Urs Gnos
Dr. iur., LL.M.
Christian Lütolf MLaw, LL.M.
In Switzerland, the "joint venture" is recognised as a legal concept, but there is no statutory defini-tion of it or body of law specifically covering it. Most joint ventures are typically structured as either corporate joint ventures or contractual joint ventures, thus most applicable rules on their formation and operation are found in the CO.
Which form of a joint venture its partners choose depends largely on the JV partners' needs. For projects limited in time and scope, the JV partners often prefer the ease of formation and flexibility of a contractual joint venture, whereas the more formal structure of a corporate joint venture is typically chosen for long-term cooperation arrangements or where limited liability is a key concern.
In a corporate joint venture, the JV partners act through a separate legal entity (in which they have ownership) established and managed in accordance with the terms of the joint venture agreement much like an investment and shareholders' agreement. This is mostly achieved by the JV partners incorporating a new company, by jointly acquiring a company or one JV partner investing in a com-pany owned by the other JV partner. This joint venture vehicle can be organised in various legal forms provided by Swiss law. In practice, however, the corporate joint venture is primarily organised as a corporation or an LLC (see chapter on Legal Forms of Companies).
V. Joint Ventures
1. Form of Joint Ventures 1.1. In General
1.2. Corporate Joint Venture
The contractual joint venture is based on a mere contractual relationship between the JV partners, typically the so-called joint venture agreement plus a set of ancillary agreements. As no separate legal entity is established, the JV partners themselves are operating as a group directly in the market.
The joint venture agreement does not need to be drafted in a specific form. Even if the JV partners only orally agreed on the establishment of a joint venture, the agreement is binding. However, be-cause joint venture agreements are often very complex, most JV partners will choose to enter into the agreement in written form.
Typically, the following topics are addressed in such agreement:
− Purpose;
− Contributions (financial or in kind) and further funding;
− Ownership in the joint venture's assets, in particular in the IP rights;
− Internal organisation of the joint venture, incl. decision making process with dispute resolu-tion mechanisms (in particular deadlock situaresolu-tions) and minority protecresolu-tion provisions;
− Management and representation of the joint venture;
− Liability (vis-à-vis JV partner and third parties);
− Distribution of profits and losses;
− Non-compete obligations, fiduciary duties and confidentiality obligations;
− Term, termination and exit or winding up;
− Governing law and jurisdiction/arbitration.
Additionally, in case of corporate joint ventures the joint venture agreement should address:
− Legal form, domicile, capital structure, etc. of the joint venture vehicle;
− Transferability of shares, incl. restrictions such as pre-emptive rights, rights of first refusal, etc.;
1.3. Contractual Joint Venture
2. Joint Venture Agreement
2.1. In General
− Corporate governance (board of directors, shareholders' meeting);
− Relationship between joint venture agreement and (potentially conflicting) corporate docu-ments, in particular the articles of association.
When establishing a joint venture company, mandatory corporate law with regard to incorporation, operation and termination must be complied with. It should be noted that the joint venture com-pany only comes into existence after it has been duly registered with the commercial register. Swiss law further requires that certain provisions of the joint venture agreement are incorporated into the (publicly available) articles of association in order to not only contractually bind the JV partners, but to also the joint venture company itself.
In a contractual joint venture, there is no limited liability for the JV partners, they may (in rare cases and depending on the structure of the joint venture agreement) even become liable for debts in-curred by the other JV partner on behalf of the joint venture.
One of the main advantages of a corporate joint venture on the other hand is that the JV partners' liability towards third parties is limited to their respective equity participation as shareholders. Aside from the obligation to pay in the share capital, a shareholder in principle has no further duties to a company (be this fiduciary duties, further financing obligations, etc.). However, it should be noted that the JV partners in practice will sometimes not be able to benefit from such limited liability for reputational reasons or because of personal guarantees the JV partners were required to give to third parties.
It should further be noted that – in particular circumstances, especially where the joint venture com-pany's interests conflict with those of the JV partners – the people engaged in the joint venture's management (e.g. members of the board of directors) could be held personally liable for breach of fiduciary duties owed to the joint venture company. With regard to fiduciary duties of nominee di-rectors, it can be noted that in principle it is considered acceptable that a nominee director acts
2.2. Spotlight on a Few Select Issues in Joint Venture Agreements
2.2.1. Establishment of the Joint Venture Company in Case of a Corporate Joint Venture
2.2.2. Liability of JV Partners
based on instructions of the appointing shareholder, as long as he or she can act with certain discre-tion to give priority to the joint venture company's interests. This liability does not apply only to the formally appointed directors of the joint venture company but also to so-called de facto directors.
Under Swiss law, the term de-facto director can include the main shareholders of a company (or such shareholder's directors) if they exercise de facto director functions in the company (either di-rectly or through instructions to a nominee director).
