A joint venture (JV) is a commercial arrangement between two or more, usually economically independent, entities for the purpose of executing a particular business undertaking or commercial endeavour. There is no particular and specific legal meaning ascribed to the term JV in Australia.

A JV can take a number of legal forms. JVs are commonly used where no one party has all of the expertise and resources required for the particular business undertaking.

Most major sectors in Australia use JVs. JVs are commonly used for projects that:

Projects in the energy and resources sectors, for example, are frequently structured as JVs. Companies increasingly use JVs as a tool to respond to rapidly changing market environments and drive innovation and growth in existing and new market sectors. A properly structured JV can provide participants with the benefit of co-operation without exposure to unwanted financial, operating, industry, and other risks.

As the drivers for a JV depend very much on the particular industry and the objectives of each participant, each JV requires careful design to meet the participants' legal, corporate governance, and operational objectives.

To minimise cross-border legal complexities (and to meet local laws in relation to carrying on a business in Australia), foreign entities often participate in Australian JVs through locally incorporated Australian companies rather than directly through an offshore foreign entity.

Use of a JV is relatively common when companies are looking to enter a new geographic or product/service market in Australia.

The two most common forms of JVs in Australia are:

Many strategic, commercial, legal, taxation, accounting, and other factors are relevant to the decision to choose an incorporated or unincorporated JV (or a different business structure altogether).

JV structures are well-suited to many sectors of the Australian economy, including for example, the energy and resources sector. Properly structured and managed they can provide an efficient method of distributing high capital requirements and project risks among the participants. Both incorporated and unincorporated JV structures can also provide greater flexibility in the participants' tax treatment.

It is critical to plan the JV structure (including participant selection), formation, operation, and exit before agreeing to enter into a JV. Proper planning at the outset will maximise the chances of achieving participants' objectives. Taxation considerations will also play a role in determining the correct choice of JV structure, so taxation advice is recommended prior to making any commitment to enter into a JV.

Participants are not required to execute any preliminary agreements that are specific to the formation of a JV. However, negotiating and executing a preliminary agreement can be an effective way to ensure alignment between the proposed JV participants before any full form agreements are entered into.

There are multiple preliminary issues a participant in a proposed JV should consider, including:

Participants typically conduct due diligence on a range of issues including any new market being entered, assets (including any intellectual property) being contributed to the JV, and the other participants. In some circumstances, the due diligence may include an assessment of the counterparty's political risk and corporate reputation and broader market factors.

The formation of a JV may be conditional on matters normally associated with the acquisition of assets or shares or establishment of new businesses. Additional external conditions precedent may include:

Each participant's internal conditions precedent should also be included. In markets with high regulatory barriers to entry, a new participant will typically also carry out a regulatory risk review to understand the risks it, or the JV, will face once the JV is established.

Participants who are listed companies may need to consider whether the formation of the JV gives rise to a significant transaction under the Listing Rules of the Australian Securities Exchange (ASX Listing Rules) and whether shareholders' approval requirements are triggered (which may require the preparation of an expert report). This may be particularly relevant for companies that have assets with high intrinsic values but a comparatively low market capitalisation. Further restrictions may apply to a listed company after the establishment of the JV. Specific advice should be taken on those issues.

There can be many advantages of an incorporated JV. The primary advantages include:

There can be a number of disadvantages for incorporated JVs. The primary disadvantages include:

An existing company or a newly incorporated proprietary company is often used as the JV vehicle. In Australia, the Australian Securities and Investment Commission (ASIC) administers the Corporations Act and the formation and management of companies. The process of registration is relatively quick and inexpensive compared to some other jurisdictions.

Incorporated JVs are subject to all of Australia's corporate laws including:

Participants must comply with all other laws applying to incorporated entities in Australia and may also need to comply with the requirements of other legislation that are specific to the JV's business undertaking, depending on its structure.

There are no specific language requirements for the formation of a JV. Documents are routinely prepared in English to avoid any translation issues when contesting the interpretation of rights and obligations that are subject to Australian law. English is also required when filing documents with government authorities.

The authors increasingly see dual language JV documents. It is important to clearly state which language will take precedence in the event of any inconsistency between the two languages. This is particularly important when dealing with participants who typically operate outside of Australia as not all Australian legal concepts relating to JVs easily translate into some other languages and jurisdictions.

In practice, Australian companies denominate their share capital in Australian dollars.

There are no notarisation requirements for the incorporation of a company other than for the purposes of authenticating foreign legal documents (if required).

