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. Last Updated: 07/27/2016

The Difficult Questions Of Joint-Venture Deals

Lawyers sometimes make themselves unpopular by asking difficult questions. Such questions may seem to indicate a rather negative approach, especially when negotiations are progressing well. However, the answers may help to anticipate and minimize problems and so ensure the success of your transaction. They may also give you advance notice of insurmountable problems.


If you are negotiating the establishment of a joint-venture company with a Russian partner, what questions should you ask?


First, check the legal status of the Russian company. It may be a privately-owned joint-stock company, a limited partnership, a state-owned company or enterprise. You should see its charter and other foundation documents.


If it is a joint-stock company these should be available from the registration chamber where it is registered. Since authorities are sometimes not very helpful you may have to ask the company itself to provide copies. You should also ask whether there have been any amendments to the company documents, such as a change in ownership of the shares, which may not have been registered yet. If it is a state company which has not been restructured you will have to ask the company for its documents.


The status of the Russian company is important because it determines the permissions which it will need in order to participate in the proposed transaction. A state-owned company will probably need the consent of a ministry or federal committee to become a shareholder in a joint venture company. It may need permission from the State Property Committee to contribute assets to the authorized fund of a company and it may even need the consent of its workforce to sign the agreement.


You must also check that the Russian company has title to the land and buildings which it says it can make available. This can be difficult as the land and buildings may be subject to different arrangements, property is held in a variety of different ways and the land-holding systems are changing, but you should persevere - problems in title can often be sorted out and your deal will be more secure.


In some cases you may need to check whether an environmental audit has been carried out, in order to ensure that you will not be held responsible for damage before your new company begins to operate.


It may be possible to remedy some problems before you conclude the agreement. If commercial considerations suggest that you should sign before you have all necessary information you should make the agreement subject to conditions so that it only comes into force when the information is available and if it is satisfactory. Proceed, but with caution!


Marcia Levy, an attorney at Norton Rose, has been practicing law in Moscow for two years.