1. What are the major disadvantages of being transferred to the joint venture and becoming an employee of the venture?   Does it make a difference if it is a domestic or foreign? Why?

Ans. The major disadvantages of being transferred to the joint venture and becoming an employee of the venture are as follows:-

1. Uncertainty: The first major disadvantage in becoming part of a JV is that the new JV is generally has targets set in an uncertain environment specially if it is an overseas JV.
2. Lack of Clarity: One of the important disadvantages of becoming an employee of the joint venture is lack of clarity in terms of roles and responsibilities in the new JV company. The reason being the JV generally has a new management trying to achieve the new targets of the JV in an unknown untested environment. So, there is a lack of clarity in the roles and responsibilities.
3. Taxation Status: This is an important aspect when an employee becomes part of an overseas JV. The employees are transferred to JVs without fully understanding the taxation status of the JV and that of the employee once he is part of the JV in an overseas location. This at times could turn out to be a major disadvantage to the employee.
4. Closure of JVs: During the closure of the JV, the employees of the JV are left stranded at times with an uncertain future as both the JV partners refuse to take them back into the company often baling them for the failure.

It does a make a difference if it is a domestic or foreign JV as the risks described in points 3 and 4 above pertain more to a foreign JV than a domestic JV.

2. What is meant by “the Letter of Intent”?

Ans. “Letter of Intent” for a Joint Venture is a letter proposing good faith intentions from one  party to another party/parties to have a joint venture. The good faith intentions of the parties is shown in the letter of intent but the same is not legally binding to either party. The Letter of Intent proposes the various advantages of the JV and the taxation and others terms of the JV.

3. Define “Controlled Foreign Corporations” in your own words.

Ans. A “ Controlled Foreign Corporation” (CFC)is a corporation which is an overseas joint venture in which 50% of the shareholders are US citizens/US green cards etc. However, there is a condition that the US citizen is considered a shareholder only if his shareholding is more than 10% of the stock of the corporation. Any corporation is a CFC only if the above two conditions are met.