A contractual joint venture is often only a first step and a vehicle for future expansion.
In France, co-operation within the framework of a joint venture can be organized in three different ways:
- A joint venture can either be a simple contractual relationship that does not give rise to a common entity,
- or it can be a common entity having either the form of a partnership (société de personnes),
- or a stock corporation (société de capitaux).
The choice in this regard depends on several factors, among which are the length of the contemplated operation as well as the extent to which parties require the independence and autonomy of the common entity.
The partners of a joint venture (“JV”) always have specific objectives. The creation of a JV therefore cannot be standardized and demands a careful choice and adaptation of the available legal tools.
Certain JV can be created by the establishment of a set of “simple” contracts (contracts for supplies, services, licenses, etc.) without the necessity of a corporate structure. However, such is not always the case: the partners will often be led to create a common ad hoc structure, in addition to the general agreement that defines the context and the conditions of the partnership as well as the annexed agreements that are to be executed.
If the JV will be an autonomous and sustained profit center, the partners will opt for the creation of a common subsidiary company and, to that purpose, will most often choose the simplified corporate form known as the “société par actions simplifée” (“SAS”).
This corporate form offers a large amount of freedom in the organization of management and the conditions for the admission or withdrawal of a partner.
The by-laws of an SAS can validly provide for:
(i) clauses of first refusal,
(ii) tag-along and dragalong rights,
(iii) qualified voting majorities required to make certain decisions,
(iv) ad hoc decision-making bodies, and
(v) a right of withdrawal or a procedure for the expulsion of partners.
The inclusion of such provisions in the by-laws is important because it ensures their enforceability against third parties and their full legal effectiveness. The partners remain free, in order to preserve the confidentiality of such clauses, to include them in a shareholders’ agreement separate and apart from the by-laws.