BEYOND THE HEADS OF AGREEMENT

In the normal course of events, the annotated Heads of AgreementHeads of Agreement: a non-binding summary of the main issues on which the parties intend to base an agreement. is passed on to the lawyers and they begin to draft it into legal language. Their work will be quicker - and your costs will be lower – if the document has been carefully negotiated and clearly expressed.

A good lawyer will do more that just draft. S/he will carefully review the provisions with your interests in mind, and may recommend changes. Do not select for this task the regular lawyer the ADC has on retainer. That person may be very conversant in Aboriginal law or general practice law. What the ADC needs at this point is a corporate lawyer well drilled in the complexities of structuring JVs. If this specialist does uncover inconsistencies or request more information, the parties should reconvene, settle the issues, and supply the lawyer with the additional instructions.

As before, keep the lawyers out of the negotiating room. You are the one who has to do the negotiating. It does not make sense to pay someone $300-500/hour simply to sit at the table with you.

Five Common Problems at this Late Stage

Many issues may get missed during the negotiation of the Heads of Agreement, and emerge during the drafting of the Shareholder AgreementShareholder Agreement: a legally-binding document which describes the mutual obligations of the parties to a Joint VentureJoint Venture: commonly, a business to which two or more parties contribute the essential land, capital, and services, in return for a share in its ownership and control. (Note: the Joint Venture is very strictly defined under Canadian law.).. Here are five of the most common.

First, the Shareholder Agreement will require buy/sell or “shot-gun” provisions. These explain when and how one JV partner can swiftly and with minimum liability terminate another partner's participation. For example, one partner may go bankrupt, may decide to sell out, or may want to bring in new and unwanted investors. The buy/sell provisions give the other partner(s) the option to shut that partner out.

Second, lawyers may recommend changing the share structure of the JV. They may recommend this to reduce its tax liability, for example, or to make the business more attractive other investors without reducing the authority of the original partners. To do this, you typically add more classes of share.

Third, the JV's commencement date may have to change. This could change the timing of capitalCapital: cash, property, equipment, services, and contracts or leases. contributions.

Fourth, changes in capital contributions may occur. Say one of the tractor trailers promised to a trucking deal had an accident. That would mean the details of the capital section would have to change.

Fifth, one partner might have second thoughts about the distribution of benefits. This may not necessarily be a ploy. It may involve an insight which will penalize no one, and may even bring net benefits to the JV. However, if the partner wants to reopen major sections of the agreement, there could be trouble.

Technically, negotiation is still possible prior to the signing of the Shareholder Agreement. As an agreement in principleAgreement in Principle: an agreement which participants are not legally obliged to keep. It is therefore non-binding., after all, the Heads of Agreement is not legally binding on its signatoriesSignatory: any person or organization who has signed as a signatory to a document or agreement.. Everyone is free to back out.

The whole negotiating process is designed to progressively narrow things down and achieve clarity. If it suddenly strikes you that the JV does not really fit your interests anymore, despite the fact that you signed the Heads of Agreement, you have to make your discomfort known. Just don’t be surprised the "engagement" is broken as a result.

If they have invested a lot in the JV in the meantime, however, your co-signatories may have grounds to take you to court.