Dissolution or Buy. Sell—in the Absence of Default General Comment Article 7 and Article 8 define the Members’ exit rights, either by dissolution or by purchase or sale of Member Interests. Article 7 addresses these exit rights in the absence of default, and Article 8 addresses these exit rights if a ‘‘Default Event’’ has occurred. Article 9, Article 10 and Article 11 implement the exercise of those rights. In the context of a limited liability company whose purpose is to establish and operate a particular business as a joint venture, it is worth asking whether there should be any exit or termination provisions. Having exit or termination provisions may seem to be contrary to the purpose of the Company and, at the time of negotiating the joint venture agreement, the need for having any such provisions may appear remote. Even if it is acknowledged that the Company may not succeed, the circumstances of its failure will be impossible to predict at the outset, and it may be argued that reasonable Members will be better able to negotiate a satisfactory termination when they know the particular circumstances. Moreover, having this uncertainty as to whether or how a Member could exit or terminate a joint venture has the advantage of tending to keep the Members together. If one Member is clearly financially or otherwise stronger than the other, the stronger Member may be inclined to resist having any exit or termination provisions, preferring to rely upon its likely stronger negotiating position at the time when any termination or exit is proposed. Obviously, the weaker Member would prefer to negotiate exit and termination provisions at the outset in the spirit of mutual co- operation and enthusiasm for the new venture. Often the stronger Member will agree in order to achieve the greater certainty that results from having specific exit and termination provisions. Whether or not there are contractual provisions regarding exit or termination rights and obligations, applicable law imposes standards of conduct and perhaps additional duties. There may also be competition law issues, employment law issues, confidentiality issues and issues surrounding ownership of various physical and intellectual property rights. Dealing with those issues in the joint venture agreement not only reduces uncertainty but also enables the Members to draft their own rules in ways that may differ from the application of relevant laws in the absence of contractual provisions. Even with the utmost good will, unra...