If agreed with the recipient, a company can pay for services by issuing fully paid-up shares. However, companies that issue shares as payment may be perceived as having cash flow difficulties and external parties may be more wary in their dealings with the company. In some circumstances the company will also need to comply with any shareholders' approval requirements.

Participants can make shareholder loans on terms agreed with the company (and usually in accordance with the relevant terms of the shareholders' agreement).

There is no prohibition on a company transacting with its shareholders. Because directors owe duties to the JV company, they must consider the circumstances and terms of each transaction and determine whether shareholders' approval is also required. In addition, the terms of the shareholders' agreement can prescribe specific requirements for particular transactions and when shareholders' approval is required.

The company must comply with the requirements under the Corporations Act and the shareholders' agreement in respect of issuing shares. The company must also ensure its share register is updated and relevant documents are filed with ASIC.

Generally, a shareholders' agreement will contain all the provisions necessary for the formation of the JV and conduct of the JV's business by the board of directors (board). The agreement will also regulate management and termination or dissolution of the JV. Additional service agreements can be used in connection with the day-to-day operation of the business. Issues commonly dealt with in a shareholders' agreement include:

The company's constitution and any shareholders' agreement operate together to set out the rights and obligations of the company, its directors, and its shareholders. Generally, in relation to the conduct of the JV's business the shareholders' agreement contains greater detail than the company's constitution, for example, arrangements regarding management, funding, exiting of participants, and resolution of disputes. The shareholders' agreement and the company's constitution must be aligned and any amendments to the shareholders' agreement must flow through to the constitution (as required). It is important that it is clear which agreement takes precedence in the event of any inconsistency. Typically, the shareholders' agreement will take precedence.

Usually, the company and all its shareholders are parties to the shareholders' agreement.

Generally, the shareholders' agreement can only be amended by agreement between all parties to the agreement. Conversely, many amendments to the company's constitution do not require agreement by all shareholders (subject to any arrangements under the shareholders' agreement).

Contractually, the parties will be required to comply with any dispute resolution regime under the shareholders' agreement, except in relation to specific rights under the Corporations Act which cannot be waived by contract.

A new party can become a shareholder in a JV company either by subscribing for new shares or acquiring issued shares from existing shareholders. Under a subscription the company receives new equity capital, whereas the selling shareholders receive the sale proceeds in respect of share transfers. Ordinarily, the shareholders' agreement limits the company's ability to issue new shares without shareholders' approval and provides shareholders with rights in respect of a proposed transfer of shares.

The identity of participants can be fundamentally important, and shareholders' agreements usually include pre-emptive rights which are triggered by the change of control of a participant. The scope of these triggers should contemplate that some participants may be listed, and address insolvency events.

The shareholders' agreement should prescribe the process that a shareholder must follow when seeking to dispose of its shares, and often includes a drag along right for the selling shareholder, tag along rights, and rights of pre-emption or last refusal for the non-selling shareholders. Different considerations can apply for shareholders who expect to hold a majority interest in the JV company, compared to those with minority interests.

Chapter 2G of the Corporations Act sets out the requirements for shareholders' meetings. Unless otherwise agreed, at least 21 days' notice must be given for a general meeting of shareholders. A shorter time is permitted if the meeting does not relate to the appointment or removal of a director or auditor and members with at least 95% of the votes that can be cast at the meeting agree to the shorter notice.

A general meeting can be called by a director or on request by members with at least 5% of the votes that can be cast at the meeting. Meetings can be held virtually or in a hybrid format, provided that shareholders have a reasonable opportunity to participate in the virtual meeting.

Provided that all shareholders are able to participate in the conduct of a meeting, the meeting can be carried out in any language. The minutes of the meeting must be recorded in English together with any subsequent documents that must be filed with ASIC.

Notices of shareholder meetings must contain sufficient information regarding the business to be conducted at the meeting, regardless of whether the resolutions are to be passed at a meeting or as a circulating written resolution. Subject to the shareholders' agreement, the default requirement for a quorum is two shareholders.

The Corporations Act sets out the circumstances in which shareholders can demand a vote by way of a poll or show of hands. The voting arrangements set out in the shareholders' agreement may also need to accommodate scenarios where one shareholder has control of the management of the company during sole-funding periods.

Resolutions passed by shareholders must be recorded in the company's minute book within one month of the corresponding meeting (or circulating resolution being passed). Minutes of each meeting must also be signed by the chair of the meeting or the chair of the next meeting (or a director where a resolution is passed as a written resolution).

The requirement for meetings will depend on whether the JV is incorporated or unincorporated. Incorporated JVs are subject to the requirements of the Corporations Act, the company's constitution, and the shareholders' agreement. Unincorporated JVs are subject to the JV agreement.

