Alternative Business and Restructuring Strategies Joint Ventures and Partnerships

Presented by:
Rahul Pandey Shruti Mawandia Shivani Maheshwari Shruti Desai Bharat Nahata

Partnerships
Parties agree to cooperate to advance their mutual interests Existence Of Mutual Agency Regulate Partnership Firms in India General Partnership

Essential Elements Of Partnership

Agreement
Sharing Profit Of Business Business Carried on by all or any of them acting for all

Types Of Partners

Active Partner

Dormant Partner

Secret Partner

Limited Partner

Nominal Partner

Joint Venture
It is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. The JV is not a permanent structure. It can be dissolved

Case Study
Microsoft Partners With Yahoo BP considering LNG imports to India through joint venture with Reliance Industries Hero Honda board OKs joint venture split Mahindra & Mahindra to buy out its truck JV partner Navistar's stake for Rs 175 crore

Motivations for Business Alliances

Risk Sharing-To mitigate perceived risk, company often enter into alliances to gain access to know-how and serve resources or to reduce the amount of resources they would have to commit if they were to do it on their own. Sharing Proprietary Knowledge- High technology companies with expertise in a specific technology segment often combine their efforts with another companies with complementary know-how to reduce the risk of failing to develop the right technology.

Sharing Management skills and resources- Firms often lack the management skills and resources to solve complex tasks and projects. These deficiencies can be remedied by aligning with other firms that possess the requisite skills and proprietary knowledge.

..
Cost reduction- Companies may also choose to combine their manufacturing operations in a single facility with the capacity to meet the production requirements of all parties involved. By building a large facility, the firms jointly can benefit from economies of scale. Gaining Access to New Markets- A company may enter into an alliance to sell its products through another firms direct sales force, telemarketing operation, retail outlets, or Internet site. Globalization- International competition increased the demand for alliances and JVs to enable companies to enter markets in which they lack production or distribution channels or in which law prohibit 100% foreign ownership of a business.

..
A Prelude to Acquisition or Exit Favorable Regulatory Treatment- The Department of justice has looked on JVs far more favorably than mergers or acquisitions. Mergers result in a reduction in the number of firms; JVs increase the number of firms because the parents continue to operate while another firm is created.

Critical Success Factors For Business Alliance

Synergy
Partners should complement each others strengths or offset their weaknesses.

Cooperation
Parties involve must be willing to cooperate at all times.

Clarity of Purpose, Roles, and Responsibilities

Purpose should be evident to all.

Accountability
Managers of company are accountable for any action in business alliance.

..
Win-Win Situation
All parties to an alliance must be benefitting from the activity. J&Js alliance with Merck & Co. in the marketing of Pepcid AC.

Compatible Time Frames and Financial Expectations

Length of time of an alliance depends on partners objectives.

Support from the Top

Top management of business alliance must involve themselves
aggressively & publicly.

Corporations
Corporations Separate and distinct legal entity from owners Continuity of existence despite death

No personal shareholder liability (only corporation will be liable for debts)

Formalities (must be formed with Sec. Of State by filing Articles of Incorporation, preparation of Bylaws and Minutes)

Structure of Corporations
Owners of corporation. Voting rights.

Shareholders

Board of Directors

Elected by Shareholders on annual basis. Management and control. Policy and major decisions.

Officers (President, Elected by Board of Directors on annual basis. Secretary, Responsible for daily operations. Treasurer)

Types of Corporations
Corporations are separate taxable entities C Corporation Every corporation starts out as C corporation No limit on number of shareholders No limitations on residency requirements of shareholders Taxed at corporate level and shareholder level No limit on classes of stock (common/preferred)

..

S Corporation Starts out as C corporation must file S election with IRS and FTB 100 maximum shareholders Shareholders limited to individuals, estate and certain trusts (ie. cannot be other entities) No non-resident aliens as shareholders (must be resident aliens or U.S. citizens) Only one class of stock

Limited Liability Company

Hybrid between corporation and partnership Combines pass through tax treatment of partnership with limited liability of a corporation Structure: centralized management is optional and may be by managers and/or members Each member can bind LLC Creation: Must file Articles of Organization with Sec. Of State; parties enter into Operating Agreement Taxes: Not a separate taxable entity but must pay annual minimum franchise tax fee.

Partnership Structures
A partnership is the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting or all. In India it is governed by the Indian Partnership Act, 1932, which extends to the whole of India except the State of Jammu and Kashmir. It came into force on 1st October 1932. Partnership Agreement is an agreement that spells out how business decisions are to be made and how profits and losses will be shared.

Types of Partnerships
General Partnerships - Form of co-ownership by several persons - Unlimited personal liability - Each partner has management and control - Consent required to transfer interest - Partnership is not a taxpaying entity (profit and loss passed through to partners)

..
Limited Partnership - Partnership in which one or more partners can be designated as having limited liability as long as at least one partner has unlimited liability. - A limited partner is a partner those who contribute only money and does not actively engage in the day-to-day management of the business. - Limited partners liability is limited to the extent of his or her investment in the business. - Limited partner receive income, capital gains and tax benefits

..
Franchise Alliance - It involves franchisee making initial investment to purchase a license, plus additional capital investment for real estate, machinery and working capital. - Franchisor provide training and site-selection assistance - Royalty payment for license ranges from 3% - 7% of annual franchisee revenue - Franchises are of four basic types:- Distributor, Processing, Chain and area franchises.

..
Equity partnership - It involves a companys purchase of stock(resulting in a less than controlling interest) in to another company. - It is referred to as partnership because of the equity ownership exchanged. - In this a firm normally receives a seat on the board of directors and option to buy controlling interest. Written contract - This form is used with strategic alliances because it maintains an arms length or independent relationship between the parties. - Most often used it is used when the business alliance is expected to last less than 3 years.

THANK YOU