a b and c enter into a joint arrangement to conduct an activity in entity z the cont 611801

Protective rights and joint control

A, B and C enter into a joint arrangement to conduct an activity in entity Z. The contractual agreement between A and B states that they must agree to direct all of the activities of Z. The agreement of C is not required, except that C has the right to veto the issuance of debt or equity instruments by Z. The ability to veto the issuance of equity and debt instruments is deemed a protective right because the right is designed to protect C’s interest without giving C the ability to direct the activities that most significantly affect Z’s returns.

In this fact pattern, A and B have joint control over Z because they collectively have the ability to direct Z and the contractual agreement requires their unanimous consent. Although C is a party to the joint arrangement, C does not have joint control because C only holds a protective right with respect to Z.