Generally, the participants determine the frequency of meetings reflecting the complexity and nature of the activities being undertaken, with emergency meetings being called at short notice.

A company is only able to distribute profits to shareholders in the form of dividends. A company can only pay dividends where all of the following conditions are met:

Directors must also be satisfied that the company has sufficient profits and ensure any additional requirements imposed by the company's constitution are met. In respect of corporate groups, directors must make this assessment on a company-by-company basis and cannot rely upon the group's consolidated financial statements.

If a dividend is paid without the above requirements being met, the dividend may be treated as an unauthorised return of capital, which can have adverse consequence for shareholders and expose directors to liability.

Shareholders' approval is not generally required to pay a dividend. Once the board determines that a dividend can be paid, the directors must decide whether it will be declared or determined to be paid. A dividend that is declared constitutes a debt owing whereas the determination to pay a dividend does not give rise to a debt owing until the payment date occurs, and the directors may retract these dividends prior to the payment date.

A JV company is managed by its board, which has a supervisory role. Therefore, the number of directors appointed by a participant, and their relative voting power, will ordinarily reflect the participant's proportional interest in the project. Deadlock scenarios must be considered, particularly for 50:50 JVs. Sometimes the board may appoint an independent manager to manage specific day-to-day functions of the JV (subject to management terms which are set out in the shareholders' agreement, JV agreement, or separate management agreement).

There should be no conflicts between the shareholders' agreement, the company's constitution, and the relevant company laws concerning the appointment and voting power of directors because while the shareholders' agreement can, as between the parties, override the requirements of the constitution, it is often not possible to contract out of statutory requirements including directors' duties. The shareholders' agreement and company's constitution should specify:

Directors' duties exist in common law and under the Corporations Act and apply to all companies (regardless of whether or not they are JV companies). Compliance with these duties can be more complex in the context of JV companies, because directors will frequently have concurrent loyalties to the company and their appointing shareholders.

The shareholders' agreement may include provisions that help mitigate conflicts that can arise in the ordinary course of activities, for example, directors disclosing information to their appointing shareholder. There are no definitive principles that deal with these potential conflicts.

Directors who breach their duties may be exposed to significant criminal or civil liabilities or both, or required to pay damages. The specific consequences of a breach and the available remedies vary depending on the particular duty and whether it is based in contract, equity, or statute.

Some participants may attempt to limit this exposure by not appointing directors to the board, either immediately or at all. Participants may instead seek to structure the shareholders' agreement so that it either:

Alternatively, when participants do appoint directors, they may propose that the shareholders' agreement includes the requirement for nominee directors to obtain the advice of their appointing participants, before they consider and resolve on certain board decisions.

These practices can provide degrees of control over the board's decision-making when a participant is reluctant to appoint a director or has concerns about the application of directors' duties to their nominee directors. However, these approaches can result in a participant being considered to be a shadow director and then itself being subject to directors' duties. It is possible for a corporation to be considered a shadow director.

The scope and type of decisions which require special majority approval will depend on the JV's scale and business, and on which matters the participants consider to be critical to protecting the value of their investment. Different voting percentages (or unanimity) can apply to different reserved matters.

The shareholders' agreement (or company constitution) should prescribe the rights, procedures, and requirements for directors and shareholders to call and adjourn meetings, and the minimum frequency for board meetings.

The Corporations Act provides that any director is entitled to call a board meeting. The notice period for a meeting and the details of matters to be considered (including supporting materials) should reasonably enable each director to give due and proper consideration to the matters which require the board's supervision.

Board meetings can be conducted through the use of technology or in-person. Participants have broad discretion to agree on board meeting and voting procedures. It is also routinely agreed that directors appointed by each shareholder will, together, be able to cast the number of votes that reflects the appointing shareholder's participating interest in the JV company.

Unless otherwise agreed, the Corporations Act provides that the quorum for a meeting is two directors. The shareholders' agreement can prescribe different quorum requirements, and alternative requirements if consecutive called meetings are inquorate. Where one participant holds a significantly larger participating interest than other participants, often the quorum requirements will include attendance by one or more director appointed by that participant.

Usually the shareholders' agreement (or company constitution) prescribes which participant can appoint the chair of board meetings, and typically the largest shareholder holds the appointment right except when its appointed directors do not attend a properly called meeting that is not adjourned.

The Corporations Act requires a company to keep a minute book in which it records, within one month, the proceedings and resolutions of directors' meetings (including meetings of a committee of directors) and resolutions passed by directors without a meeting. The company must ensure the minutes are signed within a reasonable time by the chair of the relevant meeting, or the chair of the next meeting. Board meetings can be conducted using any technology consented to by all the directors, and often the shareholders' agreement will deal with the use of technology for meetings.

