Meaning
The procedural and financial resistance that arises when partners decide to terminate a collaborative business entity can delay the liquidation of the business. This joint venture dissolution friction occurs when the parties cannot agree on the value or the distribution of the shared assets. It often results in prolonged negotiations or legal disputes.
Structural Disagreement
Friction increases when the initial contract fails to include clear exit provisions or buy out formulas. Partners may have different goals for the termination, with one wanting to sell the business as a going concern while the other wants to liquidate the physical assets. This divergence in strategy stalls the unwinding process and increases administrative costs.
It also damages the relationships with shared suppliers and customers who are left in uncertainty, which further degrades the value of the joint venture.
Asset Partitioning
Dividing intellectual property, shared technology, and customer databases is a major source of conflict during a breakup. Unlike cash or physical equipment, these intangible assets cannot be easily divided or duplicated without losing their value. One partner may claim exclusive rights to a patent, while the other demands a license to continue using it.
Exit Litigation
When negotiation fails, the parties must resort to court supervised liquidation or arbitration. This path is expensive and can lock up the assets of the joint venture for years, preventing either partner from using them. It highlights the importance of drafting detailed exit clauses in the original joint venture agreement.
