Understanding Membership Interest Purchase Agreements in International Construction
When it comes to international architecture and construction projects, the core fundamentals of the business environment must be well-roundly understood before the specialist practice areas are integrated into the equation. One of the key fundamentals of the international construction industry is the various types of legal agreements used for completing projects. For those familiar with the legal realm, they understand that certain types of architecture and construction agreements are used for the purpose of developing partnership agreements between, for example, the architect/specialist and engineers. These types of architecture and construction agreements are also known as Partnership Agreements.
Also common, however, are comprehensive membership interest purchase agreements. The Membership Interest Purchase Agreement is a tool used for making payments to obtain an ownership interest in a specific entity. In this case, that entity would be the construction project.
As an example, if an ACH process were set up for a construction project, this process is a Membership Interest Purchase Agreement. In this example, the person sending the payment uses their own account for making payments. When a payment is actually sent, the sending process is recorded in the ACH system, as is the deposit of the funds into the other person’s account. When this occurs, the transaction is recorded and added to the appropriate person’s account.
A membership interest purchase agreement (MIPA) is a type of legal agreement used during the process of a person acquiring an interest in the membership of a limited liability company (LLC). An LLC is a business entity that provides the limited liability feature for shareholders, mitigates the risk of creditors pursuing personal assets and accounts of shareholders, is easy to manage, and is registered with the Secretary of State.
For the purposes of international architecture and construction, the MIPA is the tool used for integrating different types of architectural and construction projects. Similar to a Partnership Agreement, the MIPA is the tool used for establishing a relationship in which each partner can accomplish what would previously be unattainable if the project were completed independently.
When used properly, an MIPA bridges the gap between the projects and the collaboration needed, otherwise known as global construction collaboration. Essentially, this agreement brings partners together while effectively managing costs and protecting the investment of the original investor.
The MIPA is currently being used for managing legal partnership agreements in joint development projects. Globally, the MIPA supports the process of developing a project with contractors or partners who live overseas and are experienced in construction operations. This is a very important factor for international projects, as partnering with an experienced contractor who lives within the country where the project takes place is crucial.
There are many examples of international architecture and construction projects using Membership Interest Purchase Agreements. Under the proper circumstances, these types of projects absolutely work. For example, five EU countries collaborated on a major construction project during the recent years with an estimated US$ 670 million budget. The architecture alone generated millions of dollars in profits.
Using Membership Interest Purchase Agreements for joint ventures, consortiums and other collaborative efforts permits the structure and funding of an international construction project and secures an investment by each of the partners. One of the most common ways to use the MIPA is for sharing the risk, investment, liability and profits of a construction project with several different contractors and entities in several different countries.
As an example, Company A may be interested in handling the architectural phase of an international construction project, while Company B specializes in the commercial phase, and Company C specializes in the structural phase. If the contractor is able to collaborate with other companies, their own investments are less likely to fail.
One of the most important considerations is the ability to secure foreign government permissions and capital. Also key is the ability to access foreign workers and oversee them. When an international project is correctly managed, it can yield significant financial returns.
There are some challenges involved in the drafting of Membership Interest Purchase Agreements for construction projects. When a project involves several companies across different countries, developing the agreement is complex. One of the major issues is handling the logistics of deploying a Member Interest Purchase Agreement while getting each company to agree to the terms. Many of these companies have different agendas, strategies, and sometimes, cultures.
Another issue is in managing the overall relationship. If several different entities are included, an MIPA has to effectively integrate logistics, funding, intellectual property, conflict resolutions, and so forth. Each company may have different priorities, which can cause disagreements. While an MIPA is a collaboration tool, there are still challenges.
Global construction collaboration will continue to increase in the coming years. As global challenges continue, partnerships will be more important than ever. As well, understanding the importance of specialized knowledge will continue as architects, builders, governments, and other stakeholders work together to provide modern infrastructure.
