A. OCC Plan™ Provides Solid Legal Jurisprudence
1. One of the biggest problems with investing overseas
is subjecting the ownership and control of the investment to vagrancies
of the laws in the foreign country. Oftentimes, the legal system is
primitive, corrupt or both.
2. To protect against this risk, the business structure
uses off-shore entities that choose to be governed by solid U.S. legal
concepts, usually importing the laws of the State of Delaware, where
most of the largest U.S. companies reside. In this manner, when a
dispute arises, the laws of Delaware or other U.S. state will apply
to resolve the dispute.
3. Just as important is the concept of dispute
resolution. Often, the best approach is to agree to arbitration by
a panel of neutral arbitrators who are required to have business experience
and to apply U.S. law to resolve the dispute.
a. The jurisdiction for the arbitration can be
in the U.S. or elsewhere; however, the U.S. investor should insist
on a convenient location - New York, Washington, D.C., San Francisco
or Los Angeles.
b. The dispute resolution provisions involving
jurisdiction should be placed in the document governing the entity's
rules and procedures.
1) For an LLC, the document is the Operating
Agreement.
2) For a Corporation, the document is the By-Laws.
c. In addition, the owners should have a buy-sell
agreement with dispute resolution provisions contained therein.
A buy-sell agreement governs how the ownership interests will be
sold or transferred, and protects the other investors against the
possibility that an outsider will become an owner.
B. OCC Plan™ Provides Advanced Internal Governance Procedures
1. The LLC Operating Agreement or Corporate By-laws
govern the internal operations of the entity.
2. These agreements need to contain the dispute
resolution provisions involving choice of law, venue, and the dispute
resolution mechanism - such as arbitration under the American Arbitration
Association; International Arbitration.
3. In addition, these documents contain how the
entity will operate, and specifies voting rights, capitalization requirements,
dissolution and liquidation rights, and in the case of an LLC, distribution
rights.
a. In the corporate setting, the number of directors
and officers are stated, along with how those individuals are chosen
and the length of their term in office.
C. OCC Plan™ Provides for Succession Planning
1. OCC Plan uses owners' "buy-sell" agreements
to provide for the succession of ownership and control if an owner
dies or becomes permanently disabled.
2. Also, the buy-sell agreements allow for the
purchase and sale of an owner's interest if there is an internal dispute
or if one owner wants to divest himself from the project.
3. To protect the ownership against illegal transfers
or admissions of new owners, OCC Plan uses a trust to hold the ownership
certificates.
4. The trust is also used when life or disability
insurance is used to fund the buy-out of an owner and to provide a
ready source of cash to purchase a deceased owner's interest in the
venture.
a. Thus, by properly structuring the owner's
buy-sell agreement, upon death, an owner's otherwise illiquid investment
in the entity can be turned into cash for his estate and the other
owners can continue the enterprise without the need to raise large
amounts of cash to purchase the deceased owner's interest.
