Setting up and operating a joint venture


Are there any particular drivers in your jurisdiction that will determine how a joint venture is structured?

The choice of the most convenient structure will depend on the objectives of the association, including the parties’ expectations as regards its duration, limitation to a certain project, contributions to be made, and policy for profit distribution, among others.

If the joint venture will operate in regulated industries, there could be limitations as to how the joint venture can be structured.

Also, the decision on whether to operate as a contractual or corporate JV may be driven by tax considerations (see question 6).

Tax considerations

When establishing a joint venture, what tax considerations arise for the joint venture parties and the joint venture entity? How can tax charges be lawfully mitigated?

Corporate JVs are subject to the general tax regime, as with any other local entity.

Contractual JVs are considered for income tax purposes as transparent entities, and, therefore, any result (profit or loss) shall be directly allocated to its members. However, regarding value added tax (VAT) and turnover tax, these joint ventures are deemed as taxpayers and, to such extent, should be registered before the relevant tax authorities and pay taxes. In addition, the Tax Procedural Law sets forth that the members shall be severally and jointly liable for the tax liabilities of the contractual JV.

Depending on the type of business to be conducted through the joint venture, for tax efficiency purposes it may be convenient to set up one structure or the other. In certain cases, for example, the contractual JV structure may create some inefficiencies with respect to VAT.

Asset contribution restriction

Are there any restrictions on the contribution of assets to a joint venture entity?

Corporate JVs may receive capital contributions in cash or in kind. Capital contributions in the form of real estate, equipment or other non-monetary assets must be fully contributed at the time of subscription and will be subject to certain valuation rules. In principle, capital contributions cannot consist of services. The contribution in cash does not trigger income tax or VAT for the shareholders, while the contribution of assets may.

The Code does not contain special provisions as regards contributions to contractual JVs. Collaboration agreements are generally required to detail the contributions that each member will make to the operational fund. As regards recordable assets, it is common practice for the parties to contribute a right of use and exploitation of the assets owned by themselves, instead of property rights. Controversy exists on whether granting a right to use movable assets and services to contractual JVs would be subject to VAT. In the case of services, it is generally understood that participants shall charge the services performed with VAT.

Interaction between constitution and agreement

What is the interaction between the constitution of the joint venture entity and the agreement between the joint venture parties?

Corporate JVs must register their articles of incorporation and by-laws with the appropriate local public registry. Agreements creating contractual JVs must also be registered with such registry. As a consequence of these registrations, the foregoing documents will become enforceable not only between the parties of the joint venture and, in the case of corporate JVs, the company itself, but also regarding third parties.

It is common practice that complementary agreements ruling certain rights of the joint venture parties be separately implemented. Such complementary agreements will, in principle, only be binding between its signatories. Because of this, it is usual that the parties decide to reflect at least some of these key provisions in the constitution documents. If the intention of the parties is that the complementary agreement should prevail, such rule should be expressly provided.

Party interaction

How may the joint venture parties interact with the joint venture entity? Are there any restrictions?

The corporate JV is a separate entity and thus its shareholders, as a general rule, limit their liability to their capital contributions.

Corporate JVs adopt decisions through shareholders’ or board meetings depending on the nature of the decision. To ensure that the best interest of the company is prioritised, the Argentine General Companies Law (AGCL) provides that directors and shareholders should abstain from participating in any decision in respect of which they have a contrary interest (see question 11).

Also, directors are required to render accounts to the shareholders by submitting annual financial statements for their consideration.

In addition, the AGCL provides a generic right for shareholders to access information and supporting documentation or to request reports from the management or supervisory bodies. The foregoing is subject to certain restrictions, with different rules applying to the different corporation types and larger restrictions applying for companies with statutory supervisors.

Moreover, the AGCL provides certain cases in which the shareholders may sue directors for breach of their fiduciary duties.

It is worth bearing in mind that shareholders are entitled by law to revoke the appointment of directors with or without cause at any time.

