Structures: international joint ventures

Analysis of the various legal structures that are commonly used as vehicles for international joint ventures. Country specific information (updated periodically) for Australia, Canada, China, France, Germany, Hong Kong, India, Italy, Japan, Mexico, The Netherlands, Russia, Singapore, the UK and the US can be included by using the drop down menu or accessed via the related content links.

Updated by Chris O'Neill, Herbert Smith LLP from an original by Freshfields Bruckhaus Deringer

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There are many different types of legal structure for a joint venture. The most common forms are:

  • Limited liability company.

  • Partnership.

  • Contractual joint venture.

In some countries, "hybrid" vehicles may be available. For instance, in the UK a limited liability partnership (LLP) is a corporate entity with features (particularly as regards tax treatment) of a partnership.

Limited liability company

This is a separate legal entity in which the liability of the owners is restricted to their contribution to the company's share capital. In many jurisdictions there is a choice between a "public" company (usually necessary where shares are to be offered to the public) and a "private" limited company (usually offering a little more flexibility in its rules).

Examples of limited companies in Europe include the société par actions simplifiées (SAS) and société anonyme (SA) (France); BV and NV (The Netherlands); Gesellschaft mit beschränkter Haftung (GmbH) and Aktiengesellschaft (AG) (Germany); SPA and Srl (Italy); private limited company and public limited company (UK) (search "Top corporate vehicles" on for articles on all of these company types).

The European Company (Societas Europaea (SE)) may now provide an additional choice for certain European cross-border joint ventures. The possibility of forming an SE became available on 8 October 2004 (see Towards a European Company (


This is a business structure where the liability of each partner is unlimited and joint with each other partner. In some countries a partnership will be an entity with separate legal personality (for example, Belgium); in others it will not (for example, under English law).

Examples of partnerships include the société en nom collectif (France), offene Handelsgesellschaft (OHG) (Germany) and vennootschap onder firma (The Netherlands).

Partnerships are less commonly used than corporate vehicles for joint ventures. There may be practical restrictions under local laws. For example, in Italy a company cannot be a member of a partnership (see below).

Contractual joint venture

This type of arrangement is often described as a co-operation, collaboration or consortium agreement. Here, no separate entity is formed; instead the parties agree to associate as independent contractors. The rights and duties of the parties derive solely from the provisions of the joint venture agreement.

It is important to avoid the situation where arrangements for a contractual joint venture constitute a partnership. Sometimes the dividing line is thin. For example, a contractual joint venture can be categorised as a "de facto partnership" under the French and German Civil Codes and under English common law. The test is slightly different in each country but relevant factors usually include profit/loss sharing and a common commercial purpose. The intention of the parties may be relevant but not necessarily conclusive. The main consequence of categorisation as a partnership is that each party will have joint and unlimited liability for the debts and obligations of the joint venture.

Factors in choice of structure

The main factors that will influence the choice of joint venture structure are:

  • Type of venture - for example, whether it is likely to be a single project (where a contractual structure may be sufficient) or an ongoing business (in which case a partnership or corporate structure may be more appropriate), and whether regulatory considerations require a specific sort of structure (for example, certain professions in some countries can only operate as a partnership).

  • Liability - each party's liability for the losses of the joint venture and the acts of the other co-venturer.

  • Tax - on profits, tax relief on losses and capital taxes and any relevant taxes on transfers into and out of the venture.

  • Finance - the form and type of finance. Are outside investors needed? If bank finance is required, what security will the bank want? Do the outside investors want a stake in the venture?

  • Legal protection and control - which structure offers the best way of ensuring that a party's interest in the assets of the joint venture are protected and that the business is conducted in accordance with the party's objectives?

  • Third party involvement - is it envisaged that other parties will be invited to join the joint venture (either in addition to or instead of the existing parties)?

  • Accounting - how will each party's investment in the joint venture be accounted for in its books?

  • Publicity and formality - are the joint venture parties prepared to register details of the joint venture (for example, if a company) and to comply with ongoing regulatory requirements such as filing of accounts?

It is vital in considering the structure of the venture to remember that the venture has a commercial raison d'etre. The legal factors may be extremely important but there could be a commercial imperative that outweighs them.

Limited company - for

Factors often leading to the choice of a limited company include:

  • Independent existence, clear identity and permanence.

  • Each party's liability is limited to its contribution to the company's share capital.

