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 trade, the companies; and an example of this is the shared management or business cooperation that has led to the growing use of formulas such as joint ventures that today have become an integral part of international trade.
The study of joint ventures allows us to evaluate the close relationship between Contract Law and Corporate Law , two sectors of the legal system whose numerous interferences are evident in any operation of this type.
This is because joint venture agreements (base and satellite agreements) do not lend themselves to the identification of a typical business content, but rather to ad hoc contracting.
We will also be able to review the practice in this area of international trade.
The presence of several formally independent structural elements within a transaction, from an economic and functional point of view, not only introduces the possibility of material interference , but also shows great potential for producing legal consequences in the field of private international law.
Furthermore, it should not be forgotten that these operations are subject to the rules of intervention for the macroeconomic organization of the market ( competition law ), as well as other rules that appear to be informed by the public interest, such as those relating to the foreign investment regime , and those relating to the export or import of technology.
Due to the variety of content it can incorporate, and the different purposes it fulfills in each specific case, the determination of the basic joint venture agreement raises delicate and specific problems of interpretation, which make this contract a surprising case study.
What is an Equity Joint Venture
The legal structure of the equity joint venture responds to the need to adequately regulate the complex relationships of dependence and cooperation that the participants intend to establish among themselves, on the one hand, and with the common company, 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, a company is a contract by which two or more people agree to pool money, goods or industry to share the benefits among themselves within the typical framework of associative relations (art. 1665 CC ).
Which is a non equity joint venture o a joint venture contractual
It is that which materializes through a complex contract of diverse nature - base and satellite contracts - and is articulated around a single economic cause, based on the joint venture contract to organize the alliance between the companies.
This complex contract contains the substantive obligations assumed by the parties and the objectives of the operation, but no company is formed.
The Joint Venture contract
The joint venture agreement is the agreement by which the participants in an equity joint venture operation (in this case) agree on the creation of the joint company or subsidiary, on its objectives, activities and duration, as well as on the way in which the 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 joint venture operation and usually contains, in a programmatic way, the planning of the cooperative project that will 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.
These latter are the so-called parasocial agreements , which lack publicity as they are not contained in the company 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 regulating the behavior of the participants are also common (such as non-compete agreements with the activity of the joint venture company or confidentiality agreements); as well as indicating the duration and the causes and methods of termination of the joint venture ; and designating the applicable law or the mechanisms for resolving conflicts, such as arbitration.
However, sometimes it is impossible to establish more detailed regulations at the time of conclusion of the basic agreement , so it will be done later through satellite agreements, which will appear formulated, in their fundamental aspects, in the basic joint venture agreement itself.
In short, the basic agreements will outline the foundations of the negotiation, the objectives pursued and the circumstances surrounding the creation of the JV ; while the satellite agreements will regulate the implementation details 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 the event of non-compliance with the obligations agreed upon in the joint venture contract , substitute performance and appropriate compensation are required.
This is because an agreement is law between the parties ( art. 1091 CC ); therefore, it will be possible to make use of the contractual action for breach and the action for compensation for damages.
Likewise, agreements that are kept confidential 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).
In this vein, case law, based on this "minimum standard of conduct," has accepted (as has legal doctrine) unilateral termination as grounds for dissolution, even if not expressly stipulated in the contract, making it possible to terminate the contract at any time during its term (Supreme Court Judgment of May 30, 2008). That is, without waiting for the conclusion of its performance or the rendering of accounts.
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.
Also, the breach must have generated a reparable and quantifiable damage or harm; not only including material or economic damages, in its dual modality of emergent damage and lost profits (art. 1106 CC), but also moral damages.
However, considering the basic joint venture agreement as a company contract means that the general principles established for exchange contracts cannot be applied in full [1] . Any problems that arise will be addressed 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 is introduced , which allows the link between the other partners to be maintained (arts. 170, 218 and 219 of the CC).
Regarding breach of contract, if one of the participating companies denies the conclusion or fulfillment of certain contracts with the company , the rest of those companies may not fail to fulfill other satellite contracts by invoking the breach of contract by the first one.
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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