A company contravenes the Corporations Act if a person does not sign a consent to act as a director of the company before being appointed. A company must notify ASIC of the appointment of a director or change in a director's details.

The shareholders' agreement (or company constitution) should prescribe the entitlement (if any) of each participant to appoint a director, so that participants have rights to board representation which do not require a resolution of shareholders or directors.

Under relatively new laws in Australia, directors must also register to obtain and hold a Director Identification Number or DIN. Significant penalties can apply for failing to hold a DIN.

The Corporations Act sets out specific circumstances for the cessation of directorships, for example, when a person becomes bankrupt or is convicted of a criminal offence. The shareholders' agreement should also prescribe when a participant's entitlement to appoint a director is suspended, ends, or is reduced in line with a reduced shareholding. Unless a prescribed event occurs, a director cannot be removed by the other directors or the shareholders.

The directors of a JV company will owe a number of common law and statutory duties to the company (see Question 11, Directors' Duties and Liabilities). These directors' duties can extend to other parties, if it is determined that they are acting as shadow directors of the company. Absent any shadow director scenario or similar, a shareholder does not itself owe fiduciary duties to the company.

Under the Corporations Act a director who has a material personal interest that relates to the affairs of the company, must disclose that interest to the other directors. Directors usually make disclosures as required under the Corporations Act to deal with potential conflicts of interest, however the general law position also needs to be considered. These issues must be considered and advice taken on a case-by-case basis.

Failure to disclose a personal interest is a strict liability offence and penalties may be imposed.

For more information on directors appointed by JV shareholders see Question 11, Directors' Duties and Liabilities and Question 12, Participation and Voting Procedures.

There are some limited restrictions on the eligibility of an individual to act as a director. There are no restrictions on nationality, however at least one director must be ordinarily a resident in Australia. Other restrictions exist for directors who have been bankrupt or convicted of a criminal offence.

Only a natural person can be a director of an Australian company.

Although companies can remunerate directors and reimburse expenses, in the context of a JV company the requirement to remunerate directors typically only arises when the board has independent directors who are not employed by a JV participant.

The Corporations Act limits the circumstances in which a company can indemnify its directors.

Companies can obtain insurance coverage for directors, provided that the policy does not apply where the conduct involves a wilful breach of duty in relation to the company or improper use of information or position.

A company, in compliance with any relevant requirements, can issue any number of different share classes. Different types of shares include:

Some actions by the company will require the passing of a special resolution (75% of votes cast by shareholders entitled to vote), for example, steps to vary or cancel rights attaching to shares. The shareholders' agreement will set out a range of other decisions that require a special majority or unanimous approval by shareholders.

There is no minimum percentage interest (or shareholding) that must be held by a shareholder of a proprietary company. The shareholders' agreement may require any shareholder who holds less than a prescribed interest (for example 10%) to dispose of that interest, and there is flexibility to deal with how minority interests are acquired including cash payments or trailing interests, for example, royalties.

Some shareholders' agreements will include a requirement for the board to pursue an exit, for example an IPO or trade sale, after a prescribed period of time. It is less common for a shareholder to have a put or call option to effect their exit.

Shareholders' agreements will often include mechanisms to resolve deadlocks at board or shareholder level, for example, the appointment of an expert to determine which course should be pursued.

There is no legislated regime which applies to resolve deadlocks. Therefore, when the JV agreements are being prepared each participant should carefully consider which form of contractual deadlock resolution regime is likely to best suit its position once the JV commences. Without a robust deadlock regime, a participant can seek to cause deadlocks to create leverage which supports its attempts to extract concessions from the other participants.

In limited circumstances shareholders may seek a Court order that:

However, these are extreme steps which can result in poor outcomes for some or all of the parties.

A JV will generally terminate on a material breach that cannot be remedied or on one participant holding all of the shares or participating interests in the JV through exercising pre-emptive rights, dilution, or minimum shareholding requirements.

The duration of a JV will depend on the expected life of the project or business and whether a participant has a fixed investment term. This is a commercial matter that will depend on the circumstances and objectives of the participants.

There are a number of differences between an unincorporated JV and a partnership, and the use of one structure over another will largely depend on commercial factors including taxation. The term partnership JV is not used in Australia. Partnerships are subject to specific legislation in each Australian State and Territory. The use of a partnership structure should be carefully considered prior to being implemented.

Generally, there is no requirement that one structure must be used for a given business undertaking.

