The Joint Venture Agreement: Key Provisions and Pitfalls

In the first part of this blog series, we introduced the basic forms of the joint venture – equity and contractual – and showed how companies choose the right structure. This second part looks at the practical drafting of the agreement: what provisions belong in a joint venture agreement, and what pitfalls should companies be aware of before signing?

Two levels, one goal: the two-tier structure of the joint venture agreement and the articles of association

In an equity joint venture, two regulatory levels regularly exist side by side: the contractual joint venture agreement between the partners – which governs, among other things, the formation, the common purpose, and the principles of cooperation – and the corporate articles of association (or shareholders’ agreement) of the company formed. Both levels must be carefully aligned with one another; otherwise there is a risk of contradictions, for example where the joint venture agreement contains a provision that is reflected differently, or not at all, in the articles of association. An express conflict rule – specifying which document prevails in the event of a dispute – therefore belongs in every well-drafted joint venture agreement.

The key provisions at a glance

Based on our long-standing advisory practice, the essential provisions of a joint venture agreement can be grouped into the following areas:

I. Fundamentals of the cooperation

Full identification of the parties with an address for service, preamble and purpose of the cooperation, scope and objectives of the cooperation, timeline, contract language, and any form or notarisation requirements.

II. Legal structure / articles of association

Choice of legal form – foreign legal forms may also be considered – management and supervisory bodies, incorporation procedure, name and registered seat of the company, as well as the conflict rule between the joint venture agreement and the articles of association discussed above.

III. Participation and financing

Equity capitalisation, type of contributions (cash or in-kind, including the contribution of intangible assets such as know-how), participation ratios, provisions on capital increases and additional funding obligations, and budget and financial planning.

IV. Organisation and governance

Management and powers of representation, composition of the governing bodies, majority requirements for material decisions, minority protection, and the partners’ information, inspection and audit rights.

V. Accounting, tax and profit allocation

Accounting principles, appointment of external auditors, dividend policy, retention of earnings and profit allocation. Note: tax questions – such as the taxation of profit distributions, transfer pricing, or cross-border structuring – are addressed here only from a legal perspective; the specific tax assessment should always be coordinated with a tax advisor or auditor.

VI. Breach, adjustment and force majeure

Provisions on damages and contractual penalties for breaches of duty, termination rights and the exclusion of partners, supplementary contract interpretation, and adjustment clauses for changed circumstances, such as force majeure.

VII. Change of partners

Requirements for a partner’s exit and the admission of new partners, pre-emption rights, drag-along/tag-along obligations, the calculation of compensation payments, and provisions for a change of control affecting one of the partners.

VIII. Termination

Contract term and renewal options, grounds and periods for termination, legal consequences of termination, and – in the event of liquidation – the appointment of liquidators and the distribution of liquidation proceeds.

IX. Governing law and dispute resolution

Express choice of law, procedures for out-of-court dispute resolution (mediation, ADR), and – particularly for international joint ventures – an arbitration agreement specifying the arbitral institution, seat of arbitration, and language of proceedings.

Cross-border joint ventures: additional points to consider

International joint ventures regularly raise additional issues that play no role in a purely domestic agreement: antitrust merger control, foreign direct investment (FDI) screening in sensitive sectors, export control and sanctions regulations, local approval and registration requirements, and questions of transfer pricing and permanent establishment taxation. For the applicable foreign law, a locally admitted advisor should always be engaged.

Common pitfalls in practice

• Missing or unclear deadlock provisions: if a stalemate arises between partners with equal participation and no escalation or resolution mechanism has been agreed, the joint venture can become effectively unable to act.
• Unresolved relationship between the joint venture agreement and the articles of association: contradictions between the two documents lead to interpretation problems in the event of a dispute.
• Missing exit and IP provisions: once the joint venture ends, it must already be clear what happens to jointly developed know-how, customer relationships, and ongoing contracts.
• Involving tax advice too late: early coordination with a tax advisor avoids costly corrections to the structure at a later stage.

Conclusion

A joint venture agreement is more than a template – it is the central instrument for legally securing the economic objectives of the cooperation and avoiding conflicts before they arise. Given the number of issues to be addressed, early legal involvement is advisable – ideally already during the negotiation phase, not only once the agreement is ready for signature.

This article is for general informational purposes only and does not constitute legal advice in an individual case. It does not replace an individual legal review. German law is authoritative; for matters with a foreign-law element, we recommend always engaging a locally admitted advisor. Any tax-related remarks in this article are non-binding and do not replace consultation with a tax advisor or auditor.