The major issue in the Cherry case study is lack of legal agreement on how the contract by Banana Inc. and Berry Inc. can be terminated if a partner chooses to sell out a portion of their ownership. In such a case, the other party of the joint venture has the right of first refusal to acquire the available interest. Usually, a legal agreement between partners plays an integral role in establishing rules and regulations that partners in business should follow when running a business entity. In this case, owners Banana Inc and Berry Inc. did not well addressed when forming Cherry liability limited company. As a result, failure to have clear guidelines concerning decision-making agreement led to a crisis.
The best alternative to address this issue is amending the joint business laws exceptions that allow partners to sell out a portion of their ownership in the joint business. However, the agreement should give the remaining party the priority to acquire the party of the possession one party wish to sell. When amending the initial agreement, the two partners must consider the capital contribution and amount of shares each partner owns. Doing so will help to allow partners to exercise the rights ( Davis, 2011) . For example, partners should have voting rights based on the number of their shares with the joint venture business. Secondly, in a case where a party of the joint venture wants to sell out part of their possession, the business should be dissolved, and profit generated, and resources shared out between the partners according to their capital contributions of the partners.
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Cherry Inc. is not a variable interest entity (VIE) because the investor with majority shares has no full controlling interest over the business. In this case study, there are various relevant professional pronouncements displayed to create guiding principles for the company ( Davis, 2011) . The two party's representative's declarations were made during the forming of a joint venture to provide guiding rules on how business activities of investment should be performed. First, the intellectual property contribution is a pronouncement that shows the amount of capital share contributed by each party. According to the accounting standards provision on a variable interest entity, partners with significant capital share are entitled to common interest regarding investment and profit-sharing decision ( Presottin, 2019) .
In the case of Cherry Inc of capital sharing agreement between the two parties, the capital contributed by a party does not allow them to a full interest of control of the business. Despite the capital contribution of each party, both parties have the same voting right on key matters that can change the company's management.
Another professional pronouncement is a private company accounting alternative. The current Generally Accepted Accounting Principles provide that private companies with accounting alternatives are not allowed to apply for a variable interest entity ( Presottin, 2019) . Since Cherry Inc. is a privately incorporated company, the provision accounting standards apply. As such, partners with the largest share are not mandated to take full control over the company's key decision-making roles ( Presottin, 2019) . Common stock sharing between the partners is another pronouncement made in this case study. For example, the initial agreement between Banana Inc. and Berry Inc was that the partners received 80% and 20% common stock.
References
Davis, M. K. (2011). Accounting for real estate transactions: a guide for public accountants and corporate financial professionals (Vol. 4). John Wiley & Sons.
Presottin, M. (2019). Disclosure of Interests in Other Entities: IFRS vs. US GAAP (Bachelor's thesis, Università Ca'Foscari Venezia).
