Financial and Business

Joint Venture Policy

Section: Financial & Business Policies
Policy Name: Joint Venture Policy
Policy Owner: Executive Vice President
Responsible University Office: Office of the Vice President For Finance and Deputy Treasurer
Origination Date: October 24, 2016
Revisions: November 28, 2016
  1. SCOPE OF POLICYThe purpose of this policy is to describe the University of Delaware’s authorization and approval requirements for entering into joint ventures and guidelines for structuring joint ventures to protect the University’s tax-exempt status.
  2. DEFINITIONSAs used in this policy, the following terms shall have the meanings specified.
    1. “University” means the University of Delaware or a subsidiary or entity controlled by the University.
    2. “Joint venture” means one of the following:
      1. Any joint ownership or contractual arrangement between the University and one or more parties, through which there is an agreement to jointly undertake specific business enterprise, investment, a non-exempt-purpose activity or exempt-purpose activity, without regard to the legal structure of the joint venture, whether the University controls the joint venture or whether the joint venture is taxed as a partnership, an association, or a corporation for federal income tax purposes; or
      2. The receipt of more than thirty percent (30%) equity interest in an entity in exchange for the licensing of intellectual property owned by the University; or
      3. A public-private partnership or private business venture which is funded and operated through a partnership of government, one or more private sector companies and the University.
        The following shall not be classified as joint ventures subject to this policy:

      1. A venture or arrangement, subject to the oversight of the Investment Visiting Committee; or
      2. A venture or collaboration involving another tax-exempt college or university domiciled in the United States of America.
    3. “Joint venture document” means any document proposed to be executed by or otherwise binding on the University as part of a joint venture, including but not limited to articles of incorporation, bylaws, a joint venture operating agreement, an LLC operating agreement, license agreement and similar documents.
    4. “Investment Visiting Committee” means the Investment Visiting Committee of the University Board of Trustees.
  3. POLICY STATEMENTIt is the policy of the University of Delaware (the “University”), whenever engaging in a joint venture, to take such steps as are necessary to ensure that the joint venture is organized and operated in accordance with applicable federal, state, and local law. In particular, the University shall ensure that the organization and operation of the joint venture does not adversely affect the University’s federal tax-exempt status and does not generate excessive unrelated business taxable income. The terms of a joint venture must be fair and reasonable for the University and must include safeguards of the University’s tax-exempt status.
  4. POLICY STANDARDS AND PROCEDURES
    1. General Standards
      1. It is the University’s policy that any proposed joint venture must be evaluated by the Executive Vice President and University Treasurer, the Vice President for Finance and Deputy Treasurer, and the Vice President and General Counsel (or their designees) to ensure that the organization and operation of the joint venture does not adversely affect the University’s federal tax-exempt status and does not generate excessive unrelated business taxable income. The terms of a joint venture must be fair and reasonable for the University and must include safeguards of the University’s tax-exempt status.
      2. If it is determined by the above-identified officers that a proposed joint venture is in the best interest of the University, such proposed joint venture must be first submitted to the President for approval, followed by the Board of Trustees for final approval.
      3. Any proposed amendment to a joint venture document already entered into by the University and any change in the manner or method of the joint venture’s governance or operation (1) must be submitted for review and approval as provided in Section IV.A.1 and 2 of this policy; and (2) must not cause the joint venture or its operation to be out of compliance with the requirements in this policy.
      4. The University will not make any loans to any joint venture or to any other participants in a joint venture, to which the University is already a party, without the advance written approval of the University’s Board of Trustees
      5. Prior to entering into a joint venture with a taxable for-profit entity, the University will negotiate with and require such terms and safeguards as may be adequate to ensure that the University’s tax-exempt status is protected, including:
        1. A prohibition on joint venture activities (directly or indirectly) that would jeopardize the University’s tax-exempt status, such as political intervention, substantial lobbying, or direct political contributions or support;
        2. A requirement that all contracts entered into with the University be on terms that are demonstrably arm’s length.
          Examples of additional safeguard provisions that may be added to a joint venture agreement include, but are not limited to the following:

        1.  A provision or provisions ensuring that the University has sufficient control over the joint venture to ensure that the joint venture, at all time, be operated and managed in a manner that furthers the tax-exempt purposes of the University;
        2. A requirement that the joint venture give priority to exempt purposes over maximizing profits for the other participants;
        3. A provision or provisions that all transfers of property to any joint venture by the University will be valued at fair market value and the University will receive fair market value consideration or appropriate credit to its capital account for such transfer;
        4. A requirement that the share of authority, control, revenues, profits, gains, expenses, risk and losses allocated to any member of the joint venture shall be proportional to the contributions made by that member to the joint venture, so that neither the University or the joint venture confers or provides an impermissible private benefit;
        5. A provision ensuring that each member of the joint venture shall be paid no more than reasonable compensation or fair market value that is proportional to its contributions; or
        6. A requirement that debt of the joint venture not be guaranteed by the University in a manner that could cause the University to be responsible for more than its proportional share.
      6. The only University officers authorized to execute joint venture documents are the President and the Executive Vice President and University Treasurer.