Types of joint venture
What are the key types of joint venture in your jurisdiction? Is the ‘joint venture’ recognised as a distinct legal concept?
Joint ventures can be either contractual or corporate. The rules relating to a corporate joint venture may vary depending on the nature and type of the joint venture vehicle.
There is no specific autonomous legal concept of ‘joint venture’ under Italian law; the term is used broadly to encompass a variety of ‘cooperation’ arrangements, ranging from partnerships to the temporary grouping of companies and incorporated joint ventures.
In what sectors are joint ventures most commonly used in your jurisdiction?
Joint ventures are more common in the industrial and manufacturing sectors (joint exploitation of know-how, funding of research and development, etc) and in the commercial sectors (joint distribution channels, vertical agreement among manufacturer and distribution, etc).
Rules for foreign parties
Are there rules that relate specifically to foreign joint venture parties?
There are no specific rules that apply to foreign joint venture parties, except for the ones that apply to foreign shareholders in the case of corporate joint ventures, such as the ability to own a shareholding, subject to the principle of reciprocity.
Ultimate beneficial ownership
What requirements are there to disclose the ultimate beneficial ownership of a joint venture entity?
The information filed with the companies register, which then becomes public, is limited to the direct shareholders of a corporate entity. However, whenever anti-money laundering checks are required (eg, by a bank or professional advisers, such as notaries and lawyers, when identifying a new client), the identity of the beneficial owner or owners must be disclosed.
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 between a corporate or contractual joint venture would be based mainly on the need to establish an effective, separate legal entity (with all the additional costs that this implies) or not, as well as the possibility of assuring limited liability to the joint venture parties.
In a corporate joint venture, the choice between the available kinds of companies - mainly, corporations (joint-stock companies) and limited liability companies (LLCs) - would depend mostly on governance objectives and the ability to implement them.
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?
A joint venture entity would be generally considered as tax-resident in Italy, provided it has its registered office, place of effective management or carries out its principal business activities in Italy for the majority of the relevant tax year. As such, it would generally be subject to 24 per cent Italian corporate income tax and 3.9 per cent Italian regional turnover tax. The taxable base of the corporate income tax would equal revenues minus tax-deductible costs, as resulting from the annual profit and loss account after specific add-backs pursuant to applicable tax rules. Italian regional turnover tax would apply on a regional basis; however, unlike corporate income tax, major costs (eg, interest payments and some employees’ costs) would not be deductible from the taxable base. The regional turnover tax could, therefore, show a positive taxable basis even if the company is realising a tax loss.
A joint venture entity would be generally subject to interest-deductibility limitation rules. According to these rules, interest payments would be deductible up to the amount of interest income. The exceeding amount of interest payment would be deductible up to 30 per cent of the entity’s corporation earnings before interest, tax, depreciation and amortisation. The interest-deductibility limitation rule will be aligned to the European Anti Tax Avoidance Directive (EU) 2016/1164 provisions by the end of 2018.
Should a foreign entity control a joint venture entity that resides in Italy and either (i) the former is controlled, even indirectly, by an Italian resident; or (ii) its board of directors is composed primarily of Italian residents, the foreign-controlling company would be deemed as tax-resident in Italy, unless evidence to the contrary is provided to the Italian tax authorities.
The following are some of the aspects to be closely monitored to reduce tax risks:
- transactions between the joint venture entity and the joint venture parties and affiliates should take place at arm’s length and be subject to a dedicated transfer pricing analysis;
- the possible application of the Italian ‘shell companies’ regime if the joint venture entity does not show an appreciable degree of economic substance, which would imply a 10.5 per cent surcharge on Italian corporate income tax rate based on a fictitious income, computed by applying predetermined ratios on the value of the company’s assets;
- re-characterisation by the Italian tax authorities (in some circumstances) of a shareholder loan as a capital contribution. Interest payments would consequently be re-characterised as non-deductible dividends;
- re-characterisation by the Italian tax authorities of the joint venture entity’s transactions if they are considered as lacking economic substance and effected solely for obtaining undue tax benefits; and
- if the joint venture entity controls an entity resident in a low-tax country, income produced by the controlled entity would be directly attributed to the controlling Italian entity.
Asset contribution restriction
Are there any restrictions on the contribution of assets to a joint venture entity?
