Key Considerations For Forming And Operating A Joint Venture In The U.S.

Pre-formation phase

Partner due diligence and alignment

Perform thorough due diligence on prospective JV partners. Verify their legal standing, financial health, and compliance history (e.g., ensure they are not on any sanctions lists). Confirm strategic alignment on the JV's objectives and discuss long-term intentions and exit strategies upfront to avoid misalignment later.

Commercial and legal due diligence

Perform thorough commercial and legal due diligence of any business or assets intended to be contributed to the JV by prospective JV partners. Ensure early alignment on relative valuation of each partner's intended contribution to the JV to determine respective ownership interests in the JV.

Confidentiality agreement (NDA)

Sign a robust NDA before exchanging any business informa\tion. The NDA should restrict use of disclosed information to the evaluation of the JV and protect trade secrets and business plans. Ensure the NDA's confidentiality obligations extend through the negotiations and survive even if the JV is not ultimately formed (including survival with respect to trade secrets for so long as they remain trade secrets).

JV entity structuring plan

Determine the optimal legal entity for the JV (e.g., corporation, limited liability company (LLC), limited partnership (LP). Tax implications must be considered (see below) as well as liability implications for each form: LLCs are popular for JVs due to limited liability and contractual flexibility, whereas C-corporations may be simpler for multiple international owners (note that S-Corporations (which also allow pass-through tax) are generally not an option if a JV partner is foreign, as S-Corp shareholders must be U.S. citizens or residents).

If using an LP, there will need to be a corporate or LLC general partner to limit liability. Decide on the state of formation (Delaware is common for its established legal framework and preeminent business courts, although regulated industries might require a specific jurisdiction).

Regulatory feasibility check

Identify any legal or regulatory hurdles before committing to the JV structure. Determine if the JV might trigger antitrust scrutiny—e.g., analyze whether the collaboration could lessen competition and if a Hart-Scott-Rodino (HSR) filing is required due to the size of the transaction.

If at least one partner is non-U.S. (or owned by non-U.S. persons), assess the need for a review by the Committee on Foreign Investment in the U.S. (CFIUS) for national security concerns; certain foreign investments in sensitive U.S. businesses may require advance notice or approval. Check for any federal or state-specific restrictions on foreign ownership in the JV's industry or assets. Ensure the proposed JV structure can obtain any industry-specific licenses (e.g., in finance, telecom, healthcare)—early outreach to regulators or legal advisors in the field may be advisable.

If at least one partner is connected to China, Hong Kong, or Macau (e.g., principal place of business or headquarters in China/Hong Kong/Macau, incorporated in China/Hong Kong/Macau, ownership by China/Hong Kong/Macau persons), assess any prohibitions or notification requirements under the U.S. Outbound Investment Security Program (OISP); the formation of JVs that develop certain advanced technologies may require advance notice, or may be prohibited.

Preliminary tax planning

Consult tax advisors early to map out a tax-efficient structure for all parties.

• Pass-through or corporate JV: Evaluate whether a pass-through entity (like an LLC or partnership) or a corporation (which may include an LLC electing to be classified as a corporation) is better given the partners' respective tax profiles.
  
  For instance, an LLC or partnership offers single-tier taxation and the ability to deliver a tax-basis step-up in the assets of the LLC or partnership to a buyer in connection with a future exit, but a foreign partner earning "effectively connected income" (ECI) (through an LLC or a partnership) will generally be subject to U.S. tax and withholding on operating income and gain from the disposition of their interests in the LLC or partnership (as well as the potential application of a "branch profits" tax that effectively mimics two-tier corporate taxation on distributions), unless the foreign partner invests in the JV through a "blocker" corporation (or LLC electing to be taxed as a corporation).
  
