The joint venture: structure and agreements

The joint venture is the alliance through which two or more companies pool resources, skills or capital to carry out a common project, sharing its risks and rewards. It is the typical tool for entering a new market, developing a technology or taking part in a large tender without merging. In Switzerland there is no “joint venture legal form”: it is a way of collaborating that must be translated into a precise structure. Choosing that structure is the most important decision of the entire operation.

Two basic models

The first question is whether the collaboration should remain purely contractual or give rise to a company.

• Contractual joint venture: the parties collaborate on the basis of a contract, without creating a common vehicle. Legally it is often configured as a simple partnership under the Code of Obligations. It is quick to set up, but entails the joint and unlimited liability of the participants towards third parties and does not create separate assets;
• Corporate joint venture: the parties incorporate a common capital company — as a rule a GmbH or an AG — of which they hold the shares. The project lives in an autonomous entity, with its own assets and limited liability.

The contractual model suits temporary collaborations or one-off projects; the corporate model suits lasting partnerships that require investments, hires and stable relationships with third parties.

Choosing the corporate vehicle

When a common company is chosen, the choice between GmbH and AG follows the same logic as for any business. The AG requires capital of at least CHF 100,000 (of which at least CHF 50,000 paid in) and guarantees anonymity of the shareholders and greater ease in bringing in new investors. The GmbH starts from CHF 20,000 fully paid in, but the partners are entered in the commercial register. For joint ventures intended to raise capital or to be sold, the AG is often preferred; for smaller projects, the GmbH offers sufficient simplicity.

The pact between the partners: the true heart of the operation

The company’s articles of association govern only part of the relationships. The decisive document is the shareholders’ agreement (or joint venture agreement), which regulates what the articles cannot, or it is not advisable to make public. It defines in particular:

• contributions of each partner: capital, know-how, licences, personnel, clientele, and their value;
• governance: composition of the board of directors or management, appointment rights, reserved matters requiring the consent of all partners;
• enhanced majorities for strategic decisions, so as to protect the minority partner;
• dividend policy and rules for future financing, including what happens if a partner does not take part in a capital increase;
• confidentiality, non-competition and exclusivity for the duration of the collaboration.

Without these rules, a 50/50 equal joint venture risks decision-making deadlock at the first disagreement.

The exit clauses

No alliance lasts forever. A good agreement provides from the outset how to exit, without having to negotiate in a moment of conflict:

• pre-emption: whoever wants to sell must first offer the stake to the other partners;
• drag-along and tag-along: they protect, respectively, the one selling the majority and the one remaining in the minority in the event of a sale to a third party;
• deadlock clauses: mechanisms to unlock stalemate situations, such as reciprocal cross-offer sales;
• grounds for dissolution and division of assets, brands and intellectual property at the end of the project.

Defining the exit when relationships are good is the best guarantee that disagreement, if it comes, will not destroy the value created together.

Tax and competition aspects

The chosen structure has direct tax effects: a common company is an autonomous tax subject, whereas in a simple partnership the results are attributed to the individual partners. Competition-law profiles must also be assessed, because agreements between companies active in the same market can fall under the rules on cartels. These aspects must be addressed before signing, not after.

How we work at SIH ONE

We help partners choose between the contractual and corporate model, incorporate the common vehicle and draft the shareholders’ agreement with governance, minority protections and exit clauses consistent with the project’s objectives. We coordinate legal, tax and capital profiles in a single structure.

Are you considering an alliance with a partner for a new project? Discover the services of our capital division and structure your joint venture on solid foundations.