The possible advantages of a partnership include:

The possible disadvantages of partnerships include:

A partnership is the relationship between two or more parties (subject to certain limitation as to number), either individuals or entities, carrying on a business in common with a view of profit. A partnership is an ongoing relationship between the partners, unlike a JV which is usually for a limited period. A partnership is not a separate legal entity.

Each Australian State and Territory has legislation regulating partnerships, with some differences between the jurisdictions.

Limited liability partnerships can provide advantages by allowing limited partners to limit their liability for the venture's losses, provided that they do not intrude in the day-to-day operations of the business. In this way they are similar to operator entity and the non-operator entity roles which are often found in mineral, oil, and gas JVs.

Contractual or unincorporated JVs are often used:

The possible advantages of unincorporated JVs include:

The possible disadvantages of unincorporated JVs include:

The agreements establishing an unincorporated JV must clearly set out the nature of the relationship, to avoid any argument that the arrangement constitutes a partnership. Ultimately it is a question of fact whether the relationship between participants is a partnership or a JV.

In some instances it has been found that JV participants owe fiduciary duties to one another and that these duties can exist before final agreements are concluded. It is standard practice for JV agreements to include provisions that seek to negate the creation of any fiduciary relationship between the participants (or limit the scope of any such relationship if it cannot be avoided).

An unincorporated JV is characterised by the parties wishing to share the product of an enterprise, rather than sharing profits. They are not separate legal structures for tax purposes and are governed by the terms of the agreement between the participants and by the common law.

The tax treatment of JVs under Australian law is a highly complex area. The term JV is often used in commercial settings to refer to both:

The tax implications of setting up a JV will be determined by the nature of the agreement between the participants.

The transfer of depreciating assets into a JV company may require a balancing adjustment. An amount is either assessable or deductible to the participant, depending on the written down value at the date of sale.

Capital gains tax (CGT) is generally payable on the disposal of assets or shares that were acquired on or after 20 September 1985, although this will depend on the tax residency status of the entity transferring the asset to the JV. Whether or not a taxable capital gain will arise will also depend on whether CGT roll-over relief is available.

GST is a broad-based consumption tax imposed on a wide range of supplies including goods, real property, services, and rights. GST is broadly similar in operation to the value added tax (VAT) systems operating in Europe and New Zealand.

An entity that makes a taxable supply will be liable to pay GST at a rate of 10% of the GST-free value of the supply unless the supply qualifies as being GST-free, input taxed, or outside of scope for GST purposes.

Entities registered for GST in Australia may be entitled to refunds or credits for the GST charged on acquisitions they make during the course of their business to offset their GST liability (if any). However, there are several circumstance-specific exceptions and variations to this.

Setting up a JV. GST will likely apply to any transfers of assets and payments made as part of the formation process. It is critical to first determine whether an unincorporated JV gives rise to a tax law partnership, or constitutes a separate entity for GST purposes, or both. This can be a complex analysis and is specific to the circumstances.

An unincorporated JV should not constitute a separate entity for GST purposes and each participant must individually account for GST.

Entities engaged in a JV may also elect to form a GST JV, provided that specific requirements are satisfied. A nominated JV operator manages the GST liabilities and inputs tax credits arising in the course of JV activities on behalf of the participants. GST JVs are commonly entered into in mining, primary production, and other industries.

Transferring assets and making payments to a JV. The transfer of assets may constitute a taxable supply and therefore is subject to GST. The nature of the supplies made must be considered because a supply may constitute an out of scope or input taxed supply and not be subject to GST. Examples of GST-free supplies include where either:

Stamp duty is a tax administered by each Australian State and Territory and is levied on certain transactions including transfers of assets and acquiring interests in land-rich entities.

The stamp duty issues may vary depending on whether the JV is incorporated or unincorporated. The stamp duty implications should be considered prior to formation to ensure the structure is implemented in an efficient manner. In some instances, certain duties and exemptions may apply in respect of transfers made by or to a foreign entity.

Issue of shares. The issue of shares by a JV company is not considered a disposal for CGT purposes. However, issuing shares can result in consequences under the value shifting rules if the shares are issued at a discount. The value shifting rules can result in adjustments being made to an asset's cost base or, in certain circumstances, a capital gain.

Generally, the issue or transfer of shares should not be subject to GST.

Transfer of shares. Transferring the beneficial ownership of shares is generally considered a disposal for CGT purposes and a capital gain or loss will occur.

Where the income of a JV is received by the participants, that income must be included in the participants' assessable income for Australian tax purposes. Where the participants are foreign tax residents, only that income which has an Australian source is generally subject to Australian tax.

The disposal or acquisition of interests in JV assets may be subject to various taxes, for example, CGT, stamp duty, and other taxes relevant to the sale or transfer.