  Additionally, the use of an LLC or partnership provides the ability to issue equity compensation to service providers in a tax-efficient manner in the form of "profits interests," but many foreign jurisdictions do not follow the United States' favorable taxation of "profits interests." Finally, many foreign jurisdictions treat a U.S. LLC as fiscally opaque for local tax purposes, resulting in foreign partners that are tax residents of such foreign jurisdictions being ineligible to claim treaty benefits through a U.S. LLC or implicating hybrid entity rules.
• Tax-deferred contributions: Determine whether the JV's partners can contribute property with a built-in gain to the JV on a tax-deferred basis.
• Pillar 2 considerations: Understand how (i) the JV's operations may impact the Pillar 2 taxes payable by the JV partners and their affiliates and (ii) the operations of a JV partner and its affiliates may impact the amount of Pillar 2 taxes payable by the JV's non-U.S. subsidiaries, and whether an indemnity for incremental Pillar 2 taxes payable either by a JV partner or its affiliates as a result of the operations of the JV and its subsidiaries or the JV's non-U.S. subsidiaries as a result of the operations of a JV partner or its affiliates, as the case may be, is appropriate.
• Tax incentives: Examine availability of tax incentives or credits in the JV's industry.
• Key tax-related provisions: Consider key tax-related provisions to be addressed in the JV agreement, including provisions relating to tax distributions, tax withholding, tax allocations (including so-called "section 704(c)" allocations with respect to contributions of built-in gain property), so-called "tracking" interests to segregate economics for ECI-generating activities (e.g., "unblocked" operating income) from non-ECI generating activities (e.g., activities held in corporate subsidiaries of the JV), material tax elections, and the identity of the person that will bear certain tax responsibilities (such as preparing tax returns or acting as partnership representative for an LLC/partnership).

Initial governance and control discussion

Outline how control will be shared. Discuss the management structure (e.g., will one partner be the managing JV partner, will there be a joint board, or will key decisions be made by JV partners and not the board (which takes pressure off of fiduciary duty concerns if the JV is a corporation) and important governance provisions: decision-making processes, veto rights for critical matters, and each party's role in day-to-day operations.

If one partner will have a majority stake, consider minority protections the other will require (e.g., supermajority approval for budgets, hiring key executives, or additional capital calls, which all must be considered against accounting consolidation requirements). If the JV will be 50/50 or co-controlled, plan mechanisms to handle deadlocks. These governance terms should be negotiated at the term sheet phase and later be reflected in the definitive JV agreement.

Employee and HR considerations

Determine how the JV will be staffed. Evaluate whether key personnel will be hired directly by the JV or seconded from the parent companies. This decision can depend on tax and benefit considerations, as well as regulatory constraints (in some regulated industries, long-term secondment of personnel might not be acceptable to the regulator).

Identify any labor or employment law issues that need early attention e.g., if transferring existing employees, consider whether any collective bargaining or notification obligations apply or whether any employee entitlements are triggered by the transfer; if hiring anew, ensure a plan for recruiting and establishing payroll/benefits for the entity.

If one or both of the parent companies are publicly traded, consider how to design share incentive plans to align employees' incentives with the JV but not eliminate the benefits of share incentive plans in a public company. Consider identification of key talent and whether any retention programs should be put in place.

Term sheet/letter of intent

Draft a preliminary term sheet or memorandum of understanding outlining key deal terms, including points referred to above. Include the JV's purpose/scope, each party's expected capital contributions (e.g., cash, assets, IP) and an agreed method of valuation for any in-kind contributions, preliminary ownership percentages, governance structure, profit-sharing, transfer restrictions and exit rights, and any exclusivity rights or non-compete arrangements. This document is typically non-binding (aside from certain provisions like confidentiality or exclusivity) and serves as a roadmap for the definitive JV agreements.

Formation phase

Entity formation and registration

Form the JV entity in the chosen state. File the certificate/articles of incorporation or organization with the state and obtain an EIN from the IRS. If the JV will operate in other states, file for foreign qualification in each such state. Satisfy any initial state filing requirements (publishing notices, initial reports, etc., depending on the state). If applicable, register with industry regulators (for example, registering as an investment adviser, broker-dealer, or obtaining a specific business license) as a prerequisite to operations.

Governing documents and structure

Draft and execute the definitive JV agreement and other organizational documents. For an LLC, this means an Operating Agreement; for a corporation, a Shareholders' Agreement (and charter and bylaws); and for an LP, a Partnership Agreement. These documents must spell out the governance and control arrangements in detail.

Define the management bodies (e.g., a board of directors or managers, management committee) and their composition (each JV partner's right to appoint members). Set clear rules for meetings, quorum, and voting. Identify reserved matters that require unanimous, supermajority, or shareholder/member approval (for example, amending the charter; approving the budget and business plan; hiring, terminating, and compensating the C-suite; issuing new equity; incurring significant debt; entering/exiting major contracts; mergers; voluntary bankruptcy; or dissolution). Include provisions for the appointment of officers or managers and outline their authority.