There are no substantial restrictions that apply to the contribution of assets to a joint venture entity, especially if it is an LLC. In such case, any assets or receivables that can be subject to economic valuation may be contributed. Shareholders may also contribute services or work activity, subject to providing a collateral (insurance policy, bank guarantee or cash). In a joint-stock company, only assets and receivables can be contributed in kind.
Contributions in kind are subject to specific procedures and requirements. Typically, the party contributing assets in kind is required to submit a sworn appraisal of such assets prepared by a qualified expert (appointed by the contributing party or the court, depending on the kind of joint venture entity), attesting to the value of the assets being contributed. The corporate capital issued in exchange for the contributed assets cannot exceed (including possible share premium) the value set forth in the sworn appraisal. The appraisal may only be avoided in specific circumstances if the joint venture entity is a joint-stock company.
If the assets being contributed qualify as a business or line of business, additional requirements may apply (such as trade union consultation if employees in excess of a certain number are included in the perimeter of the contribution). The provisions of the Civil Code relating to the transfer of a business (in relation to joint liability for debts, automatic transfer of contracts without the assigned party’s consent, etc) would apply to such contribution.
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?
The governance of a joint venture entity is officially regulated by its articles of association. The shareholders may agree to specific governance regulations in the joint venture agreement (or in any ancillary shareholders’ agreement) to derogate or add to the provisions of the articles of association. The articles of association of an LLC are very flexible and can substantially include most, if not all, of the provisions that are normally set forth in a shareholders’ agreement. This is not fully the case for joint-stock companies, owing to the added complication that a shareholders’ agreement for such companies (or for entities that control such companies) cannot last a term in excess of five years. This time limitation does not apply, however, to a shareholders’ agreement that is instrumental to the cooperation arrangement underlying a joint venture entity, the whole corporate capital of which is owned by the same parties to the shareholders’ agreement.
In the case of a conflict between the provisions of a shareholders’ agreement and those of the articles of association, the parties usually provide that, among themselves, the shareholders’ agreement will prevail. The provisions of the articles of association, however, are enforceable and prevail with regard to third parties, who rely on the ‘official’ document and are not privy to the shareholders’ agreement. This means that a violation of the articles of association can generally be opposed by effectively blocking the violating transaction, where a violation of the related shareholders’ agreement - which is enforceable only among the parties - would entitle the non-violating party primarily to compensation for damages, if the breached provision is not capable of being specifically enforced or cured (eg, the transfer of a shareholding to a third party in violation of any transfer limitation only contained in the shareholders’ agreement would generally not be voidable with regard to the third party, but would entitle the non-breaching party to compensation for damages against the breaching party).
Articles of association, being the official constitutional document of an Italian entity, must be in Italian (if in two languages, as sometimes accepted, the Italian version will prevail). This is not the case for shareholders’ agreements, which can be in any language the parties may choose to adopt.
How may the joint venture parties interact with the joint venture entity? Are there any restrictions?
Joint venture parties may interact with the joint venture entity either based on their corporate relationship or as parties to the underlying business relationship. In both instances, if such interaction entails an exchange of information, it may be limited, based on competition laws.
Absent competition limitations, as shareholders of an LLC, joint venture parties are entitled to request and obtain from the directors information on the conduct of corporate affairs and access to corporate books, and other documents pertaining to the management of the company. Corporate rights to access information are more limited where the joint venture entity is a joint-stock company, in which case shareholders can only request access to the corporate books.
Joint venture parties can also interact with the joint venture entity through their designated directors, subject to the confidentiality duty owed by directors. Directors have the right to be informed on the conduct of the business even if they are non-executive, considering their duty to supervise the management of the company by executive directors. In a joint-stock company, the managing director has to report to the board of directors at least twice a year on the joint venture entity’s business and structure.
As parties to a commercial agreement, joint venture parties and the joint venture entity can exchange any and all information required to perform their respective obligations, subject to competition-law limitations.
How may the joint venture parties exercise control over the joint venture entity’s decision-making?
