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Exiting a joint venture—checklist

Exiting a joint venture—checklist This Checklist identifies the different routes to termination or exit from a joint venture (JV) and the considerations which apply depending on the exit path chosen. For guidance on responding to a JV dispute, see Practice Note: Joint venture disputes—how to respond. For further detailed guidance on terminating joint ventures in the context of a specially created or nominated joint venture company (JVC), see Practice Notes: • Termination—corporate joint ventures • Tax implications of operating and terminating a joint venture company • Corporate joint venture dispute—dealing with deadlock: initial considerations • Majority-minority joint venture dispute—a practical illustration Embarking on a JV relationship in the first instance usually involves considerable planning and effort on the part of the JV parties who have decided to partner one another for mutual gain (usually by sharing cost, resource and experience). You will need to consider the full implications of ending or exiting the JV, as to whether there are sufficiently good reasons for being prepared to see that investment lost...

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Development capital investment

Development capital investment Development, or growth, capital investment refers generally to an investment in a mature company that is earning revenue and has operating profits, but is not able to generate sufficient cash to fund a restructure or growth. Background to development capital investment Why seek investment? A company may seek this type of private equity investment to: • expand its business • restructure its operations • finance a major acquisition, or • restructure its balance sheet, eg by reducing debt Such companies are usually unable to take on additional debt either due to existing debt levels or market conditions. Private equity investment is seen as a realistic alternative. An investment of this nature will not normally lead to a change in control of the business as investors take a minority stake in the company. In addition, unlike other forms of private equity investment, investors do not significantly intervene in management affairs. Existing shareholders are not looking to exit and existing management is settled. Types of investors...

Venture capital investment

Venture capital investment Venture capital is a type of private equity investment provided to early stage, start-up businesses with little or no operating history. Background to venture capital investment Why seek investment? Businesses that seek venture capital investment are generally too small to raise capital in the public markets and are unable to secure debt finance. The combination of a lack of operating history and, in many cases, an unproven business model underpinned by untested technology, makes investing in such businesses a high-risk strategy. Investors interested in these types of businesses will usually bring technical, as well as managerial, expertise to the management team. However, they will look to make high rates of return on their investments because of their high-risk nature. Types of investment and investors There are different phases of venture capital investment, depending largely upon the stage of the investee company’s development and the level of investment required. First round investment in very early-stage businesses, or seed capital investment, is usually confined to family and...

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Written statement for employee shareholder shares [Archived]

Written statement for employee shareholder shares [Archived] Archived: The ability to offer tax-favoured employee shareholder shares or ESS (commonly used in private equity company arrangements) has now been removed. The government announced in the Autumn Statement 2016, the removal of the following reliefs in relation to ESS shares: • the income tax and NICs relief which applies to the first £2,000 worth of employee shareholder shares received by an individual • the capital gains tax exemption in respect of all or a portion of the ESS shares, and • the provision which ensures that, when a company buys employee shareholder shares back from an employee shareholder, the consideration is not a distribution in the shareholder’s hands The removal of the reliefs applies to any employer shareholder agreements made on or after 1 December 2016. However, any individual who received independent advice regarding entering into an employer shareholder agreement before 23 November 2016 still had the opportunity to enter into the agreement before 1 December 2016 and still...

Growth shares term sheet

Growth shares term sheet [INSERT NAME OF COMPANY] growth SHARES This term sheet summarises a proposal to incentivise key employees of [insert name of company] (referred to below as the ‘Company’) by allowing those employees to subscribe for a new class of shares in the Company (Growth Shares). All issues raised in this document are for discussion purposes and each should be considered carefully before implementation. 1 Overview Under the terms of the proposal, participants will subscribe directly for Growth Shares. The Growth Shares will have rights which are designed to allow employees to participate only in post-acquisition increases in the value of the Company in the event of an IPO or liquidation, or where more than [Insert percentage]% of the Company's ordinary shares are sold (in each case, referred to in this note as an ‘Exit’). When an Exit occurs, the Growth Shares will carry an entitlement to share in part of the Exit consideration, provided that the purchase price paid to shareholders of the Company...

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Could you please direct me to drag-along and tag-along provisions for use in a private equity or venture capital context?

Could you please direct me to drag-along and tag-along provisions for use in a private equity or venture capital context? A 'drag along' is the process by which a majority shareholder or shareholders, eg a private equity (or a venture capital) fund investor, can achieve a sale of all of the shares in the company (including those shares held by other shareholders) to facilitate a full exit. It is also sometimes referred to as a 'come along'. In practice, the use of drag-along provisions by an investor in a private equity context is complicated. If management is critical to the business but against the sale, it may be difficult to find a buyer willing to buy in those circumstances and at the desired price. The provisions are of more use where the majority of parties are in agreement but certain dissenting shareholders, eg former managers or employees, do not wish to sell. Tag-along provisions assure that if the majority shareholder or shareholders sell their shares, minority...

Can the inclusion of drag along rights in the articles of association of a joint venture company be considered to be unfair prejudice on a minority shareholder?

Can the inclusion of drag along rights in the articles of association of a joint venture company be considered to be unfair prejudice on a minority shareholder? Drag along and tag along rights are commonly included in joint venture (and indeed private equity investment) articles of association. They ensure that if the majority shareholders agree to sell their shares: • the minority shareholders can be obliged to sell on the same terms so as to deliver 100% ownership to the buyer, thus maximising the price per share (drag-along), and • the minority shareholders can ensure that they can sell on the same terms as the majority and are not left with a rump of unsaleable (or less valuable) shares following a sale by the majority (tag along) Where these rights are included in the company's articles from a point before the shareholders subscribe, they are most unlikely to be found to be unfairly prejudicial (rather, they may be regarded as 'market standard'). More difficult issues may arise...

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Takeover Panel proposes to narrow the scope of companies to which the Code applies

Corporate analysis: The Takeover Panel (Panel) has published a consultation paper, PCP 2024/1, which proposes a new jurisdictional framework which would narrow the scope of the companies to which the Takeover Code (Code) applies under section 3 of the Introduction to the Code, refocusing the application of the Code to companies which are registered in the UK and listed (or were recently listed) in the UK.

Draft Finance Bill 2016—income tax

Tax analysis: What are the proposed changes to the income tax regime to be included in the Finance Bill 2016? The Tolley Tax team explain.