It is also important to address fiduciary duties and potential conflicts of interest—in an LLC or LP, duties of loyalty/care can be modified by agreement, whereas in a corporation, officers and directors will have non-waivable fiduciary duties. Ensure the governance structure complies with any foreign ownership constraints (e.g., if a foreign partner must remain a minority for regulatory reasons, reflect that in the ownership split and possibly cap their board representation). Address audit rights of JV partners and access to JV documents. Include indemnity provisions under which the JV indemnifies the JV partners in disputes with third parties.

Capital contributions and financing

Formalize each party's capital contribution obligations. The JV agreement or an ancillary investment agreement should list the initial contributions of each JV partner—whether in cash, IP, technology, real property, or other assets—and the agreed value of each contribution (if not cash). If contributions are in-kind, execute the necessary transfer documents or IP assignment agreements at closing and contemplate, in the JV agreement or elsewhere, what happens with these and other assets of the JV upon a dissolution. Clearly document each partner's equity interest in exchange for their contribution. Provide for the JV's initial capitalization to fund startup operations.

Also address future financing: will additional capital contributions be required or optional? Will funding needs be satisfied by capital contributions or will shareholder loans be acceptable, and if so, on what terms? Set terms for capital calls, including whether they are capped or open-ended, and what happens if a party does not fund its share (e.g., opportunity for the other party to fund and dilute the non-contributor's stake).

Consider preemptive rights for existing owners if JV raises capital by issuing additional equity to third parties. If external debt or third-party financing is envisioned, specify how guarantees or collateral will be provided (and by whom). The agreement may also stipulate that each JV partner's major funding obligations could be backed by a parent guarantee to ensure follow-through.

Transfer restrictions and exit

Align early on with other JV partners on investment horizon and liquidity expectations. Partners are typically restricted from transferring their interests in the JV for an initial lock-up period to ensure long-term commitment during the JV's strategic ramp-up phase. Following expiration of the lock-up period, consider if any proposed sale by a JV partner should first be offered to the other partner(s) on a pro rata basis and on the same price and terms (i.e., a right of first offer/refusal), to allow existing partners to maintain control and prevent unwanted third-party entrants.

In addition, consider whether, even after the expiration of a lock-up period, there should be an outright prohibition on transfers to certain competitors of the parent companies (how such competitors are identified will be the subject of discussion, i.e., a list or categorical). In JVs with a majority partner, such partner will typically have an ability to compel (or "drag along") minority partners to sell their interests on the same terms in a bona fide third-party sale of the entire JV (a pre-agreed valuation method or pre-defined floor protections can be designed to ensure predictability and fairness).

Also consider impact of a change of control of a partner's parent company on the JV to avoid misalignment or transfer of JV interests to a competitor or non-strategic party. If a partner owns its interest in the JV through a "blocker" for tax purposes, consider negotiating the circumstances in which such partner may transfer its interest in the blocker in connection with an exit and the impact, if any, of a blocker transfer on the consideration that is received by such partner in the exit. Finally, while most JVs are not formed with short-term exit in mind, the JV agreements may provide for periodic liquidity reviews, IPO drag rights, or mechanisms to permit partial monetization after a specified maturity date.

Regulatory approvals and notifications

Before the JV commences operations or any asset transfer, obtain all necessary regulatory consents:

• Antitrust: If an HSR filing was required, ensure the waiting period has expired or early termination was granted before consummating the JV. Document any antitrust clearance or state attorney general approvals for the JV (certain industries like healthcare may have state antitrust review).
• CFIUS: If the JV triggers a CFIUS review (e.g., a foreign partner gaining control of a U.S. business in a sensitive sector), file the declaration or notice and wait for clearance prior to closing. Negotiate and adhere to any mitigation agreements or conditions imposed by CFIUS to address national security concerns. (Front-load this process as needed, since a CFIUS review can be lengthy.)
• Industry licenses: Obtain any licenses or permits required for the JV's business. For example, if the JV is in a regulated field like banking, insurance, telecom, energy, pharma, etc., ensure the JV entity itself secures the necessary operational licenses/registrations (or that existing licenses can be transferred or extended to it). This may involve regulatory filings and approvals at federal and state levels (e.g., FCC approval for transferring spectrum licenses to a JV, FDA establishment registration, state public utility commission approval for energy JVs).
• Foreign investment, SEC and other reporting: If not already done, make any required post-formation notifications. A newly formed U.S. entity with significant foreign ownership (≥10% by a foreign person) must file an initial report with the Bureau of Economic Analysis (Form BE-13) within 45 days. (Even if exempt from detailed reporting due to size, an exemption claim filing may be required.) Mark calendar reminders for ongoing filings like annual or quarterly BEA surveys as applicable. Additionally, if any partner is a public company, coordinate any SEC disclosures (e.g., 8-K reporting of the JV formation, if material, and ongoing accounting for the JV as an affiliate).
• OISP: If the JV triggers a notification requirement under the Outbound Investment Security Program (e.g., a U.S. person forming a JV with a China-organized business, with the intention of developing certain advanced technologies), file a notice with the U.S. Department of the Treasury within 30 days of the transaction's completion date.

Tax structure implementation

Put into effect the desired tax structure. For example, if forming an LLC intended to be taxed as a corporation, file any necessary IRS Form 8832 (Entity Classification Election) to confirm corporate status for U.S. tax purposes. Ensure mechanisms are in place for handling cross-border tax issues: have the foreign partner provide a W-8BEN-E form to claim any treaty benefits for U.S. withholding tax; register the JV for state and local income and non-income taxes; and if the JV is a pass-through, decide which partner will serve as the "partnership representative" under IRS audit rules.

Ensure that any tax elections, including those required by the JV agreement, are made on a timely basis. The JV agreement should also cover tax matters such as allocation of profits/losses, tax distributions (distributing cash to cover owners' tax liabilities, if a pass-through), and cooperation on tax filings and audits. Ensure compliance with transfer pricing for any related-party transactions occurring as part of the initial JV formation or the JV's ongoing operations.

Intellectual property and confidentiality arrangements

Secure the legal rights around IP, data, and confidential information at the time of formation:

• IP contributions/licenses: Ensure the JV entity has the rights to use all IP necessary for the business. If a JV partner is contributing IP ownership to the JV, execute and record (if necessary or advisable) assignment agreements, and consider whether to license such IP back to the contributor if it needs to continue to use that IP, subject to field of use limitations to give effect to any agreed exclusive rights of the JV.
  
  More commonly, a JV partner may license IP to the JV rather than assign it. If so, craft a license agreement that is sufficiently broad and permissive that the JV has the rights it needs to use, develop, and otherwise commercialize the IP for as long as it operates its business. The IP owner will want to narrowly define the JV's permitted field of use and retain ownership of improvements outside the JV's business.
  
  Address whether the IP should be licensed on an exclusive basis (whether in a field of use, territory, or otherwise), Also, address what happens to that assigned IP if the JV is dissolved, or to that licensed IP if the licensor exits (e.g., a springing license on more permissive terms or an option to acquire the licensed IP).
• New IP development: Include provisions in the JV or any ancillary agreement on ownership of IP that is created by or on behalf of the JV through its employees or contractors (commonly referred to as "foreground IP"), or developed by or on behalf of the JV from IP that was contributed by a JV partner (such contributed IP is commonly referred to as "background IP").
  
  Generally, the JV would own foreground IP, but it is not uncommon for the JV partners to jointly own such foreground IP, particularly if it will be created by the JV partners' employees. JV partners usually seek to own developments of their background IP, which are then licensed to the JV, and also seek licenses to foreground IP, subject to field of use or geographic limitations.
  
  Address what happens to the foreground IP if the JV is dissolved, or to the license to a JV partner that exits. Also address the requirements for the filing, maintenance, and enforcement of IP, including control, costs, and consent or veto rights.
• Confidentiality and trade secrets: The definitive JV agreements should contain confidentiality obligations requiring both the JV and the JV partners to protect all non-public information and data (including trade secrets) that are exchanged. If the JV partners will continue to exchange information or data with the JV, consider a standalone mutual confidentiality and non-disclosure agreement between the JV and each JV partner. The confidentiality obligations under the foregoing agreements should survive a JV partner's exit and dissolution of the JV for appropriate periods of time (including survival with respect to trade secrets for so long as they remain trade secrets).
  
