1. Richard M. Franklin Chicago, Illinois Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm. New Venture Creation: A Lawyer’s Viewpoint Trans-Atlantic Conference on Innovation, Technology Transfer and New Venture Creation Washington, D.C., December 2, 2004

2. New Venture Creation: A Lawyer’s Viewpoint Is a Joint Venture the Optimal Choice? Other Alternatives: Direct Sales. U.S. Branch or Subsidiary. Distributor/Sales Agent. Licensing. Merger/Acquisition.

3. New Venture Creation: A Lawyer’s Viewpoint When should a joint venture be used? A Joint Venture is Optimal When Technology Can Best be Exploited Through Two Company’s Combination Of Their Intellectual Property, Research & Development, Marketing, Financial and Human Resources.

4. New Venture Creation: A Lawyer’s Viewpoint Eight Strategic Considerations in Forming a Joint Venture: 1.Choice of Entity. 2.Contributions. 3.Control. 4.Staffing and Administrative Support. 5.Non-Competition. 6.Profit Distributions. 7.Exiting and Termination. 8.Dispute Resolution.

5. New Venture Creation: A Lawyer’s Viewpoint 1.Choice of Entity Limited liability entity preferred: –Corporation. –Limited Liability Company (LLC). –Limited Liability Partnership (LLP). Avoid unlimited liability! Tax considerations.

6. New Venture Creation: A Lawyer’s Viewpoint 2.Contributions. Can consist of: –Cash. –Intellectual property (patents, know-how, trademarks, trade names). –Tangible property (real estate, equipment). –Services (management, technical, marketing or administrative). Initial contributions. Subsequent contributions: –At fixed times; or –Upon notice by management.

7. New Venture Creation: A Lawyer’s Viewpoint 3.Control. Does not necessarily have to parallel financial investment or profit distribution. 50/50 means risk of deadlock. Majority control means risk for the minority. Third party control means risk for both parties.

8. New Venture Creation: A Lawyer’s Viewpoint 4.Staffing and Administrative Support. Parties may provide some staffing: –Technical, marketing or administrative support. –Sometimes can be done through consulting agreements, but often through seconding employees. –Immigration considerations. U.S. staffing. –Full exposure to U.S. employment laws.

9. New Venture Creation: A Lawyer’s Viewpoint 5.Non-Competition. Parties are almost always prohibited from competing with joint venture. Competition needs to be carefully defined as to: –Scope. –Territory. –Duration. Antitrust Scrutiny.

10. New Venture Creation: A Lawyer’s Viewpoint 6.Profit Distributions. Generally at discretion of joint venture’s management, but Can be provided for in joint venture agreement. –For pass-through entities, advisable to provide for annual distributions sufficient to cover income taxes the parties must pay on the joint venture’s profits.

11. New Venture Creation: A Lawyer’s Viewpoint 7.Exiting and Termination. What if one party wants to exit the joint venture? Possible provisions include: –Sale of interest to other party at fixed or appraised price –Right of first refusal in favor of other party before sale to third party. –Sale of joint venture to third party –Prohibition on sale (can lead to deadlock and court- ordered liquidation).

12. New Venture Creation: A Lawyer’s Viewpoint What if both parties want to terminate? Possible provisions include: –Auction sale to third party. –Orderly liquidation.

13. New Venture Creation: A Lawyer’s Viewpoint 8.Dispute Resolution. Arbitration preferred: –Location and rules can be neutral. –Minimizes discovery. –Avoids juries. –Minimizes punitive damages risk. –Often speedier and less expensive. –Proceedings are confidential.