Control in a joint venture entity is exercised at the shareholders’ or at the management body’s level, depending on the matter to be decided upon. Generally speaking, Italian law requires resolutions to be passed in any corporate body with a majority vote of the capital represented at the meeting (at the shareholders’ level) or the members present at the meeting (at the board level). This means that, to control a joint venture entity, it could suffice to own the majority of the corporate capital and appoint the majority of the board members. Minority investors would have limited ‘control’ through their general ‘administrative’ rights (eg, mainly, voting and information rights, and the right to dispute decisions that are in violation of the law or the articles of association) or any additional special right accorded by the articles of association, especially in an LLC (eg, the right to designate a certain number of members of the management body or veto rights (at the board or shareholders’ level) in respect of decisions on specific key matters, giving them a degree of control by way of preventing the passing of certain resolutions without giving them the power to pass them by themselves).
Finally, minority investors may also be entitled to designate an executive member of the management body with pre-agreed powers. In this limited area, they would exercise control of the company through the executive director.
What are the most common governance issues that arise in connection with joint ventures? How are these dealt with?
A first set of typical issues relate to the decision-making process (ie, who would decide, and on what terms?) on matters that are key to the conduct of the joint venture business, including:
- capital increases;
- incurring indebtedness;
- capital expenditures;
- the disposition of key assets;
- the adoption of business plans and budgets;
- the approval of financial statements;
- key contracts; and
- the hire or dismissal of executives and key personnel.
The manner in which such issues are dealt with varies significantly depending on the rights accorded to minority investors, which would be more significant the higher the percentage of corporate capital they own, reaching a level akin to joint control in the event of a 51:49 per cent split (in a 50:50 per cent scenario, absent specific deadlock provisions in the joint venture agreement or in the articles of association, by the mere application of statutory provisions, neither joint venture party would be able to pass decisions on its own).
Another set of relevant issues relates to the ‘stabilisation’ of the entity’s ownership and termination of the joint venture, which involve issues of limitations on the transfer of equity interests, and the determination of appropriate exit and divestment events and strategy.
Funding and the related dilution issues affecting joint venture parties are strongly debated, given the conflicting interests between providing the joint venture entity with the cash necessary to achieve its goals, using the appropriate mix of debt and equity, and avoiding unnecessary dilution of a party and reduction of its governance rights.
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?
Directors of an Italian company have a duty to operate within the powers delegated to them and in compliance with the articles of association and the law. They owe a fiduciary duty to the company and its shareholders to act in their best interests (which may not necessarily coincide with the interests of their nominating shareholder). The violation of such duties makes them liable to the company and its shareholders and creditors for damages. In case of bankruptcy, the receiver of the bankruptcy may assert such rights. Directors are required, therefore, to strike a difficult balance between the representation at the board level of the interests of the nominating shareholder and the best interest of the joint venture entity, including in determining which information can or cannot be provided to the shareholder.
A corollary of the above are the rules governing conflicts of interest in the management body, where directors must declare when they bear a third-party interest in a specific transaction, and the management body must adequately motivate any resolution passed whenever such conflict is disclosed (in the case of executive directors, they must refrain from taking the conflicted action). If such formalities are not complied with, any decision taken with the vote of the director in conflict (and that would not have been passed absent such vote) can be challenged if prejudicial to the company, with the relevant director also being liable for damages caused by the resulting actions or omissions. The above rules apply to joint-stock companies and, similarly, to LLCs, where the law, however, does not specifically require the disclosure of the conflict.
What competition law considerations are engaged by the formation and operation of the joint venture? Is approval needed?
Based on Law No. 287 of 1990, as recently modified by Law No. 124 of 2017, the formation of a joint venture, whether by creating a new company or through the acquisition of joint control by two or more undertakings over a pre-existing company, may constitute a concentration susceptible to trigger a merger control procedure with the Italian Antitrust Authority (IAA), if certain additional conditions are met.
In particular, if the joint venture can be regarded as a full-function undertaking (ie, it carries out all the functions of an autonomous economic entity on an ongoing basis), the transaction constitutes a concentration. A further requirement is the absence of a coordination between the undertakings involved.
In order to assess whether a joint venture is ‘full-function’, the IAA would take into account the following:
- whether the joint venture has sufficient resources to operate independently on the market;
- whether it performs activities beyond one specific function included in the parent companies’ business;
- whether it is engaged in substantial market relationships with the parent companies - in terms of sales or purchases - for a period not exceeding the initial start-up period or, at a maximum, three years; and
- whether it is intended to operate on a long-term basis.