  Protect against sharing competitively sensitive information that may have antitrust implications, as well as any inadvertent IP contamination through information sharing. Ensure that all employees and contractors of the JV sign an agreement with appropriate confidentiality obligations, and an irrevocable and present assignment to the JV of all IP they create, invent, or otherwise develop. The JV can subsequently assign such IP to the relevant JV partner in accordance with the relevant agreement(s).

Employment, labor and immigration

Formally establish how the JV will handle human resources:

• Hiring or secondment: If employees are being transferred from the parent companies to the JV, execute secondment or transfer agreements (unless the employees are employed by an entity being contributed to the JV). For secondees, outline the terms (e.g., duration, who pays salary and benefits, reimbursement by JV), and clarify that day-to-day supervision will be by the JV (to avoid co-employment issues). If instead the JV is hiring new employees, set up payroll, benefits, and compliance infrastructure for the new entity (register for unemployment insurance, workers' comp, etc. in the state of operations).
• Labor law compliance: Ensure compliance with all relevant employment laws in the JV's operations. If the JV involves unionized employees, honor any successorship clauses or negotiate new agreements as needed. If a large-scale transfer of employees is occurring, consider whether the WARN Act (mass layoff/plant closure notice) or similar state laws could be triggered.
• Immigration: For any non-U.S. citizens who will work for the JV in the U.S., secure appropriate work visas or secondment arrangements. A regulated industry may have restrictions on who can perform certain roles (e.g., security clearance requirements if defense-related).
• Policies and benefits: Adopt an employee handbook or set of HR policies for the JV that covers code of conduct, anti-harassment, safety, etc., in line with legal requirements. Establish benefit and incentive plans or determine if employees will remain on a parent's plans via secondment.
• IP creation and protection: Ensure all JV employees sign necessary IP assignment and confidentiality agreements, as mentioned above. If the JV employees are shared with a JV partner, appropriate processes, procedures, guardrails and contractual obligations may be required to avoid IP contamination.
• Regulatory considerations: If the JV is in a sector where regulators oversee "key persons" (for example, financial services or healthcare), submit any required personnel information to regulators and ensure secondment does not blur accountability—regulators may require that key inpiduals be formally employed by the licensed entity.

Dispute resolution mechanisms

Incorporate agreed-upon dispute resolution and deadlock-breaking procedures into the JV agreements. Specify the governing law for the JV agreements and choose a forum for resolving disputes (courts or arbitration). For cross-border JVs, arbitration in a neutral venue is common; if so, include the arbitration clause (rules, seat, language). Define a process for resolving deadlocks on major decisions: for instance, require escalation of the issue to the CEOs of the parent companies if the JV board cannot agree; if that fails, possibly mandate mediation or arbitration for deadlocked matters.

Many JVs also build in a buy-sell provision ("shotgun" clause) or other exit mechanism to break a deadlock—e.g., one partner can offer to buy the other out at a certain price, and the other must either sell or buy at that price. Tailor the deadlock remedy to the specific JV (keeping in mind that a shotgun buy-sell may not be viable if one party lacks the financial capacity to buy out the other). Also consider including a provision for expedited arbitration or status quo preservation for urgent deadlocks (like budgeting impasses where the last approved budget continues by default).

Ancillary agreements

Alongside the main JV agreement, execute any ancillary contracts that will govern the relationships around the JV:

• Share or unit purchase agreement: If the JV involves one partner buying into an existing entity or one partner transferring assets in exchange for equity, a purchase or subscription agreement may be used to detail those terms and representations and warranties regarding such contributed assets.
• Assignment agreement: As noted above, if IP is contributed, a separate assignment agreement that can be recorded with the appropriate IP offices should be signed.
• IP license agreements: As noted above, if IP is licensed rather than contributed, a separate license agreement should be signed.
• Services or supply agreements: If a JV partner (or its affiliate) will provide services, goods, or technology to the JV (or vice versa), put those agreements in place at formation. This could include technology support services, transitional services (if the JV is carved out from an existing business), or supply/offtake agreements where, for example, one parent will buy the JV's output or supply raw materials to the JV. These contracts should be on arm's-length terms to withstand scrutiny (important for transfer pricing, financing, and fairness to all venturers).
• Real estate leases: If the JV will use facilities or real estate owned by a parent, negotiate a lease or license agreement.
• Financing documents: If the parents are lending funds to the JV or guaranteeing its debts, sign the loan agreements or guarantees.
• Insurance: Arrange for necessary insurance coverage in the JV's name. At a minimum, the JV should have general liability insurance and any industry-specific coverage (e.g., product liability if manufacturing, malpractice if healthcare). Also strongly consider Directors and Officers (D&O) insurance to protect the JV's officers and board members (especially since they may be executives of the parent firms). Determine which party will procure and pay for these policies, and list the JV (and sometimes the JV partners) as insureds as appropriate.

Initial compliance setup

As the JV launches, institute compliance measures from day one. For example, register the JV for federal, state, and local tax IDs and licenses; set up an accounting system and internal controls (particularly if one parent company will consolidate the JV's financials into its own statements). If the JV will handle personal data or sensitive data, implement privacy and security policies and agreements in line with applicable laws (such as GDPR if EU data is involved, state privacy laws like CCPA/CPRA if applicable, HIPAA if protected health information, etc.).

Also establish an anti-bribery policy consistent with applicable anti-corruption laws—the JV and its personnel should be trained not to offer any improper payments, especially if operating in high-risk countries or interacting with government officials, since both the JV and the parent companies could face liability in certain circumstances.

Post-formation phase

Corporate housekeeping and governance

Maintain the JV's corporate formalities and healthy governance practices. Hold regular board of directors or managers meetings as specified (e.g., quarterly or annually at minimum), and document all major decisions with meeting minutes or written consents. Provide training to the JV's directors and officers on corporate governance and fiduciary duties (as applicable) in the context of a JV. Ensure that any actions requiring JV partner approval under the JV agreement are in fact approved in writing.

Keep the entity in good standing by filing annual reports and paying franchise taxes in its state of incorporation and any states where it is qualified to do business. If any changes occur (like a new business address, new officers, etc.), file the necessary updates with the Secretary of State or other agencies. Remember that most JVs (except general partnerships) must also comply with new beneficial ownership reporting requirements—see below for Corporate Transparency Act compliance.

Beneficial ownership reporting (Corporate Transparency Act)

For foreign-organized JVs registered to do business in a U.S. state, within 30 days of formation, file a Beneficial Ownership Information report with FinCEN unless the JV entity qualifies for an exemption. The report must include identifying information for each beneficial owner (generally any inpidual who owns 25% or more equity or exercises substantial control over the entity). Ensure one of the JV partners or an appointed company representative submits this report on time, as failure to report can carry penalties.

Going forward, monitor any changes in ownership or control and file an updated BOI report within 30 days of any change (e.g., if one partner transfers some of its interest or new managers are appointed). Also be aware of emerging state-level transparency laws—for instance, New York's LLC Transparency Act imposes similar owner reporting for LLCs in New York. Compliance with the CTA and any state analogs should be built into the JV's governance procedures (e.g., assign responsibility to the company secretary or legal counsel to manage these filings).

Land acquisition reporting

Under the Agricultural Foreign Investment Disclosure Act, any foreign person or must report the acquisition to the U.S. Department of Agriculture within 90 days, subject to certain exceptions.

Ongoing regulatory compliance

Ensure the JV adopts appropriate compliance policies and adheres to all regulatory requirements of its industry and any commitments made during formation:

• Industry regulations: Keep all licenses and permits current. If the JV is subject to periodic examinations or reporting (for example, financial audits by a banking regulator, safety inspections for a manufacturing JV, etc.), prepare and submit these on time. Ensure the JV has appropriate document retention policies in place. Designate compliance officers if required (e.g., an FDA compliance officer for a pharma JV, or an AML compliance officer if the JV is in financial services).
• Foreign investment and reporting: Continue to comply with any conditions imposed by CFIUS or other foreign investment regulators—some approvals require ongoing notices or even audits to ensure the JV is not engaging in prohibited activities. Also, remember to file the BEA surveys for foreign direct investment: initial Form BE-13 within 45 days (if not already filed) and the recurring forms (quarterly Form BE-605 or annual Form BE-15, depending on size) as required (exemptions may apply). The JV should establish a calendar of these reporting deadlines.
• Antitrust compliance: If the JV partners remain competitors outside the JV, be cautious in information sharing and operations to avoid antitrust law violations. Implement protocols (firewalls, clean teams) if necessary to prevent the JV from becoming a conduit for collusion between the parents. Also, if the JV expands or plans new acquisitions, consider whether HSR filings or antitrust approvals are required for those subsequent transactions.
• Export controls and sanctions: In a cross-border JV, institute an export control and sanctions compliance program. If the JV will export goods, technology, or share controlled technical data with the foreign partner, ensure it has any required export licenses and follows U.S. Export Administration Regulations (EAR) or International Traffic in Arms Regulations (ITAR), as applicable.
  
  Screen all counterparties against OFAC sanctions lists—the JV must avoid doing business with prohibited parties or countries in violation of sanctions. If licenses from the U.S. government (Commerce or State Dept.) are needed to export certain technology to the foreign venturer or to third parties, obtain and track those. Regularly train JV staff on trade compliance.

Financial reporting and tax compliance:

• Accounting and reporting: Prepare financial statements for the JV (at least annually, or more frequently as the JV partners require). If the JV is significant to a JV partner's financials, it may need to comply with such partner's accounting standards. The JV agreement may grant each JV partner audit rights—accommodate any requests by owners to examine books. Also, hold annual partner meetings if required, where financial results and business plans are presented.
• Tax filings: File all required tax returns—federal and state income tax (or information returns if a pass-through), sales/use tax, payroll tax, etc. For an LLC/partnership JV, issue Schedule K-1s to each partner on time. If the JV is a partnership with a foreign partner, comply with Internal Revenue Code Section 1446 withholding on the foreign partner's share of effectively connected income and gain from the disposition of a partnership interest. If the JV is a corporation, handle any pidend withholding when paying out profits to the foreign shareholder.
  
  Stay alert to changes like the Pillar 2 rules or digital services taxes in other countries, as well as changes in U.S. tax law, that might impact the JV's tax strategy. Consider conducting transfer pricing studies for any substantial related-party transactions (sales to one venturer, etc.) and keep documentation to defend the pricing.
• State and local taxes: If the JV operates in multiple states or countries, manage its nexus and registration in those jurisdictions. File annual franchise tax reports where applicable. Ensure any property taxes for JV assets are paid. If the JV sells products, monitor sales tax (or VAT/GST abroad) collection and remittance obligations.
• Tax indemnities: If the JV partners agreed on any tax indemnities (such as one party indemnifying the other or the JV for pre-formation taxes on contributed assets, indemnities for a breach of a covenant to not trigger "section 704(c) gain," transfer taxes on the transaction, or incremental Pillar 2 taxes), monitor those and make sure the JV or parties file any transfer tax returns (e.g., if real estate was contributed, pay any deed transfer taxes, etc.).

Ongoing governance and minority rights

Uphold the governance structure as the JV grows. Respect any minority protection clauses in the JV agreement—for example, if a major decision requires consent of the minority partner, ensure that consent is obtained formally. If the business plan changes or the JV seeks new opportunities outside the initial scope, discuss with partners and possibly amend the JV agreement to document the new course. Regularly revisit the JV's strategic direction in board meetings so that partners remain aligned. If the JV performance perges from expectations, use the agreed reporting and meeting frameworks to address issues transparently.

Dispute and deadlock management

Hopefully, the agreed dispute mechanisms will not be needed often, but if issues arise, invoke them as prescribed in the JV agreement. For any minor disputes, attempt resolution through the JV's normal governance channels first. If a deadlock occurs on a major issue, use the agreed escalation procedure (e.g., refer the matter to the parent companies' CEOs or a neutral mediator). Document the steps taken to resolve the deadlock. If a buy-sell trigger is pulled per the JV agreement, adhere strictly to the timelines and procedures set out (valuation method, notice periods, etc.). It is wise for the partners to periodically re-evaluate the deadlock provisions as the business evolves—what made sense at formation may need adjustment by amendment if it is unworkable in practice.

