Typically, this may be linked to a period after practical completion in a real estate development joint venture.The parties may also consider prohibiting transfers to competitors of shareholders remaining invested in the JV Co. The parties may wish to consider a lock-in period, within which all transfers are prohibited. Generally, partial transfers of shareholdings are to be avoided. ![]() There may also be the option to convert such a default loan into shares, in effect diluting the equity interest of the defaulting party.Įither the JV Co shareholders' agreement or the articles of association of the JV Co will contain provisions relating to the transfer of shares in the JV Co, including pre-emption rights on transfer, permitted transfers of all of a party's shares to a company in its group, drag-along and tag-along provisions and compulsory transfer. The non–defaulting party should have the option to provide default funding which would accrue interest at a rate higher than that which would apply to normal shareholder loans. The joint venture documentation should specify the consequences of a failure by a party to fund the JV Co when a valid drawdown request has been served. This also reduces the possibility of the JV Co, when repaying the loans, preferring a creditor and potentially being in breach of the Insolvency Act 1986 if it were to become insolvent in the following two years. The shareholders' agreement will usually provide that loans be repaid to the parties pro rata to their respective percentage contributions so as to reflect the integrity of the joint venture agreement. ![]() FundingĪ typical method of funding by investors to the JV Co is through the provision of shareholder loans, with the JV Co issuing loan notes, in an agreed form, to the shareholders against the loans made. The shareholders' agreement should provide that the approval protocol for matters requiring the approval of the both parties also applies in relation to any subsidiaries of the JV Co. There can be some exceptions to the situations where a unanimous shareholder resolution is needed for a reserved matter, for example where the reserved matter is permitted in a business plan that has already been approved or where it relates to an obligation under an agreement that has already been approved. ![]() This would usually have the effect of reducing the list of reserved matters in relation to which the board must seek the approval of both shareholders. Often, parties agree a list of board decisions where at least one director appointed by the majority shareholder and one director appointed by the minority shareholder must vote in favour of the resolution for it to be passed. Shareholders can vote in their own self-interest whereas directors of a company must act in the way that they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. A minority shareholder, who only has minority representation on the board, is likely to want a number of key matters to be reserved for approval of both shareholders to give it a right of veto over very key decisions relating to the JV Co. If the joint venture company (the JV Co) is an English company, whilst day-to-day decisions are generally made by the board of directors, consideration should be given as to which matters should be reserved for approval by shareholders. Decision making – directors resolutions vs. Investors in real estate considering indirect investments of this type should take note of the following five important points when finalising joint venture terms. It is certainly possible demand for joint venture opportunities in the real estate sector will increase in the next twelve months. Then, in the real estate funds space, there was a shift away from pooled investments through funds and an uptick in real estate joint ventures, as investors sought to take greater control over their investments. ![]() As we head towards the last part of 2020 in the midst of a recession and some of the most challenging business conditions many have ever faced, it is worthwhile considering the aftermath of the 2008 global financial crisis.
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