Strategies, benefits and keys to business success
The political, social and technological changes that guide today's world have had an impact on international economic activity, causing a growing interdependence between state economies and the internationalization of economic processes.
This new reality has imposed a significant reorganization of the protagonists of international traffic, the companies; and an example of this is the shared management or business cooperation which has led to the increasing use of formulas such as a joint venture that today have become an integral part of international trade.
Studying a joint venture allows you to evaluate the close relationship between contract law and Company law, two sectors of the legal system whose numerous interferences are evident in any operation of this type.
This is because the contracts of a joint venture (base agreement and satellites) do not lend themselves to the identification of a typical business content, but to the engagement .
We will also be able to review the practice in this area of international trade.
The presence of several formally independent structural elements within the framework of a transaction from the point of view economical and worksNot only does it introduce the possibility of occurrence material interferences, but also shows a great potential to produce legal consequences in the field of private international law.
Furthermore, we must not forget that these operations are subject to the intervention rules for the macroeconomic organization of the market (competition law), as well as other regulations that appear to be informed by the public interest, such as those relating to foreign investment regime, and those relating to the export or import of technology.
Due to the variety of contents that it can incorporate, and the different purposes it fulfills in each specific case, the determination of the base agreement of a joint venture raises delicate and specific problems of interpretation, which make this contract a surprising case study.
What is an Equity Joint Venture
The legal formation of the equity joint venture responds to the need for adequately regulate the complex relationships of dependency and cooperation that the participants seek to establish among themselves, on the one hand, and with common society, on the other..
The partnership agreement and the company are the typical legal instruments for the joint exercise of an economic activity in the form of a business.
Thus, the partnership is a contract by which two or more people are obliged to pool money, goods or industry to distribute the benefits among themselves in the typical framework of associative relationships. (art. 1665 CC).
Which is a non equity joint venture o a joint venture contractual
It is one that materializes through a contractual complex of diverse nature -base and satellite contracts- and is articulated around a single economic cause, based on the contract of a joint venture to organize the alliance between companies.
This contractual complex contains the underlying obligations assumed by the parties and the objectives of the operation, but no company is formed.
The Joint Venture contract
The contract of a joint venture is the agreement by which the participants in an operation of equity joint venture (in this case) they agree on the creation of the company or common subsidiary, on its objectives, activities and duration, as well as on the manner in which joint control and management of the same will take place.
This contract is based on a base agreement and satellite agreements.
The first gives rise to the operation of a joint venture and usually contains, in a programmatic way, the planning of the cooperative project that is going to be developed by the participants.
The clauses of these contracts could be integrated into basic sections:
- The stipulations relating to the creation of the joint company: name, registered office, legal form and organic structure.
- The commitments to concrete contributions of the participants to society (such as a trademark licensing agreement, technical assistance or distribution).
- The agreements regarding the design of its control and direction.
The latter are the so-called shareholders agreements, which lack publicity as they are not contained in the corporate statutes.
Through these, the participants establish their reciprocal commitments as shareholders of the common company, in relation to the management and control of the company, as well as in relation to the transferability of their shares.
Along with this basic content, clauses that regulate the behavior of the participants are also common (such as non-competition agreements with the company's activity). a joint venture or confidentiality agreements); as well as indicating the duration and the causes and methods of termination of the a joint venture; and designate the applicable law or dispute resolution mechanisms, such as arbitration.
However, sometimes, It is impossible to establish a more detailed regulation at the time of conclusion of the basic agreement., which will be done later through satellite agreements, which will appear formulated, in their fundamental aspects, in the base agreement itself. a joint venture.
Ultimately, The base agreements will include the bases of the negotiation, the objectives pursued and the circumstances surrounding the creation of the JV.; while the Satellites will regulate the details of implementation adapted to the specific circumstances.
What happens if one of the partners breaches the Joint Venture contract?
Since the JV contract arises as a legal transaction of reciprocal obligation in which said obligations are found as implicit by said interdependencies, the obligations are not devoid of eventual responsibility.
Therefore, in case of non-compliance with the obligations subscribed in the contract of a joint venture, substitute compliance and appropriate compensation are required.
This is because a pact is law between the parties (art. 1091 CC); so it will then be possible to make use of the contractual action for breach and action for compensation for damages.
Likewise, agreements that remain reserved between partners will not be enforceable against the company (art. 29 LCS).
Contractual liability arises from fault due to a lack of diligence and foresight on the part of the author of the act, which results in a breach of his obligations and generates the obligation to compensate (arts. 1.101 et seq. of the CC).
Along these lines, the jurisprudence, based on this “minimum behavior” has accepted (as well as the doctrine) the Unilateral denunciation as a cause for dissolution even if it had not been expressly agreed in the contract, it being possible to terminate the contract at any time during its duration. (STS 30 May 2008). That is, not waiting for the conclusion of its execution or accountability.
The Judgment of May 20, 2018 of the Provincial Court of Barcelona Section Fifteen also convicted the defendant for the same thing.
However, the action for compensation due to fault requires, in order to prosper, proof of the existence of a legal relationship between the parties, that any of their obligations have been totally or partially breached, due to a lack of diligence or foresight on the part of the debtor, and that there is a cause-and-effect relationship between the fact and the result.
As well, ’s relationship with the breach There must have been reparable and quantifiable damage or harm; this does not only include material or economic damages, in their double form of consequential damages and loss of profits (art. 1106 CC), but also moral damages.
However, the consideration of the base agreement of a joint venture As a partnership contract, it determines the impossibility of fully applying the regime of general principles established for exchange contracts.[1]. The different problems that arise will be treated under the principles of company law.
For example, the exception of the unfulfilled contract that in other contracts allows each party to refuse to comply with the agreement as long as the other contracting party does not comply (art. 1224 CC) is not applicable to the partnership contract.
On the contrary, the mechanism of exclusion of the defaulting partner, which allows maintaining the link between the other partners (arts. 170, 218 and 219 of the CC).
In relation to breach of contract, If one of the participating companies denies the conclusion or performance of certain contracts with the company, the rest of them may not fail to comply with other satellite contracts by invoking the breach of contract by the first.
Conclusions on the Definitive Guide to Joint Ventures: strategies, benefits and keys to business success
After analyzing and responding to the different legal questions raised, the following conclusions have been drawn:
- The JVCo is a legal entity that needs a base contract and satellites that include all possible cases during the course of the corporate operation, as well as once it is established, to prevent the different risks that may arise from the coexistence of the partners, and that could affect the normal activity of the company. Besides, a a joint venture It is a commercial association with another foreign company, with customs totally different from ours; Therefore, the contract must be very clear and carefully drafted..
- La equity joint venture It is usually a capital company, whether public limited or limited. Its type will depend on the business strategy and objectives or the company's activity, among many other factors. However, the constitution under one or another social type will have business, legal and fiscal consequences that must be taken into account from the beginning.
- A society is not an invariable entity. Depending on the business strategy and the social and economic reality, it will require the establishment of new agreements or other legal actions. Therefore, the appropriate foundations must be laid to allow normal operation, being aware of the uncertainty to which any company is subject, especially if it operates internationally.
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