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Joint Ventures and Shareholder Agreements

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Future-proof your business for the next big step

For companies or individuals choosing to work together, joint ventures have many advantages which include;

  • Growing capital
  • Expanding products or services
  • Sharing resources

Importantly, they can give a strategic and competitive edge.

However, it’s necessary to carefully manage joint venture arrangements to avoid legal issues, for example, disagreements about how and when profits are divided. That’s why it’s often prudent to future-proof business relationships with joint venture agreements.

Our joint venture legal team understands the complexity of business relationships, especially the need to adapt to evolving business environments.

Contact us to learn more.

Expertise

Our joint venture lawyers advise local and international industries, including;

  • Retailers
  • Commercial property companies
  • Restaurants and hospitality venues
  • Pharmaceutical and medical groups
  • Recreational services
  • Technology groups

Services

We prepare joint venture agreements, which often include;

  • Distribution of profits and losses
  • Calculation and distribution of interest
  • Procedures for disposing of interests in the joint venture
  • Dispute resolution processes
  • Termination of the joint venture
  • Management of confidential information

We also provide advice and analysis on issues such as;

  • Joint venture relationships and structure
  • The responsibilities of each party
  • Risk management

We’ll also work with your taxation advisor to identify and advise on the taxation benefits and obligations of the joint venture agreement.

Our joint venture advice frequently includes other areas of commercial law, including;

  • Adapting partnership agreements to suit joint venture structures (for example, shareholder or unitholder arrangements)
  • Formalising joint venture agreements to cover intellectual property licensing agreements and other issues
  • Incorporating employment issues into joint venture agreements

Get in touch to discuss your joint venture legal requirements.

Joint Ventures and Shareholder Agreements FAQs

What are the reasons to consider a joint venture?

In some circumstances, a joint venture arrangement is useful if the companies (or individuals) share a common goal, for example, to:

  • Expand the businesses
  • Boost capital investment
  • Pool resources
  • Tap into the knowledge and skills of workers
  • Develop new products
  • Offer new services

The parties can work together to achieve these things, while maintaining autonomy and control over their businesses, including finances, debt and taxation.

What are the types of joint ventures?

The type of joint venture structure you choose will depend on your goal and how the law will impact it. However, for clarity about the terms and responsibilities, a legal agreement should support the joint venture. The agreement is usually a shareholders agreement or a unitholders agreement depending on the nominated structure of the venture. The agreement can also be relied upon if there’s disagreement or misunderstanding between the parties.

Contact us for advice about your joint venture requirements.

Is a joint venture a legal entity?

A joint venture isn’t, of itself, a separate legal entity. However, depending on the complexity, the parties may create a company to manage the joint venture. It’s also possible for a trust to manage a joint venture.  The parties may then establish their own shareholder or trustee vehicles to hold their interest in the management company or trust.

Deciding on the management structure is critical to a joint venture. It may have significant implications for taxation, asset ownership and legal personality.

Deciding on the management structure is a decision which the parties should make before entering into a joint venture agreement. Specialist advice from a joint venture lawyer is crucial at this early stage.

Contact us for advice about joint venture structures.

What is a shareholders’ agreement, and why is it important to have one?

A shareholders’ agreement is a binding contract between the shareholders of a company. It helps all shareholders have the same understanding of how the company will operate. It also reduces the risk of future disputes. It’s an effective way to provide a framework for the company’s transparent ownership.

A shareholders’ agreement may include details of:

  • The structure, management and direction of the business
  • The ownership, management and funding of the company
  • How shareholders may acquire or dispose of shares
  • Methods for resolving disputes between shareholders

Contact us for advice about shareholders’ agreements.

Who can appoint a director to a company board?

A shareholders’ agreement will set out who can appoint a director to a company board. There are different methods of appointment, for example:

  • Board appointment: The shareholders’ agreement will say how many votes are needed for the appointment of additional directors. Traditionally, the threshold is either more than 50% in favour of the appointment, or a higher threshold
  • Shareholder appointment: Shareholders may have limited rights to appoint directors. For example, the agreement may require shareholders to hold a minimum percentage of shares before being eligible to nominate a director
  • Founding shareholders appointment: A shareholders’ agreement can give a founding shareholder the right to nominate a director. This may be the case, even if their shareholding decreases, provided that the shareholders’ agreement includes rights to appoint a director

Contact us for advice about director appointments under shareholders’ agreements.

How do drag-along and tag-along provisions protect my shareholder interests?

In shareholders’ agreements, drag-along and tag-along provisions can protect majority and minority shareholders’ interests when shares are sold, or the company is acquired.

Drag-along provisions

When a majority shareholder negotiates a price and terms with a potential purchaser, drag-along provisions are useful. They allow majority shareholders to force minority shareholders to sell their shares at the same price and terms.  These additional shares attract a higher price. The drag-along provisions help avoid any risk of the sale being frustrated due to minority shareholders refusing to sell their shares.

Tag-along provisions

Tag-along provisions have the reverse effect. They allow a minority shareholder to join a majority shareholder’s sale of shares. The minority shareholder can sell to the buyer on the same terms.

Tag-along provisions are useful because minority shareholders can cash in on deals negotiated by majority shareholders. The provisions protect the minority shareholders from having to remain in a company with an unfamiliar purchaser.

Contact us for advice about drag-along and tag-along provisions in shareholders’ agreements.

Can I sell my shares to a third party?

Shareholders’ agreements usually outline any conditions for transferring, selling or assigning shares to a third party.

Shareholders’ agreements often contain pre-emptive rights clauses. These clauses require the selling shareholder to offer its shares to existing shareholders. They must do this before offering any remaining shares to a third party.

Alternatively, shareholders’ agreements may require the selling shareholder to get written consent from all shareholders before selling any shares.

Shareholders’ agreements can also restrict the sale of shares to third parties with drag-along and tag-along provisions.

Contact us for advice about selling shares to a third party.

If new shares are issued, will my shares be diluted?

Share issues can affect your rights as a shareholder. This can happen if the shareholders’ agreement doesn’t prevent your shares from being diluted.

Normally, shareholders’ agreements include a mechanism where each shareholder can subscribe for shares upon a share issue, usually in the proportion of shares they hold.  For instance, if the Company determined to issue 100 shares in order to raise capital, and Shareholder A held 10% of the shares on issue prior to the raise, Shareholder A would be entitled to subscribe for 10 of the 100 shares on issue.

Some agreements have anti-dilution protections which benefit one or more shareholders. Such protections can ensure that shareholders maintain their ownership percentage in the company after a company share issue. These provisions require the company, on a share issue, to issue a certain number of shares to the shareholder to maintain their ownership percentage.

A dilution of shares can have a significant impact on your shareholder rights. For example, if you own 75% of all shares in a company, you can pass special resolutions. But If your shares are diluted from 75%, you would require the approval of other shareholders to pass a resolution.

Contact us for advice if you’re concerned about your shares being diluted.