Dividends distributed by a company from income on which tax has been paid are subject to Australia's imputation system. Generally, the system operates to impute the tax paid by the company as a credit to shareholders, known as a franking credit. To the extent that the shareholder's tax liability is less than the credit, the shareholders are entitled to a refund.

The franked portion of dividends paid to non-residents is not subject to dividend withholding tax. However, the unfranked portion of a dividend paid to non-residents is subject to dividend withholding tax at the rate of 30%, subject to the provisions under any double taxation agreements.

Dividends paid may include a franking credit (see above, Payment of Dividends by a Resident Joint Venture Company). Dividends received by a shareholder are subject to income tax and the shareholders may offset this by using any associated franking credits. A shareholder may be required to pay additional tax on the dividends received if the shareholder's marginal tax rate is greater than the corporate tax rate.

A dividend paid by an Australian company to a foreign shareholder is not subject to withholding tax if the dividends are fully franked with these credits. To the extent that a dividend is not franked, withholding tax of up to 30% can apply, calculated on the gross amount of the dividend.

A loss or outgoing is generally tax deductible where it is necessarily incurred in carrying on a business for the purposes of gaining or producing assessable income and it is otherwise not a loss or outgoing of capital or capital in nature. Deductions for interest payments are subject to certain thin capitalisation and transfer pricing rules.

The thin capitalisation rules apply to entities with operations or investments both in Australia and overseas, whether by way of inward or outward investment. Entities may not obtain deductions for interest payments and loan fees if they are insufficiently capitalised and either a foreign entity operating in Australia or an Australian entity operating internationally.

The thin capitalisation rules do not apply in a number of situations, including:

Australia has comprehensive transfer pricing rules. These rules operate where products and services are provided under an international agreement and the parties are not dealing at arm's-length. In these circumstances, an arm's-length value may be substituted as the consideration received or paid.

The Australian legislation uses the arm's-length principle in determining how income and expenses should be allocated in international dealings. Broadly, the Australian tax authorities follow the Organisation for Economic Co-operation and Development methodology.

Australia has recently reviewed its transfer pricing rules and introduced new rules.

For more information on tax on corporate transactions see the Tax on Transactions Global Guide.

This summary only includes employers and employees covered by Australia's national workplace legislation, the Fair Work Act 2009 (Cth) (FW Act).

In an incorporated JV, participants may agree with their respective employees to transfer their employment to the JV company. Employees cannot be transferred to the JV company without relevant consultation, or the employee's consent, or both.

In an unincorporated JV, employees will either remain with their participant employer or, if a separate company provides management services, be transferred to the management company as described above.

Where employees are transferred, certain rights and entitlements will transfer with them provided particular conditions are met (known as a transfer of business). This occurs when all of the following apply:

Where a transfer of business occurs:

Where the JV participant and new employer are not associated entities, the new employer can decide not to recognise the prior service of transferring employees. In those circumstances the JV participant must pay any accrued annual leave and redundancy pay to transferring employees on termination of their employment with the JV participant. In addition, Australian State or Territory legislation may require the new employer to recognise service for long service leave purposes.

Employees also enjoy entitlements and protections contained in the FW Act and other workplace laws, including:

Failure to comply with FW Act obligations can result in penalties for corporations, which are currently up to AUD66,600 per contravention or AUD666,000 for serious contraventions.

Subject to the terms of any transferring instruments, there is no automatic transfer of improved superannuation rights or share scheme rights.

An employer's obligation to make superannuation contributions begins when transferring employees commence employment with the new employer.

The parties should consider whether transferring employees will trigger any consequences under any existing share schemes.

It is not uncommon for a JV participant to second its employees to the JV. For example:

The decision to transfer or second employees is a commercial decision for the parties. A secondment arrangement can often be preferable for short term JVs.

The parties should consider:

In a secondment arrangement:

The CCA regulates mergers and acquisitions from a competition law perspective. The CCA is enforced by the Australian Competition and Consumer Commission (ACCC). The CCA prohibits any acquisition that has the effect or likely effect of substantially lessening competition.

The general premise relevant for JVs is that a person must not directly or indirectly acquire assets or shares where the acquisition would have the effect or likely effect of substantially lessening competition in a market. This can occur by the acquisition of shares or assets by participants in an unincorporated JV or by a JV company.

Approval for any proposed share or asset acquisitions can be sought through either the ACCC's informal merger clearance processes or the authorisation process. There are no thresholds.

Notifying the ACCC is not mandatory. The ACCC's Merger Guidelines state that the ACCC should be notified where both:

This is only a threshold suggested by the ACCC rather than a safe harbour.