Distributions and reinvestments

Follow the agreed policy (if any) on profit distributions. Many JVs either reinvest profits for a period or distribute based on a formula. Ensure any distributions are in compliance with law (solvency tests) and consider retaining enough working capital for the JV's needs. If one partner is foreign, coordinate on distribution timing to optimize any tax implications (e.g., aligning with a tax year or utilizing treaty relief on withholding).

Changes in ownership

Any transfer of interests in the JV (including between the original partners or to third parties) must comply with the JV agreement. If a partner wishes to sell its stake or if the JV agreement allows new investors, follow the right of first offer/refusal or consent requirements to the letter. Obtain any necessary regulatory approvals for changes in ownership (for instance, a new significant foreign owner might trigger a fresh CFIUS review or regulatory vetting). Update the beneficial ownership (CTA) filing with FinCEN within 30 days of any such ownership change. Also, update internal records and re-issue equity certificates or amend the cap table as needed. If a new partner joins, have them sign a joinder to the JV agreement.

Ongoing compliance program

The JV should operate with a culture of compliance:

• Policies and training: Implement regular training for JV employees on legal compliance—anti-corruption (ensure compliance with the FCPA and equivalent laws), trade compliance (export controls, sanctions as mentioned), data protection, and any industry-specific regulations. Update the JV's code of conduct and compliance policies as laws change or new risks emerge. Given the regulated-industry context, consider appointing a compliance officer or forming a compliance committee to oversee these efforts.
• Monitoring and auditing: Conduct periodic compliance audits or risk assessments. The parent companies may wish to audit the JV's compliance with certain standards, especially if their own reputations or legal compliance programs depend on it, or if the JV's financials roll up into the parent's for financial reporting purposes. For example, test internal controls for fraud prevention, review expense accounts for any red flags of bribery, and monitor transactions for any dealings with prohibited parties.
• Reporting mechanisms: Establish channels for whistleblowers or employees to report concerns within the JV and ensure non-retaliation. Serious issues should be escalated to the JV board and possibly to the parents, and external counsel engaged as needed to investigate.
• Stay updated: Keep abreast of new legal developments that affect the JV. For instance, if environmental, social, and governance (ESG) reporting becomes mandatory in the JV's industry or jurisdiction, ensure the JV can comply. As noted above, beneficial ownership laws are evolving, and there may be new disclosure or transparency rules to follow. Tax laws (domestic and international) are also changing—the JV's tax structure might need revisiting with advisors if such rules come into effect. Regular legal compliance reviews will help the JV to remain agile and compliant.

Exit strategy and termination

Plan for a potential JV termination even as operations continue:

• Triggering events: Be mindful of any time-based triggers (for example, if the JV is set for a fixed term unless renewed) or performance triggers (losses above a certain amount, failure to meet milestones, etc.) that could lead to termination. If such events occur, refer to the JV agreement for the notice and cure process. For instance, one partner's material breach might give the other a right to force a buyout or dissolve the JV—typically the breaching party may have a period to cure the breach if allowed.
• Dissolution process: If the decision to unwind the JV is made (whether due to mutual agreement, deadlock, or a trigger event), follow the agreed dissolution process set forth in the JV agreement. This usually involves a formal notice of termination, a wind-down plan, and liquidation of the JV's assets or distribution to the owners.
  
  Allocate the JV's assets in accordance with the JV agreement: e.g., return each partner's contributed IP or capital if stipulated, or sell assets and split proceeds. Pay off creditors and ensure any guarantees or obligations to third parties are released or assumed by one partner going forward. Address what happens to the JV's other intangible assets like customer contracts and IP, as mentioned above. File a certificate of dissolution or cancellation with the state once winding up is complete.
• Post-JV restrictions: Even after termination, certain clauses typically survive. Honor any non-solicitation or non-compete clauses that restrict the JV partners from poaching each other's employees or competing in the same business for a period of time. Continue to respect confidentiality of the other party's information and return or destroy such information as required.

Periodic review of JV arrangements

Finally, treat the JV itself as subject to ongoing review. Amend the JV agreements if necessary to address any issues that have arisen or to capture new opportunities. If the market or regulatory environment shifts significantly (for example, new laws that require changes in ownership structure or operations), be prepared to renegotiate terms so the JV can adapt. Maintaining an open dialogue between the partners post-formation is key to the JV's success and legal compliance over time.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.