Joint ventures are often formed with a 50:50 participation by the JV partners which has the imma-nent risk of deadlock situations. This risk can be mitigated by agreeing on certain devices to unlock deadlock situations in case the JV partners fail to reach an agreement. Such devices can include (i) agreeing on an internal escalation scheme or arbitrator, (ii) alternating the right to decide certain questions (e.g. by alternating each year the right to appoint the chairman with casting vote), (iii) appointing independent directors, (iv) reciprocal share call or put options at a pre-agreed price for-mula, (v) a submitting to a "Russian roulette" clause, a "Texas shoot-out" clause, or other buy-sell structures. The latter, more elaborate buy-sell devices have in our experience however the downside of subjecting important decisions (to a certain extent) to chance.
Minority protection becomes an important point if one of the JV partners controls majority deci-sions, i.e. in case of corporate joint ventures by owning the majority of shares. It should be noted that minority shareholders in a corporation enjoy only limited statutory rights (such as the right to call a shareholders' meeting or to challenge the validity of resolutions violating statutory law or the articles of association). Swiss law provides for different statutory minority rights depending on the size of participation, i.e. some apply to the owner of a single share while other require that a certain percentage is owned.
Such minority protection can be achieved by (i) subjecting important decisions to the consent of a qualified majority (such as hiring of senior management, capital expenditures exceeding a certain threshold, changes to the capital structure, mergers or other restructurings, the sale of important assets, related party transactions, etc.) or (ii) by subjecting meetings of the deciding bodies (i.e. in case of a corporate joint venture: the meetings of the board of directors or the shareholders) to
2.2.3. 50:50 Joint Ventures: Deadlock Devices
2.2.4. Minority Protection
presence and majority quorums. Ideally, this is reflected both in the joint venture agreement as well as in the articles of association of the joint venture company so that is not only a contractual obliga-tion but also binding the joint venture company on a corporate level.
The dispute resolution mechanisms applied in agreements that are subject to Swiss law are those normally applied in international joint venture agreements, such as mediation, arbitration, and state court proceedings.
There are no limitations regarding the choice of applicable law and the method of dispute resolution.
However, when applying the law of any jurisdiction, the courts in Switzerland may give effect to mandatory rules of another law (to the extent such law requires that it be applied), provided that the subject matter has a close connection to such law.
Arbitration is often used as a dispute-resolution mechanism. The rules of the Swiss Chambers' Arbi-tration Institution (Swiss Rules) as well as the rules of the International Chamber of Commerce in Paris (ICC Rules) are regularly chosen.
There is no legislation of general application in Switzerland requiring notification to or clearance from a governmental agency when a foreign-owned (or foreign-controlled) company establishes a joint venture in Switzerland. However, depending on the business area of the joint venture company, certain restrictions might apply:
− In certain regulated businesses (e.g. banking, insurance, electricity, health), a business li-cence or special permit may be required.
− As a general rule, there are no restrictions on capital transfers between Switzerland and other countries.
− The acquisition by foreigners (or companies controlled by foreigners) of real estate in Swit-zerland, either directly or indirectly through the purchase of shares in companies which own residential real estate, is restricted. Given certain circumstances, a so-called Lex Koller-ruling
2.2.5. Dispute Resolution of Joint Ventures
3. Regulatory Aspects of the Joint Venture
3.1. Foreign JV Partners
may be obtained allowing such transaction (see chapter on Acquisition of Real Estate, sec-tion 4).
− There are strict rules on the employment of foreign nationals by a Swiss joint venture: In particular, residents of countries outside of the EU (and EFTA) are subject to an immigration regime under which only a limited number of work permits is granted (see chapter on Foreign Employees).
With regard to joint ventures, the CartA might be applicable in certain cases (see chapter on Com-petition Law): On the one hand, it is relevant in cases where the establishment of a joint venture constitutes a market concentration and therefore is subject to merger control. The parties may be required to file a notification with COMCO. On the other hand, the CartA must be taken into account in cases where the joint venture leads to "agreements affecting competition" without qualifying as concentration, in which case the CartA remains applicable even if no filing with COMCO is required.
3.2. Competition Law Aspects
Daniel Dedeyan
PD Dr. iur., LL.M.
Nico Bernhard MLaw, LL.M.
Switzerland provides an attractive market for equity offerings, in particular due to its liquid equity market, its long-standing reputation as a financial centre, its stable and issuer-friendly regulatory framework and its state-of-the-art financial market infrastructure. While most issuers listed on a Swiss exchange have their domicile in Switzerland there are also a considerable number of foreign companies. Issuers listed on a Swiss exchange are active in a wide range of sectors, notably in the financial, industrial, retail, pharmaceutical and biotech industries. Only a few IPOs as well as a few initial listings are completed on SIX per year.
The main equity exchange in Switzerland is SIX. A total of approximately 250 companies are listed on SIX. The total market capitalisation of all issuers listed on SIX with domicile in Switzerland/Liech-tenstein amounts to about CHF 1.5 trillion. The other equity exchange is BX with about 20 companies listed.