  • Established law and practice with regard to operation. Most jurisdictions have detailed laws governing the operation of companies. Although these rules can restrict the flexibility of the parties at times, they provide an invaluable framework within which the lawyer can define the rights of the parties. In addition, people are very familiar with the way that companies operate in practice.

  • Flexibility in equity finance. The corporate structure allows equity capital to be raised and can generally accommodate shareholders with different equity interests (such as preference shareholders). (Note that some corporate vehicles may not allow different classes of shares (for example, the SARL in France).)

  • Flexibility in debt finance. A company can borrow in its own name, secure the borrowing and generally issue loan stock.

  • The vehicle allows a wide range of participants and changes in identity. As discussed above, a company will support complex structures with a range of participants of different sizes and with different motivations.

  • Employee incentives. Employees may be granted equity incentives in the form of shares or share options.

Limited company - against

There may be disadvantages:

  • A corporate entity is a relatively complicated, formal and permanent arrangement. Establishing, running and winding up a company costs money and requires formalities to be observed. It may not be suitable for single or fixed term projects.

  • A company is an independent legal and tax entity. Therefore:

    • Parties may be liable to capital gains taxes and transfer duty in respect of assets contributed to the venture. Reliefs may be available.

    • Profits of the venture are generally taxed separately from those of its "parents".

    • Depending on the country in which the joint venture and its parents are resident, only partial or no credit may be given for tax paid by the joint venture company when profits are distributed to the shareholders.

    • It may not be possible to offset losses in the joint venture against profits of the parents (and vice versa), particularly if the companies are in different countries.

    • Corporate information (including accounts) will generally have to be filed at the relevant companies registry.

    • Even the advantage of limited liability may be qualified. Limited liability can be undermined by guarantees. In many cases the participants to a new joint venture may have to guarantee financial debts of the company - for example, in the case of a bank loan.

Partnership - for

On occasions, a partnership structure may offer advantages:

  • The joint venture parties have a direct share in the underlying assets of the joint venture.

  • Unlike companies, partnerships are generally tax transparent. If so, the participants are treated as having earned a share of the joint venture's profits, which are allocated between the partners in proportion to their shares in the partnership. Note, however, that partnerships are not tax transparent in all jurisdictions.

  • There are no or few registration requirements depending on the jurisdiction in which the partnership is formed. This means that financial details can often be kept secret. There are generally fewer formalities associated with creating, running and terminating a partnership in comparison with a company.

Partnership - against

Disadvantages include:

  • Partners are jointly and severally liable to the full extent of the debts and obligations of the partnership. Thus they are liable for all acts that their co-venturer carries out on behalf of the venture. (They are usually not liable for debts that the other party incurs outside the business of the partnership.)

    (It is possible in many jurisdictions to have a limited partnership where the liability of certain partners is limited but at least one partner must be a general partner with unlimited liability in respect of the business. The limited partner(s) cannot participate in management without losing the right to limited liability (see below).)

  • Partnership law and practice is generally less developed than that relating to companies.

  • Because of the principle of unlimited liability, it is difficult to accommodate partners with different interests within the structure.

Contractual joint venture - for

In some situations, particularly for a fixed project, a purely contractual joint venture offers advantages:

  • There is no deemed responsibility for actions of the other party - each party is responsible only for its own actions (unless the arrangement is deemed to be a partnership (see below)). Contrast partnerships or companies where representatives will have the authority to bind the joint venture as a whole.

  • Property remains in the ownership of each party.

  • Few formalities are required to establish or terminate a contractual joint venture.

  • A contractual arrangement is tax transparent. There is no pooling of profits or losses so each party takes its own profits and losses directly; and because there is no transfer of assets at the start or termination of the venture there are no capital taxes or transfer duty concerns.

  • In general there are no formal registration requirements.

Contractual joint venture - against

  • The parties must be careful to ensure that they are not liable for the acts and omissions of the other party in relation to the joint business particularly if there is a risk that the relationship amounts to a partnership (see above). (If so, liability may be to the full extent of the co-venturer's actions - contrast a limited company where the company is liable and the participant's liability is limited to the extent of its contribution to the venture.)

  • There is no body of law or procedure that governs the operation of a contractual joint venture other than contract law itself. Unlike a company (and to a lesser extent a partnership), you have to define every aspect of the operation of the joint venture - it is therefore usually inappropriate for an ongoing business and/or where you want to establish a full function joint venture (i.e. one which performs all the functions of an autonomous economic entity).