The acquirer of the shares or assets is usually the party who notifies the ACCC. There is no strict obligation to have merger clearance from the ACCC before a transaction is completed. However, it is strongly advised because the ACCC has the power to seek injunctions to unwind the transaction and impose penalties where the CCA is breached. Other government departments, for example the Foreign Investment Review Board (FIRB), will notify the ACCC of transactions and notifying the ACCC in advanced is encouraged and allows the parties to work with the ACCC.

A merger will be prohibited if the acquisition will have the effect or be likely to have the effect of substantially lessening competition. This involves an assessment of the likely future of competition in the market of the acquisition if the acquisition does or does not occur.

When assessing whether or not competition would be substantially lessened, the CCA requires that the following factors must be considered:

This list is non-exhaustive.

There are two options for obtaining merger clearance:

The ACCC publishes the Informal Merger Review Process Guidelines which set out the processes it undertakes depending on the likely competitive effect of the merger.

The penalties a Court can impose for non-compliance are:

The CCA also provides that competitors must not make, or give effect to, a contract, arrangement, or understanding that contains a provision that has:

This conduct is strictly illegal and does not depend on the effect or likely effect on competition in the market. A contravention is subject to significant civil and criminal penalties unless the conduct is authorised or an exception applies.

The CCA prohibits various anti-competitive conduct including agreements that have the purpose or effect of substantially lessening competition. This is a general prohibition which will catch agreements between the JV participants and agreements where the JV participants are counterparties.

JVs are assessed in the same way as any other structure save for the exemptions below. Care must be taken with the structure and implementation of the JV because, given that JVs are often between competitors, the JV will likely fall within the definition of a cartel. Parties must also be careful not to gun jump, that is engage in the conduct before the relevant agreements are in place and the exemption applies.

There are a number of relevant exemptions which apply to JVs.

The cartel prohibitions do not apply to a contract, arrangement or understanding containing a cartel provision if all of the following apply:

Agreements between related companies are exempted from the prohibitions. There are also limited exemptions to the prohibitions on price fixing for the collective acquisition of goods or services.

A contract, arrangement, or understanding containing a cartel provision may also be authorised if the ACCC is satisfied that the likely public benefit from the conduct outweighs the likely public detriment.

Intellectual property (IP) rights in Australia are primarily regulated through provisions of the following Acts:

The ownership of IP that is developed in the course of the JV will depend on both the structure of the JV and the arrangements agreed between the participants. Parties will normally retain ownership of existing IP and grant licences to use IP to the JV to the extent necessary. This is a complex area which must be considered on a case-by-case basis.

The development of IP under a JV is subject to the same rules and analysis that apply to IP developed in other scenarios, subject to the arrangements specified in the relevant agreements.

The ability to commercialise IP developed through the JV will be a matter for agreement between the participants when they form the JV. Consideration must be given to whether any likely IP may give a competitive advantage to one or more participants and what risk this presents to other participants and the success of the JV.

The ownership of IP on termination can be less clear, particularly when an incorporated JV is used. Where it is appropriate to do so or the circumstances make it possible, the participants should agree on the terms of a licensing regime with the ability for a participant to claim ownership over IP which the other participant may elect to abandon.

Bribery of foreign public officials is prohibited under the Criminal Code Act 1995 (Cth) and involves the following elements:

Bribery of Australian officials is also an offence. Australian laws also address other corrupt conduct, in some cases dealing with private bribery, for example through the giving of secret commissions.

Commonly, multinational companies will apply internal global standards that reflect the most stringent obligations of the jurisdictions that apply to them.

Generally, a shareholders' agreement between domestic participants does not include anti-bribery regimes as this can be managed through operating or corporate policies.

The need to undertake anti-bribery due diligence depends on the circumstances of the JV.

In 2019, ASIC released an updated whistleblower regime. The Corporations Act protects a whistleblower against certain legal actions related to making the whistleblower disclosure, including:

Although this protection does not grant immunity to whistle-blowers for any misconduct that they were involved in that is revealed in the disclosure, the whistleblowing will be considered in any action taken to prosecute that action.

Generally, anti-corruption warranties will be required by a participant, rather than the JV company. To the extent that a participant wants to directly benefit from such warranties, the warranties should be included in the shareholders' agreement. The timing of the warranties will also need to be considered, for example, whether they are given only at execution instead of on an ongoing basis.