The formation of a full-function joint venture must be notified to the IAA prior to its completion provided the following conditions are cumulatively satisfied:
- the aggregate turnover realised in Italy by all the undertakings concerned exceeds &##8364;495 million; and
- the aggregate turnover realised in Italy by each of at least two of the undertakings concerned exceeds &##8364;30 million.
Transactions involving the creation of a joint venture falling outside the scope of merger control regime should, in any case, be assessed under the rules on anticompetitive agreements and concerted practices.
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?
Key considerations concern back-office and support or administrative services and derive from the assessment, from a competition-law perspective, as to whether the joint venture should be full-function or not. One must also consider the costs and complexity of the joint venture entity structure. Transfer pricing issues may also be relevant.
What impact do statutory employment rights have in joint ventures?
Employment relationships with joint venture entities are not treated differently than other employment relationships. Nonetheless, frequently, employees of one of the joint venture parties are seconded to the other party or to the joint venture entity itself. Under this scheme, the employer makes the employee available to another company, while the employment relationship continues to be managed by the employer even if the employee is providing his or her services to another company. Secondments are subject to certain restrictions. In particular, pursuant to section 30 of Legislative Decree No. 276/2003, for a secondment to be considered lawful, the following must occur:
- the secondment must satisfy a specific interest and be for the benefit of the seconding company, not of the host company, as, in the latter case, the transfer of the employee from one company to another would be regarded as an unlawful supply of manpower;
- the secondment must be temporary; the maximum duration is not set by law but it should be linked to the reason of the secondment itself;
- the consent of the employee is not required, unless the secondment entails a change of the employee’s duties; and
- the employer must explain in writing the existence of technical and organisational reasons if the secondment requires the employee to move to a place of work more than 50km away from his or her original place of work.
A lack of the above requirements may expose the seconding company and the host company to various risks. In particular:
- The employee may claim to be considered an employee of the host company. This also means that, if the employee is dismissed - for whatever reason - by the seconding company, he or she could challenge the dismissal on the assumption that the real employer is the host company.
- An administrative fine is applicable to both the seconding company and the host company, equivalent to €50 per day per each employee unlawfully seconded (for the entire duration of the secondment). The maximum amount of the penalty cannot be higher than €50,000 for each company.
Intellectual property rights
How are intellectual property rights generally dealt with on the creation, operation and termination of a joint venture in your jurisdiction?
Intellectual property (IP) rights are typically licensed to the joint venture entity, so that, in the event of termination of the joint venture (or the licensor’s ceasing to be a party to the joint venture), they can be easily terminated, with licensed rights reverting to the licensor. This may pose, however, certain limitations when the joint venture parties have long-term goals, given that perpetual licences would entitle either party to withdraw simply by giving adequate notice. Similarly, the fact that licensed rights can revert to the licensor, means that the goodwill created by the use of the IP by the joint venture entity would benefit the licensor. The parties should be mindful to issues related to ‘connected’ or ‘derived’ IP developed by the joint venture entity itself.
These issues may typically be resolved by a transfer of ownership, whose value could be included in the contribution made by the relevant joint venture party. The consequences of the joint venture’s termination would, in this case, be more complex and involve the resolution of the same issues as above (ie, value of the IP and rights to IP that is connected to or derived from it) if the transferor reserved a repurchase right on the IP.
Funding the joint venture
How are joint ventures generally funded in your jurisdiction? Are there any particular requirements relating to funding and security packages?
Funding of a joint venture entity is generally made through (usually in order of preference) use of the joint venture entity’s cash (to be retained by such entity through an agreed dividends policy), financing by third parties (without recourse to the shareholders), shareholders’ loans and equity injections. Only equity injections made through the subscription of corporate capital increases are dilutive. If a party is unable or unwilling to contribute its pro rata share of the funding, such party would be diluted, but only if the injection is made through a corporate capital increase, which requires a shareholders’ resolution (hence its relevance from a governance perspective). Debt funds may be provided by qualified third parties in one-to-one transactions or may be raised on the market. The ability of LLCs to issue debt instruments is subject to more limitations than in a joint-stock company. Joint venture entities may generally receive loans from their shareholders; however, the reimbursement of these is subject to certain limitations in an LLC, where, under certain circumstances, loans may be treated as subordinated to all other debts of the company, and reimbursements made in the year before bankruptcy must be clawed back.