  • A contractual arrangement is likely to be unsuitable where different ownership interests are needed or the identity of the participants will change. As indicated above, there is no structure for dealing with different interests as there would be with a company.

These are the basic categories. Particular situations may give rise to alternative structures or "hybrid" forms of legal entity. Other possible joint venture vehicles or arrangements include limited partnerships, European economic interest groupings, share swaps and dual company structures.

Limited partnerships

Some jurisdictions provide for limited partnerships. In a limited partnership:

  • At least one partner must be a general partner with unlimited liability in respect of the business (although the general partner can generally be a company).

  • The limited partner(s), usually the provider(s) of finance for the venture, often cannot participate in management without losing their right to limited liability.

Limited partnerships tend to be more popular in civil law countries than in the UK (for example, the GmbH & Co KG is used relatively frequently in Germany).

Limited liability partnerships

Another entity that can possibly be used in some countries for joint ventures - including now the UK- is the limited liability partnership (LLP). These have some characteristics of a company (separate legal entity with formal incorporation and filing requirements) and some characteristics of a partnership (tax transparency).

European economic interest groupings (EEIGs)

EEIGs are an attempt by the European Commission to encourage cross-border alliances. EEIGs are unincorporated associations which constitute independent legal entities but they have considerable limitations:

  • They must be formed for a limited purpose that has some connection with the common activities of their members.

  • They must have members based in at least two countries in the European Economic Area (the EU plus Norway, Iceland and Liechtenstein).

  • Their main purpose should not be to make profits.

  • They have unlimited liability as regards third parties.

This means they are likely only to have limited uses - for example, they might be formed for joint research and development purposes or the joint collection and dissemination of information for marketing purposes.

The measures relating to EEIGs are contained in Council Regulation No.2137/85.

Some countries have equivalent structures under domestic law such as the groupement d'intérét economique in France. The most famous example of this was the Airbus consortium.

Taking a broad view of arrangements which constitute a "joint venture", the particular structure for the "joint" arrangement may involve the use of other (and often more complex) arrangements - usually associated with careful tax planning. Structures may include use of share swaps, dual companies, income access arrangements, parallel ventures or hybrid structures.

Share swaps

These are where the parent companies agree to buy (usually a small percentage of) shares in each other to cement relationships between the companies. This is not so much a joint venture structure but an arrangement to support a friendly alliance between two parties which may accompany or lead to firmer joint arrangements.

Dual company structures

These are where companies remain separate (often with their own separate public shareholders) but are connected by contractual relationships (such as profit sharing or dividend equalisation arrangements) so that they can be operated as a single economic or business unit. Examples include Unilever, Reed Elesevier and RTZ/CRA (see box Unilever: dual holding company structure). These arrangements may often come close to a partnership.

Income access

If a joint venture has a foreign subsidiary located in the same jurisdiction as one of the joint venture parties, it may be desirable from a tax perspective for the joint venture party to access profits directly from the subsidiary in the same country. This can be achieved by the issue of non-voting income access shares (see box: Income access).

(For a detailed analysis of dual company and income access structures see Global Counsel, Article, When two heads are better than one (

Parallel joint ventures

In an international joint venture, there may be occasions when it is desirable to establish a different joint venture vehicle in a number of different countries where the joint operations are undertaken - rather than a single holding company with subsidiaries. This will usually be determined by a tax analysis in each relevant country.

Hybrid structures

It is also sometimes possible to create "hybrid" structures for international ventures where the vehicle is classified differently depending on the jurisdiction - for example, a UK private company can sometimes elect to be treated as a partnership for US federal income tax purposes. A société en commandite par actions (SCA) in France - a limited partnership with shareholders - may be treated as a company for tax purposes by parent company tax authorities. A common vehicle is also the LLC (limited liability company) which is a corporate entity but which in some US states (e.g. Delaware) can be treated as tax transparent - which may possibly benefit US participants in an international venture.

Legal structures for a joint venture may sometimes be straightforward. In many international ventures, though, issues can be complex and tax and other factors will play an important part - often, not only in the choice of structure but in the choice of location of the joint venture vehicle. The structure must, nevertheless, remain commercially viable.

Ian Hewitt is a consultant with Freshfields Bruckhaus Deringer.

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