Australia's anti-money laundering rules are contained in:

The legislative regime for anti-money laundering comprise various reporting obligations and offences in respect of behaviour. The legislation is particularly focused on the financial sector, gambling sector, remittance (money transfer) services, bullion dealers, and other professionals or businesses that provide particular services. These obligations include collecting and verifying certain "know your customer" information about a customer's identity when providing those services. The regime extends beyond these sectors and so the particular circumstances should be considered.

An incorporated JV will be governed through the shareholders' agreement and the company's constitution. The relationship of the participants in an unincorporated JV is primarily governed through a JV agreement and associated security documents.

For incorporated JVs, arrangements with third parties will be standard, arm's-length contractual terms. If the JV is unincorporated, third parties may deal with a manager engaged by the participants under a management agreement or with the participants themselves.

Australia has a complex foreign investment regime that can apply in a multitude of situations. The FATA applies to proposed actions by foreign persons. A foreign person is a broad definition and applies to non-resident individuals, foreign entities, and Australian entities in which a foreign person or persons hold a certain minimum interest.

Generally, a foreign person acquiring interests in Australian entities, businesses, or land where the applicable monetary thresholds are exceeded may need to notify or obtain clearance where applicable monetary thresholds are exceeded. These general monetary thresholds will vary depending on the subject matter of the interest and factors relating to the foreign person. The FATA also contains specific thresholds and notification and clearance requirements for other acquisitions. Examples of the different thresholds include:

These thresholds and requirements vary from time to time and specific advice should be obtained for any investments.

Local Australian entities who enter into a JV with a foreign person must ensure that any necessary clearances required by foreign entities under the FATA are obtained because it is an offence to be involved in a contravention of the FATA.

Foreign investment in land, particularly residential land, receives a significant amount of attention. Under the current regime, a register of foreign ownership has been established and there are strict notification requirements regarding acquisitions and changes in details of foreign persons who are existing land owners. This regime also extends to agricultural land interests and water rights. However, under new regulations which are proposed to be introduced (expected to come into effect 1 July 2023), foreign persons will be required to register all acquisitions (and subsequent disposals and other related circumstances) of all interests in respect of which FIRB approval was required or voluntarily sought by a foreign person.

The Australian foreign investment regime includes powers for the Treasurer to make orders in respect of transactions that constitute a significant action and which the Treasurer considers are contrary to Australia's national interest. The order may include prohibiting a transaction or unwinding a transaction by way of divestment orders. However, this general power of the Treasurer ceases to apply if clearance has been obtained in relation to the significant action.

The Treasurer also has the power to call in for FIRB clearance any actions taken or proposed to be taken on or after 1 January 2021 that constitute a significant action or a reviewable national security action and the action poses a national security concern. A reviewable national security action is a broader concept, including acquisitions of 10% or more in a national security business or national security land.

As a result, where a particular action is a significant action or a reviewable national security action but FIRB clearance is not required because the action is not a notifiable action, foreign persons often voluntarily seek FIRB clearance.

Even though the FIRB has given clearance for a transaction, the Treasurer may make divestment orders either:

Responsibility for the Australian government's foreign investment policy and decisions on proposals rests with the Australian Treasurer. Various decisions are delegated to assistant ministers or senior members of Treasury. The FIRB's functions are advisory only.

Clearance and authorisations for a proposed transaction may be given with any conditions considered appropriate. The FIRB will consult with a number of Australian government agencies (including the Australian Taxation Office (ATO), the ACCC, and others) and may recommend that conditions be attached to any approval. In particular, FIRB approvals are often granted subject to standard ATO tax conditions and the FIRB reporting conditions.

The statutory time period under the FATA for the Treasurer to make decisions on proposals is 30 days. However, it is common for the FIRB to request extensions to this time period.

There is no minimum number of JV participants who must be resident in Australia.

There are no mandatory minimum investment levels for a foreign JV participant.

Although Australia has laws prohibiting money laundering and other malfeasance relating to currency transactions, the Australian government does not restrict the flow of currency into or out of Australia.

The economic incentives for foreign direct investments in a JV are, generally, the same as those available to local investors. The ability to spread costs and risks are the main incentives for foreign investors and, other than the benefits outlined in this guide, there are no additional incentives given for the use of JV structures for foreign direct investments.

At the planning stage of the JV, it is necessary to determine the appropriate governing law for the JV. The first item to check (usually after the tax advisers choose the appropriate jurisdiction) is whether it is necessary to apply the substantive law of the local jurisdiction (in accordance with the laws of that jurisdiction).

If the parties choose a governing law, it is likely to be enforceable by the Courts of that jurisdiction, if the choice is bona fide and there are no public policy reasons for overriding the choice.

For dispute resolution generally, the parties should nominate a jurisdiction where enforceability of the agreement will not be an issue.