Equity Joint Ventures: Structuring Capital Contribution, Waterfall, and Other Payment Provisions

Capital contribution and waterfall provisions are critical and complex components of equity JV agreements and are fiercely negotiated. Counsel drafting and negotiating these provisions must ensure that the clauses are consistent with the economic arrangement of the parties.

The provisions dealing with capital contributions address the venture's need for capital investment and the members' or partners' funding obligations. Counsel must navigate issues such as the timing and amounts of contributions, the consequences for failing to fund contributions, and ways to make up for unfunded contributions.

The sequential order of the waterfalls is critical to ensuring the waterfall provisions work as intended and the distributions conform with the substance of the deal among the JV partners. Structuring waterfall provisions requires an understanding of payment priorities, economic terms, and tax implications.

Counsel must ensure the waterfall provisions are consistent with the partnership tax allocation provisions of the JV agreement to avoid adverse tax consequences for the entity and its members or partners.

Listen as our authoritative panel of deal attorneys discusses best practices for structuring capital contribution and waterfall provisions in equity JV agreements, focusing on how to avoid potential legal and tax pitfalls.