Security packages are limited by a ‘prohibition of financial assistance’; however, this is scarcely applicable to joint venture scenarios, given that it pertains to the prohibition for a company to provide loans or securities in respect of the acquisition of its own shares. The joint venture entity can, therefore, provide, as security, liens on assets and liens on its receivables. Shareholders may support such financing by pledging their shareholding as security.
Capital injection restrictions
Are any restrictions on the injection of capital into, or the distribution of profits or the extraction of cash by other means from, the joint venture entity imposed by law or regulation?
The injection of capital into a joint venture entity is normally done pro rata and each of the existing shareholders has an option right to underwrite a portion of the capital increase pro rata to the interest held, unless such option right is excluded, in the event, for example, of a contribution in kind. In an LLC, however, it is possible to make ‘asymmetrical’ contributions. Equity injections (without the issue of new shares or an increase in the corporate capital) and shareholders’ loans do not need to be pro rata. Injections into equity increases the net equity of the entity to the general benefit of all shareholders, except where made ‘on account of a future capital increase’, in which case, if the increase is not consummated (a deadline can be set for this purpose), the moneys must be returned to the injecting shareholder.
Distributions of dividends can take place only upon approval of year-end financial statements and out of net distributable profits. One-twentieth of year-end profits, however, must be allocated to the legal reserve, until such reserve reaches one-fifth of the corporate capital. Distributions must be made pro rata, but it is possible to grant preferential distribution rights in the articles of association. Interim dividends can be distributed only in joint-stock companies and subject to certain conditions being satisfied (the company being subject to the audit of its accounts, a favourable opinion of the auditor being obtained and the last approved financial statement not showing losses, even those carried forward from previous years). Extraordinary distributions can, however, be made if there are sufficient distributable reserves (as shown in an interim financial statement) and the company has not suffered losses in the period.
What tax considerations should be taken into account in the operation of the joint venture?
Dividends distributed by the joint venture entity to an EU company would be exempt from Italian withholding taxes under the European Parent Subsidiary Directive 2011/96/EU, to the extent that the receiving shareholder:
- holds a direct participation of no less than 10 per cent in the corporate capital of the joint venture entity;
- is set up under one of the legal forms listed in the Annex to the Directive;
- is subject to tax in the EU state of its residence, without being subject to favourable tax regimes (unless these are limited in terms of territory or time);
- has strong substance requirements; and
- qualifies as the beneficial owner of the payments (ie, the receiving company must demonstrate that the shareholding has not been held for the main purpose of benefiting from the exemption provided by the Directive and that it has the full right to use and enjoy the dividends received).
The exemption is granted if the participation has been held for at least one year.
If the Directive is not applicable, Italian withholding tax would apply at the rate of 1.2 per cent, provided that beneficial owner conditions are satisfied and the recipient is established in an EU member state or in a European Economic Area (EEA) state included in the white list of cooperative countries. Otherwise, and unless a double-tax treaty is applicable, the applicable withholding tax rate would be 26 per cent. In this case, the withholding tax could be reduced depending on the percentage of the participation and the withholding tax applied would typically be considered a tax credit in the country of residence of the shareholder.
Interest payment may benefit from withholding tax exemption under the Interest-Royalty Directive 2003/49/EC, provided that:
- the receiving entity is resident in an EU member state;
- the receiving entity is subject to tax in its EU state of residence, without being subject to favourable tax regimes;
- the receiving entity has strong substance requirements and qualifies as the beneficial owner of the interest payments;
- the interest paid is subject to tax in the state of residence of the recipient entity; and
- the interest paying entity holds at least:
- 25 per cent of the voting rights in the receiving entity;
- 25 per cent of the voting rights in the payer; or
- 25 per cent of the voting rights in both entities.
Should the Directive not be applicable, a double-tax treaty could apply, providing for reduced withholding tax rates. Absent both of the above alternatives, withholding tax would apply at 26 per cent.
