You would like to set up a joint venture with a cooperation partner?
Travelling together to new territory?
A joint venture is typically an alliance of two or more equally strong partners. It can also be referred to as joint enterprise or cooperative venture.
The main difference between a joint venture and a complete merger is the continued legal and economic independence of the cooperation partners. Although they share the financial risk and the management of the joint venture to a certain extent, they remain legally independent with their own companies.
Our approach to consulting: a well-conceived cooperation agreement that considers opportunities for tax structuring
Entering into corporate cooperation is an ambitious undertaking that prioritises the development of a joint endeavour. And to ensure that you can continue to focus on the operational side of your business, it is crucial to balance the partners’ spheres of influence when setting up a joint venture.
Partnerships will succeed in the long term only if both sides can be sure that their respective vision and interests are appropriately represented, even years later. To this end, we pay special attention to the configuration of the cooperation agreement, the articles of association and the additional shareholders’ agreements.
When it comes to tax advice, it is important to us that you and your cooperation partners leverage the numerous structuring possibilities of a joint venture. As lawyers and tax consultants, we’re always keeping a close eye on the big picture of joint venture agreements and their tax consequences.
Equity joint venture vs. contractual joint venture
There are two types of business partnerships here:
- An equity joint venture is the closer form of cooperation. Here, the partners collaborate through a public-facing joint company, such as a GmbH or a GmbH & Co. KG.
- A contractual joint venture is a form of cooperation based purely on an agreement. In other words, the parties do not set up a separate legal entity, but instead merely enter into cooperation agreements.
We would be pleased to examine with you which of these two corporate alliances makes more sense for you and your future partner(s). The corporate and tax implications of these two types of cooperation are so different that only a tailor-made solution can suit you.
Partial tax integration
From a tax point of view, the freedom to manoeuvre in a joint venture is more limited than when setting up a subsidiary of one’s own. Even with corporate cooperations, our many years of experience allow us to largely implement the desired tax integration of the joint enterprise into the respective group.
One solution that has proven to work particularly well is the legal form of a GmbH & Co. KG. If a joint venture is to be a GmbH or an AG for operational reasons (e.g. because of its market presence), it may make sense to establish a GmbH & Co. KG as a joint holding company and parent company of a tax entity. In this way, a partial balancing of the results would be possible for both shareholders, including for tax purposes.
Over time, a joint venture can naturally result in disputes. We therefore strongly encourage the use of structured processes to resolve conflicts. You can thus prevent an indefinite stalemate among divided shareholders, which can ultimately paralyse the operating company.
The above mentioned structured processes can be rules in a joint venture agreement that specify how to deal with foreseeable differences of opinion regarding content. In general, it may be advisable to let a neutral third party that possesses relevant industry expertise resolve any conflicts that arise. Members of an advisory board or supervisory board – who are familiar with the company’s circumstances but are not associated with either party – are particularly suitable for this purpose.
A joint venture agreement should include provisions for terminating the partnership if no lasting solution can be found to differences in opinion. That usually means that the partner with the largest share in the joint venture takes over all shares in the joint enterprise. In the case of two equally strong partners and the absence of a “natural” acquirer, a more complex takeover regulation is necessary. In addition to the purchase price, this regulation should above all state which partner may (or must) take over the other’s share and what the prerequisites are for this.
In our experience, clauses such as Texas shoot-out or Russian roulette have proven particularly effective. Under these provisions, any party can set the process in motion, but it is not clear from the outset who will take over whose shares and at what price. The risk that such a provision could come into force is almost always reason enough for the partners to come to an agreement. This is because no partner wants to trigger something if they cannot predict whether they will ultimately have to sell their shares, or take over and purchase the other shareholder’s shares.