Document type: Toolkit Practice area: Corporate — Joint Ventures and Alliances Jurisdiction: Delaware LLC framework, adaptable Last reviewed: 5 September 2026

Tool 1 — Term sheet framework

Nine headings. If any is blank, drafting should not begin.

1. Business. The Company will engage in [precise description: product, application, customer segment, territory] (the "Business"). The Company will not engage in any other business without [unanimous / supermajority] consent.

2. Contributions. At closing: [Party A] contributes [$__ cash; the assets listed on Schedule A, agreed value $]. [Party B] contributes [an exclusive, sublicensable, royalty-[free/bearing] license to the Licensed IP within the Field, agreed value $; __ seconded full-time employees for __ years].

3. Ownership. [A]% / [B]%, subject to adjustment under the Capital and Earn-In provisions.

4. Governance. Board of [] managers: [] appointed by A, [__] by B[, plus one Independent Manager selected under paragraph ]. Ordinary matters by majority. Reserved Matters listed on Schedule B require []. Annual budget approval is a Reserved Matter, subject to the Deemed Budget fallback.

5. Capital. Committed capital of $[] (A) and $[] (B), callable pro rata on [] days' notice. Non-funding consequences: the funding Member may (i) fund the shortfall as a Member Loan at [SOFR + ]%, convertible after [] months into Units at []% of Fair Value, or (ii) fund as equity with dilution computed under Schedule C, provided that aggregate dilution of a Member from non-funding shall not exceed [__] percentage points.

6. Distributions. (i) Mandatory Tax Distributions quarterly at the Assumed Tax Rate; (ii) preferred return of [__]% on Unreturned Capital; (iii) return of Unreturned Capital; (iv) residual pro rata.

7. Intellectual Property. [Assigned / Licensed] as set out on Schedule D. The License is irrevocable and survives any transfer of Units, withdrawal, or dissolution. Improvements made by the Company are owned by the Company. Improvements made by a Member within the Field during the first [__] years are added to the License.

8. Transfers and Exit. Lock-up until [date]. Thereafter: ROFO on transfers; tag-along for the non-selling Member; Deadlock Exit under paragraph __; Forced Sale available to either Member after [date]. Valuation by Baseball Appraisal of 100% of the Company on a going-concern basis, without discount for lack of control or lack of marketability.

9. Term, Non-Compete, Governing Law. Term: perpetual, subject to exit rights. Each Member will not engage in the Business, anywhere in the Territory, during its membership and for [__] months thereafter. Delaware law; [courts / arbitration under __ Rules, seated in __].

Annotation. Paragraph 7's survival sentence and paragraph 5's dilution cap are the two provisions most often omitted and most often decisive.

Tool 2 — Reserved matters schedule

Schedule B — Reserved Matters. The Company shall not, and no Manager or officer shall cause the Company to, take any of the following actions without the prior written consent of [each Member / Members holding at least __%]:

(a) amend the Certificate or this Agreement; (b) issue, redeem, or repurchase Units or any security convertible into Units, or admit any Member; (c) merge, consolidate, or sell all or substantially all of the assets of the Company; (d) dissolve, liquidate, or file a voluntary bankruptcy petition; (e) change the Business or enter a new line of business or Territory; (f) incur Indebtedness exceeding $[] in aggregate, or grant any Lien other than a Permitted Lien; (g) approve or amend the Annual Budget or Business Plan (subject to Section __ (Deemed Budget)); (h) make any capital expenditure exceeding $[] not in the approved Annual Budget; (i) enter into, amend, or terminate any Related Party Agreement, or any contract with a term exceeding [] years or value exceeding $[]; (j) appoint or remove the Chief Executive Officer, or approve the compensation of any officer above $[]; (k) commence, settle, or compromise any litigation involving more than $[] or any non-monetary relief affecting the Business; (l) declare distributions other than Tax Distributions; (m) license, assign, or otherwise dispose of any Company Intellectual Property outside the ordinary course; (n) change the Company's auditors, fiscal year, or material accounting policies.

Annotations.

  • Keep the list at this length. Items (a)–(e) are fundamental; (f)–(n) are calibrated by dollar thresholds. Set the thresholds high enough that the board is not consulted weekly.
  • Item (i) is the anti-leakage provision. Related-party agreements are how value exits a venture.
  • Item (g)'s cross-reference is mandatory. A budget consent right without a fallback is a shutdown right.