Italian companies are generally entitled to opt for a fiscal unit (tax-consolidated basis), in which case the amount of deductible interest payment under the rules described above should be computed at a group level, if:
- the consolidating Italian company holds (directly or indirectly) more than 50 per cent of the share capital of another company and is entitled to more than 50 per cent of the profits of that company;
- the consolidated company has the same fiscal year of the consolidating company; and
- the shares of the consolidated company have been owned by the consolidating company, in principle, since the first day of the fiscal year (in the case of a newly incorporated entity, specific exceptions are provided).
The option would be irrevocable for three years and must be made jointly by the controlling company and the participating companies; if the control ceases within three years, potential recapture rules apply.
Further, the option for fiscal unit could be exercised between Italian resident-controlled subsidiaries of a non-resident company, provided that the controlling company is resident in an EU or EEA state having stipulated with Italy an agreement for exchange of information on tax matters.
Accounting and reporting issues
Are there any noteworthy accounting or reporting issues for the joint venture partners regarding their investment in the joint venture?
The joint venture entity is subject to Italian accounting and reporting rules applicable to all Italian companies, including in relation to the principles contained in the International Financial Reporting Standards’ IFRS 11 on joint arrangements, where applicable.
Deadlock, exit and termination
What deadlock provisions are commonly included in joint venture agreements in your jurisdiction?
It is common to foresee escalation (to the CEOs of the joint venture parties or, in any event, to positions higher in the hierarchical scale than those involved in the management of the joint venture entity) and mediation as initial steps for the solution of deadlocks. Disputed matters may contractually be deferred to the binding decision of an expert where technical or accounting matters are involved.
The joint venture parties’ failure to find an amicable solution is typically seen as the indication of a collapse in their relationship and, therefore, the subsequent step is usually the exit by one of the parties (through put and call options or similar arrangements) or both, through the dissolution of the entity (Italian law considers the inability of a company to operate as a possible reason to wind it up). In light of such serious consequences, and of the possibility of using a deadlock instrumentally to force an exit, it is common to limit them to the more significant events, identifying circumstances that would limit the ability of the joint venture entity to pursue its business, and subjecting the others to a cooling-off period in the course of which such matters cannot be proposed again to the relevant corporate bodies.
What exit provisions are commonly included? Does the law restrict any forms of mandatory transfer provision or any basis of calculation?
The common exit provisions are put and call options or iterations thereof (eg, ‘Russian roulette’). In normal put and call options, the price is either determined from the onset or calculated on the basis of an agreed formula upon exercise of the option. It may also be determined based on the fair market value of the joint venture entity, as determined by the binding decision of an expert. There is no specific legal basis for calculating the price, which is normally freely determined by the parties.
In the event of insolvency, management of the joint venture entity is passed onto the receiver, who would aim to divest assets (which may be part of a plan approved by creditors in some insolvency procedures) for the purposes of maximising cash availability and the ability to pay as large a percentage as possible of the debts. Ownership of the interest in the joint venture entity does not transfer.
Tax considerations following termination
What are the tax considerations on termination of the joint venture?
The disposal of the parties’ interests in the joint venture entity would, in principle, be subject to Italian corporate income tax, unless an applicable double-tax treaty establishes that the capital gains should be taxed in the state of residence of the seller. Further, under specific circumstances, a financial transaction tax would be due by the buyer in the amount of 0.2 per cent of the purchase price.
The transfer of assets between the joint venture entity and the parties by way of disposal would give rise to a tax on capital gains in Italy at the level of the joint venture entity. Further, registration taxes would be due, in amounts ranging from 3 per cent (assets and goodwill) to 9 per cent (real estate). If the transfer of assets is performed by way of merger, demerger or contribution in kind, the transfer of assets to a non-resident beneficiary company could give rise to Italian exit tax on the normal value of the transferred assets.
Choice of law and resolution methods
In your jurisdiction are there constraints on the choice of law or the method of dispute resolution provided for in joint venture agreements?
Based on the general principle of the ‘free will’ of contractual parties, applicable law and dispute resolution clauses can be chosen by such parties without specific constraints (with the exception being that Italian mandatory laws apply regardless of the choice of law). As regards choice of law, however, in the case of a corporate joint venture, one must consider that Italian corporate law is mandatorily applicable to Italian companies. This means that the articles of association are subject to Italian law and choosing a different law applicable to the shareholders’ agreement or to other transaction documents would potentially cause conflict-of-law issues. Similarly, submitting disputes to non-Italian courts or arbitration could raise issues as to the interpretation of the applicable provisions of law. This is less relevant in the event of arbitration managed by entities with significant experience in international disputes (eg, the International Chamber of Commerce).
