possible to have a defined term but typically do not Removal or Withdrawal of a counterparty Would likely be breach of contract and subject to damages Removal or withdrawal of a partner Removal or withdrawal of an owner Matters to attend to at termination Contract dictates what happens on termination and when termination occurs.  Typically no assets of the venture so nothing to transfer  Agreement and law provide procedure and requirements for dissolution and distribution of assets.  May require final tax return Sell (or transfer in exchange for some value) all remaining assets and distribute to all owners in accordance with formation documents File appropriate legal paperwork to dissolve File final tax returns upon dissolution
The Bad and the Ugly
Improperly formed alliances an create unwanted exposure ,[object Object],[object Object],[object Object],[object Object]
How? Joint Venture as a Partnership ,[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Do you have a Partnership? ,[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object]
Types of Exposure
Liability to Third Parties ,[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object]
Obligations to Partners ,[object Object],[object Object]
Ownership of Property ,[object Object],[object Object]
[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object]
Regulatory Matters ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object]
Practical Considerations in forming Strategic Ventures
Key Terms of Strategic Relationships ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object]
Identifying your Strategic “Partner”
What does a good strategic partner look like? ,[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object],[object Object]
[object Object],[object Object]
What does a bad strategic partner look like? ,[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object]
[object Object],[object Object],[object Object]
[object Object],[object Object]
[object Object],[object Object]
Questions?
816 Congress, Ste. 800 Austin, Texas 78701 512-708-1804 www.hensleeschwartz.com Presented by: Brenda Barrett Healey [email_address] 512-708-1804 512-206-6469 DALLAS · FT. WORTH · HOUSTON · AUSTIN · SAN ANTONIO

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2011 aia presentation the good bad and the ugly of strategic relationships (2)

  • 1. Forming Strategic Alliances – The Good, the Bad, and the Ugly   Austin AIA Annual Summer Conference Presented by Brenda Barrett Healey August 25, 2011 DALLAS · FT. WORTH · HOUSTON · AUSTIN · SAN ANTONIO
  • 2.
  • 4.
  • 5.
  • 6.
  • 7.
  • 8. Contractual Relationship Joint Venture/Partnership Formation of an Entity/Business Initial Capital Minimal to zero; Each side pays their share of start up expenses independently Depends on terms of agreement Enough to pay for initial start up expenses and to pay for expenses anticipated until entity is generating enough revenue to pay for expenses out of revenue Should fund with enough initial capital so that owners do not have make additional capital contributions or loans to the business Individual Liability Only liability is what is agreed to in the contract or under law No liability for liabilities of counter party’s business If construed to be a partnership, each partner has full liability for the liabilities of the partnership Assuming corporate formalities are maintained, generally not liable for debts and obligations of entity Participation in Management No participation in management of counter party’s business General partners have the exclusive right to manage the business of venture Provided by statute and governing documents of entity Transferability of Interest Interest in contract may be assigned unless prohibited by contract Generally, a partner may assign right to distributions, but the assignee can only become a partner if other partners consent Securities law restrictions on transfer and restrictions may also be imposed in the operating agreement
  • 9. Contractual Relationship Joint Venture/Partnership Formation of an Entity/Business Organizational Documents Contract Joint Venture/Partnership Agreement Certificate of Formation Bylaws , Company Agreement or Limited Partnership Agreement (or appropriate variation) Organizational meeting minutes or consent SS-4 If corporation, may have S Election form If corporation – Stock certificates If Corporation – Shareholder Agreement Accounting No need to establish separate books for the relationship; but each party has to appropriately account for the costs paid and revenue received from the relationship Partnership should keep separate books and records Must keep separate books and records Fiduciary Duties None Fiduciary duties to partners Governing body owes fiduciary duties to owners
  • 10. Contractual Relationship Joint Venture/Partnership Formation of an Entity/Business Ownership of Work Created during relationship As specified in the contract Partnership generally Entity owns Termination of Relationship Defined term Must set a defined term when the relationship ends; can always be extended if things go well Can have a defined term but not required Is possible to have a defined term but typically do not Removal or Withdrawal of a counterparty Would likely be breach of contract and subject to damages Removal or withdrawal of a partner Removal or withdrawal of an owner Matters to attend to at termination Contract dictates what happens on termination and when termination occurs. Typically no assets of the venture so nothing to transfer Agreement and law provide procedure and requirements for dissolution and distribution of assets. May require final tax return Sell (or transfer in exchange for some value) all remaining assets and distribute to all owners in accordance with formation documents File appropriate legal paperwork to dissolve File final tax returns upon dissolution
  • 11. The Bad and the Ugly
  • 12.
  • 13.
  • 14.
  • 15.
  • 16.
  • 17.
  • 18.
  • 20.
  • 21.
  • 22.
  • 23.
  • 24.
  • 25.
  • 26.
  • 27.
  • 28. Practical Considerations in forming Strategic Ventures
  • 29.
  • 30.
  • 31. Identifying your Strategic “Partner”
  • 32.
  • 33.
  • 34.
  • 35.
  • 36.
  • 37.
  • 38.
  • 39.
  • 41. 816 Congress, Ste. 800 Austin, Texas 78701 512-708-1804 www.hensleeschwartz.com Presented by: Brenda Barrett Healey [email_address] 512-708-1804 512-206-6469 DALLAS · FT. WORTH · HOUSTON · AUSTIN · SAN ANTONIO