Tool 3 — Deemed budget clause

Deemed Budget. If an Annual Budget for a Fiscal Year has not been approved on or before December 15 of the preceding year, then, until an Annual Budget is approved, the Company shall operate under a budget (the "Deemed Budget") equal to the prior Fiscal Year's approved Annual Budget, with (i) operating expense line items increased by the lesser of the change in CPI and [4]%, (ii) capital expenditure limited to the prior year's approved amount, (iii) no new line of business, facility, or headcount category, and (iv) all committed obligations, debt service, and Tax Distributions funded in full. The Deemed Budget shall not be deemed approval of any Reserved Matter.

Why this clause matters more than any other. It converts a deadlock from an existential event into an inconvenience, and it removes the incentive to withhold budget approval as leverage on an unrelated dispute.

Tool 4 — Capital call and dilution mechanics

(a) Calls. The Board may issue a Capital Call for amounts contemplated by the Annual Budget, pro rata to Percentage Interests, on not less than 30 days' notice. Aggregate Capital Calls shall not exceed each Member's Committed Capital without that Member's consent.

(b) Failure to Fund. If a Member (a "Non-Funding Member") fails to fund within 10 Business Days after the due date, the other Member (the "Funding Member") may, in its sole discretion:

(i) withdraw its own contribution; or (ii) advance the shortfall as a Member Loan, bearing interest at [SOFR + 700 bps], repayable prior to any distribution, and convertible at the Funding Member's election after 18 months into Units at [85]% of Fair Value; or (iii) contribute the shortfall as equity, in which case Percentage Interests are adjusted so that each Member's Percentage Interest equals its Aggregate Contributions divided by total Aggregate Contributions, with the Non-Funding Member's contribution for this purpose deemed to be [1.25] times its actual contributions (the "Dilution Factor").

(c) Dilution Cap. Notwithstanding (b)(iii), a Member's Percentage Interest shall not be reduced by operation of this Section by more than [15] percentage points in the aggregate.

(d) Governance on Dilution. If a Member's Percentage Interest falls below [20]%, that Member's Reserved Matter consent rights terminate other than with respect to clauses (a), (b), (c), and (d) of Schedule B, and its Board appointment right is reduced to one Manager.

Annotations.

  • (b)(ii) versus (b)(iii) — the loan route is less punitive and preserves relationships; the equity route resolves the position permanently. Sophisticated agreements offer both.
  • The Dilution Factor in (b)(iii) is the punitive element. A factor of 1.0 is proportionate; 1.5 is aggressive; anything above 2.0 invites an implied-covenant challenge.
  • (c) is the minority's essential protection. Without a cap, repeated calls the minority cannot fund reduce it to nothing.
  • (d) is the majority's counterpart. Consent rights that survive dilution to 3% are a hostage-taking device.

Tool 5 — Fiduciary duty modification

Delaware enforces these only if they are unmistakable.

Duties. To the fullest extent permitted by Section 18-1101 of the Act, and notwithstanding any duty otherwise existing at law or in equity, no Member, Manager, or Affiliate thereof shall owe any fiduciary or other duty to the Company or any other Member, other than the implied contractual covenant of good faith and fair dealing, which is not eliminated or modified.

Managers May Act for Their Appointing Member. Each Manager appointed by a Member may consider the interests of that Member alone in taking or refraining from any action, shall have no duty to consider the interests of the Company or any other Member, and may share information concerning the Company with its appointing Member, subject to Section __ (Confidentiality) and the Information Protocol.

Corporate Opportunities. Each Member and its Affiliates may engage in any business, including a business competitive with the Company outside the Field, and shall have no obligation to offer any opportunity to the Company, and neither the Company nor any Member shall have any right in such opportunity.

Related Party Transactions. Any transaction between the Company and a Member or its Affiliate that is approved in accordance with Schedule B(i) shall be deemed fair and reasonable to the Company and shall not constitute a breach of any duty.

Annotations.

  • Name the statute. Delaware's flexibility is statutory; citing it removes doubt about intent.
  • Preserve the implied covenant expressly. It cannot be waived, and pretending otherwise casts doubt on the whole clause.
  • The corporate opportunity waiver must be bounded by the Field, or the parties have licensed each other to compete with the venture itself.
  • The deemed-fairness clause is powerful and should be paired with a genuine approval process; a deemed-fair transaction approved by the interested party alone will draw an implied-covenant claim.