The choice between courts and arbitration is also free and rests mainly on assessments as to costs, timing and expertise. The only limitation is the need to draft an arbitration clause in the articles of association, compliant with certain parameters. For example, selection of the members of the panel or sole arbitrator by the arbitration administrator and ‘disposable’ rights that relate to the relationship between shareholders, shareholders and the company, and the company and other officers, are subject to the arbitration clause.
Mandatorily applicable local law
What mandatory provisions of local law will apply irrespective of the choice of governing law?
Italian corporate law applies to Italian companies. Other mandatory provisions apply case by case (eg, aspects concerning the conduct of certain highly regulated businesses, such as banking, insurance or other regulatory aspects).
Are there any restrictions on the remedies a tribunal can grant that would have a bearing on the arbitration of joint venture disputes? Are there any restrictions on the arbitration of shareholder claims?
Arbitration panels cannot grant interim measures, urgent measures or payment injunctions. In such events, even if an arbitration clause has been agreed, a party would have to seek the remedies before the competent court.
Minority investor protection
Are there any statutory protections for minority investors that would apply to joint ventures?
The statutory rights foreseen by law that apply to all shareholders (or at least to a number of them who, in aggregate, own a certain portion of the corporate capital) would generate basic protection for minority investors. Such rights pertain, essentially, to the access of information and documents, rights to challenge resolutions of the corporate bodies, rights to make claims against directors, the right to participate and vote in shareholders’ meetings and the right to underwrite a pro rata portion of corporate capital increases.
How can joint venture parties have liabilities to each other beyond what is expressly agreed in the joint venture agreement?
The only circumstance in which a joint venture party may be liable to another party, beyond that which is foreseen in the agreement, would be in the case of actions deriving from fraud (even in convincing the other party to enter into the agreement). Moreover, any limitation of liability would not apply to events generated by wilful misconduct and gross negligence. Certain rules governing the termination, rescission and existence of an agreement apply to a joint venture agreement even if such articles of law are not expressly incorporated by reference in the agreement.
Disclosure of evidence
Are there any particular issues that can arise in joint venture disputes in your jurisdiction concerning disclosure of evidence?
Joint venture disputes are subject to the same procedural rules governing any other kind of litigation. Legal privilege is a concept that applies under Italian law to a limited number of circumstances (and connected to criminal proceedings). Italian lawyers are subject to confidentiality obligations based on the professional code of conduct.
There is no specific disclosure obligation under Italian law, but a party may request a judge to order such disclosure.
What advantages does your jurisdiction offer for parties wishing to set up and operate joint ventures?
Italian corporate law has evolved into a set of rules that can efficiently address the needs and protect the interests of joint venture parties. Specialised sections of Italian courts are increasingly efficient in managing corporate and IP litigation, and reducing the time it takes to reach a final decision. Against this background, the choice of establishing a joint venture in Italy would still mostly depend on business decisions and the location of the joint business to be conducted.
Requirements and restrictions
Are there any particular requirements or restrictions relating to joint ventures in your jurisdiction that could deter international investors?
Administrative burdens and formalities for incorporating a company may be lengthier and more cumbersome than in other jurisdictions, but companies’ registers are progressively improving their efficiency, particularly through the use of digital technology. With specific reference to a joint venture, restrictions on the duration of lock-up provisions may affect the need to stabilise the shareholding in the future.
Updates & Trends
Updates & Trends
Updates and trends
Joint ventures are affected by the same market aspects that impact standard investment by domestic or foreign entities. As such, the current political climate in Italy (and, perhaps, in Europe as a whole) may discourage investors as it seems to generate instability and uncertainty, which could consequentially impact the economic environment. Nonetheless, the government’s current programme includes proposed tax cuts (including to corporate taxes) that, if adopted, would make running a business in Italy much more economically beneficial and could, therefore, encourage investment and the establishment of joint ventures
Case law has recently had the opportunity of dealing with certain aspects of corporate governance (eg, options, drag-along rights and rights to dividends) and has provided specific guidance in the drafting of the relevant provisions and in alleviating risks that were considered existing.