Contractual JVs do not have a separate legal personality; consequently, they cannot, in principle, be sued. The Code sets forth different rules as regards the extent of the liability of the members of each collaboration agreement. While in some cases the general rule is the joint liability of the members, in others the opposite rule is provided.

Decisions of a contractual JV are generally adopted by its members.

The members must appoint representatives who are generally conceived as attorneys-in-fact subject to mandate rules. Attorneys-in-fact have certain duties to provide information and documentation to their grantors and to render accounts. Also, in the case of a conflict between their own interests and that of the grantors, they must privilege that of the grantors.

Financials should be prepared for the joint venture parties’ consideration.

Also, all collaboration agreements seem to permit revocation of the representatives with or without cause, although in some cases unanimity is required.

Exercising control

How may the joint venture parties exercise control over the joint venture entity’s decision-making?

The AGCL contains certain rules aimed at providing protection to minority shareholders. Among others, regarding SAs, the AGCL sets forth a mechanism pursuant to which shareholders may vote their shares cumulatively in order to try to secure certain positions in the board and a right to demand acquisition of their shares if certain relevant decisions are adopted despite their negative vote (right to withdraw).

However, if the minority shareholder desires to secure a certain level of control over the company’s decision-making, it should enter into an agreement with the majority shareholder to obtain, among other things, a certain number of positions on the board and special majorities to pass resolutions regarding certain matters; while the AGCL provides different quorum and majority requirements, some (although not all) may be aggravated. In general, minority shareholders will be interested in reflecting agreements in the constitution documents so that these become enforceable with regards to the company and, upon registration, third parties.

Since contractual JVs do not have a separate legal personality, decisions are generally adopted by their members. While the Code provides certain rules as regards the majorities that decisions should meet, it is generally possible to aggravate the same by requiring the affirmative vote of more members. Also, the members can freely agree on the manner in which the representatives will be appointed. As in the case of corporate JVs, provisions included in the constitution documents - as opposed to those in unregistered complementary agreements - will become enforceable regarding third parties upon registration.

Governance issues

What are the most common governance issues that arise in connection with joint ventures? How are these dealt with?

One of the main concerns is avoiding conflicts of interest. In the case of corporate JVs, the AGCL provides that directors must act loyally and as good business people. Also, as regards conflicts of interest, it provides that directors should abstain from participating in the deliberations of the board as regards matters in which they may have a contrary interest. Failure to comply with these standards will make the director unlimitedly and jointly liable towards the entity, the shareholders and third parties for any losses resulting therefrom. Shareholders having a conflict of interest are also required to abstain from voting in any decision regarding which they have a contrary interest. Otherwise, they shall become liable for any losses resulting therefrom if their vote was determinant.

The Code does not provide specific rules as regards conflicts of interest in contractual JVs. However, since the representatives are generally conceived as attorneys-in-fact subject to the mandate rules of the Code, the rules explained in question 9 will apply.

In addition, there are other rules under the Code that could arguably provide grounds on which to question certain actions or omissions of the members or representatives (such as the general principles providing that rights cannot be exercised abusively and that no person has a right to cause damages to another person, among others).

Guaranteeing access to information in favour of the joint venture parties is another common governance issue (see question 9).

Nominee directors

With an incorporated joint venture, what controls exist in your jurisdiction in relation to nominee directors? How should a nominee director balance the potentially conflicting interests of the joint venture company and the appointing shareholder?

See question 11.

Competition law

What competition law considerations are engaged by the formation and operation of the joint venture? Is approval needed?

The Antitrust Law does not explicitly regulate joint ventures; however, they are subject to the same regulation as other economic concentrations.

Full-function joint ventures are deemed to be an economic concentration, subject to mandatory notification if the applicable thresholds are met and no exemption applies. Full-function joint ventures have to notify if the acquiring group (parent companies) and the target surpass a combined turnover of 100 million adjustable units (equivalent to US$51 million at the time of writing) in the previous fiscal year in Argentina. The first landing and de minimis exemptions (among others set out in the Antitrust Law) can be applied for.