Tool 6 — Antitrust information protocol

Information Protocol. The Members acknowledge that they may be actual or potential competitors outside the Field. Accordingly:

(a) Tier 1 (Company Information) — information generated by the Company about the Business — may be used by the Company freely and disclosed to a Member for financial reporting, tax, governance, and audit purposes.

(b) Tier 2 (Contributed Information) — a Member's technical, operational, and regulatory information necessary for the Business — may be provided to the Company, used solely for the Business, and shall not be disclosed to the other Member except as necessary and subject to this Protocol.

(c) Tier 3 (Restricted Information) — a Member's current or future prices, price lists, discounts, margins, costs, customer-specific terms, bids, capacity plans, or strategic plans outside the Field — shall not be provided to the Company or to the other Member under any circumstances, shall not be stored on Company systems, and shall not be discussed at any Board meeting.

(d) Implementation. The Company shall maintain access controls segregating Company systems from Member systems. Each seconded employee shall receive training and shall certify compliance annually. Counsel shall attend any Board meeting at which output, pricing, territory, or customer allocation is discussed.

Annotation. The certification requirement in (d) is what makes the protocol real rather than aspirational, and it produces the annual record that demonstrates compliance.

Tool 7 — Deadlock escalation ladder

(a) Referral. A "Deadlock" exists if a Reserved Matter is proposed at two consecutive Board meetings at least 20 days apart and fails to receive the required consent. Either Member may deliver a Deadlock Notice.

(b) Executive escalation. Within 15 days, the designated senior executives of each Member shall meet and attempt in good faith to resolve the matter.

(c) Chief executive escalation. If unresolved within a further 20 days, the chief executive officers of each Member shall meet.

(d) Mediation. If unresolved within a further 30 days, the Members shall submit the matter to non-binding mediation before a mediator with industry experience.

(e) Exit. If unresolved 30 days after mediation concludes, either Member may deliver an Exit Notice under Section __ (Deadlock Exit).

Annotation. Roughly 120 days elapse before an exit right arises. That is deliberate: it is long enough for tempers to cool and short enough that a genuine strategic divergence is not left to fester.

Tool 8 — Exit mechanisms compared

Mechanism Who sets price Who chooses buy/sell Best where Fails where
Shotgun Trigger party Recipient Parties of comparable size and access to capital Asymmetric balance sheets — becomes a call option for the larger party
Baseball appraisal put/call Neutral, from two submissions Trigger party, after price is set Parties want price discipline without a bidding war Both parties want out; neither wants to buy
ROFO Third-party market, subject to first offer Seller, then holder A partner wants liquidity without disrupting the venture Holder has no capital; sale to a competitor still possible
Forced sale (drag) Market Neither; both sell Neither party is certain to be the long-term owner One party's strategic need for the venture makes any sale unacceptable

Baseball Appraisal Deadlock Exit (sample). Upon an Exit Notice, each Member shall submit to the Neutral Appraiser its determination of the Fair Value of 100% of the Company on a going-concern basis, without discount for lack of control or lack of marketability and without premium for control, together with supporting analysis. The Neutral Appraiser shall select one of the two submitted values, without modification, within 30 days. Within 15 days after selection, the Member delivering the Exit Notice shall elect either to purchase the other Member's Units at the selected value multiplied by the other Member's Percentage Interest, or to sell its own Units at the selected value multiplied by its Percentage Interest. Closing within 90 days, against payment in immediately available funds. Member Loans and accrued preferred return shall be repaid at closing.

Annotations.

  • "Selecting one of the two" is what makes this work: an unreasonable submission loses.
  • The discount sentence prevents a nine-figure argument. Say it explicitly.
  • The Member Loan sentence matters when the exiting party has been funding.
  • Consider requiring the trigger party to post a deposit so that a Member without capital cannot trigger for tactical reasons.

Tool 9 — IP survival clause

Survival of License. The License granted under Section __ is irrevocable and perpetual within the Field and shall survive (i) any transfer, redemption, or forfeiture of Licensor's Units, (ii) Licensor's withdrawal or removal as a Member, (iii) any Deadlock Exit, Forced Sale, or change of control of the Company, and (iv) the dissolution of the Company (in which case it shall inure to the benefit of the acquirer of the relevant assets). Termination of this Agreement shall not terminate the License. Licensor's sole remedy for any breach of the royalty obligations shall be damages, and Licensor shall have no right to terminate, suspend, or enjoin the License.

Annotation. The final sentence closes the loophole in which a licensor uses an alleged royalty breach to terminate the license and destroy the venture's value. Pair it with a security interest or escrow if the royalty stream is significant.

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