According to the Antitrust Authority’s case law, non-full function joint ventures - defined as joint ventures that do not constitute an autonomous economic entity in the market - are exempt from notifying for approval.

The new Antitrust Law sets up a pre-closing system where notifying parties are unable to close a transaction without the Antitrust Authority’s prior approval. This is estimated to become operational mid-2020, subject to the constitution of the new Antitrust Authority. It should be noted that under the current post-closing regime, joint ventures can file before or up to one week after closing; therefore, approval is not required in order to close.

Provision of services

What are the key considerations in your jurisdiction in structuring the provision of services to the joint venture entity by joint venture parties?

As mentioned in question 7, in principle, capital contributions to corporate JVs cannot consist of the provision of services. Thus, any service agreement between the shareholders and the company will need to be separately implemented for consideration.

On the contrary, there are no specific rules banning members from contributing services to a contractual JV.

Some of the issues more heavily discussed in connection with services agreements in Argentina include the currency applicable to payments, price adjustments in the case of increased costs, term and causes of termination, liability of the parties and indemnification provisions, among others.

In any case, the manner in which any services could be contributed or implemented and the terms thereof should be analysed on a case-by-case basis.

Employment rights

What impact do statutory employment rights have in joint ventures?

The Argentine Labour Law contemplates the ‘transfer of establishment’ pursuant to which, upon transfer of an autonomous business unit (it being the whole company or an independent line of business or business unit), employment contracts shall continue with the transferee, who shall honour employees’ prior labour conditions and acquired rights, including, but not limited to, years of service, compensation, benefits and responsibilities of the transferred employees. This type of transfer does not require the transferred employees’ consent, but they may, however, consider themselves constructively dismissed if they are adversely affected by the transfer. Transferors and transferees are jointly and severally liable for labour obligations existing at the time of the transfer.

Thus, if employees are transferred to a corporate JV in the context of a transfer of establishment, employees would be transferred by operation of law with no further consent being required.

If the transfer does not qualify as that of an autonomous business unit, employees would not be transferred by operation of law and it would be necessary to resort to the individual employee transfer regulations, which are mostly similar to that described above in terms of requirement to honour prior conditions and joint liability. The main difference is that, in this case, prior written consent would be required.

As regards contractual JVs, despite the fact that labour judges have understood that these joint ventures do not have a separate legal personality and, consequently, cannot hire employees, administrative labour and tax authorities have accepted them as employers. When the contractual JV appears as the employer, its members will, as a general rule, be liable for any labour dispute that may arise. The extension of their liability should be analysed on a case-by-case basis.

Intellectual property rights

How are intellectual property rights generally dealt with on the creation, operation and termination of a joint venture in your jurisdiction?

There is no specific regulation in connection with intellectual property rights (IPRs) and joint ventures, so general intellectual property laws and principles will apply.

Upon formation of a corporate JV, the parties could either transfer or license relevant IPRs to the joint venture. In doing so, they should be careful to adopt a structure that reflects their intention as to the ownership, management and licensing of IPRs. They should also consider the tax consequences of any IPR transfer or license.

Parties may choose to address any newly developed IPRs in different ways. For instance, corporate JVs could retain ownership of such newly created IP, and license it to the parties. Parties should also carefully determine how IPRs are treated upon termination of the joint venture. For example, one party could retain ownership of any IPRs and grant the other party a worldwide, perpetual, sublicensable and free licence to use such IPRs, or both parties could agree on joint ownership of any rights (such joint ownership will be subject to any regulations or limitations regarding specific IPRs).

In the case of contractual JVs, the parties could choose to regulate IPRs in the joint venture contract or through a separate agreement. It is important for any provisions regulating IPRs to be clear as to the management and ownership of IPRs, as well as to foresee what will occur to any IPRs upon termination of the joint venture. In particular, it is important to consider that IPRs in the context of a contractual JV may result in the creation of jointly owned IPRs.