WHAT ENTER FRANCE DO ?
In general, you must be aware that the complexity of the Joint Venture, rather than its form, will have the biggest impact on the time and expenses required to properly establish it.
Even though a separate entity is never established, some contractual joint ventures may be just as complex as a partnership, and/or corporate Joint Venture due to the inherent nature of the joint undertaking.
For example, strategic alliances often involve shared liabilities, intellectual property, financial and non-financial investments, dispute resolution, the exchange of confidential information as well as exit provisions that can be just as complex, if not more, than Joint Ventures involving the establishment of separate entities.
In any case, Enter France is tooled and ready to accompany you in all of your Joint Undertakings.
The multidisciplinary and multi-tasking team of Enter France will take a holistic approach of your business desideratum. We will, not only help advise you on the right type of Joint Venture, but will also run reality checks on your business plan. In summary, our goal is to deliver a millimeter-scale bespoke business incubator service to our clients.
We will also help you investigate the solidity of your future French business partners by running a due diligence analysis on each of them until you are fully satisfied. Inasmuch as the French market is a complete terra incognita for you.
Cross-border mergers/acquisitions and international joint ventures have entered a golden age in France. While Joint Venture have existed for several decades, their importance in firms’ strategies has dramatically increased with globalization and the creation of the European market. Though, it’s an Anglo-Saxon invention, France has climbed on the bandwagon and has developed legal tools to facilitate its use.
A Joint Venture is a voluntary cooperative agreement between two or more organizations, the goal of which is to improve performance by sharing tasks or resources.
It is similar to a business partnership, with one key difference: a partner ship generally involves an ongoing, long-term business relationship,whereas a Joint Venture is based on a single business transaction.Individuals or companies choose to enter a Joint Venture in order to share strengths,minimize risks,and increase competitive advantages in the market place.
Joint Ventures may be very informal, such as a handshake. Other agreements may be extremely complex, such as a consortium of major telecom companies, airline or media firms, etc. partnering up to develop new markets.
Joint Ventures can be distinct business units (a new business entity may be created) or simply collaboration between businesses.
The concept has been developed in common law countries, and there is therefore no exact equivalent of it under French law per se. Thus, a Joint Venture does not designate any particular structure under the French law, but refers to a form of association, on a well-defined subject, between two or more companies.
Later in this entry we will look at how different structures can be used to organise a Joint Venture between two or more parties.
Hence, no specific legal framework applies to Joint Ventures. The applicable rules therefore depend on the type of Joint Venture. For contractual Joint Ventures, general contract law will apply. For corporate Joint Ventures, the applicable rules will depend on the corporate form chosen for the Joint Venture. Because of the flexibility of the governance provisions applicable to SASs, corporate Joint Ventures are often incorporated as SASs. No additional specific rules apply to companies created with the aim of establishing a Joint Venture.
The French Competition Authority’s guidelines on merger control provides that the creation of a Joint Venture may result from:
- Setting up a totally new common structure.
- The contribution of assets to an existing Joint Venture that the parent company previously held individually, if these assets, whether contracts, know-how or other, enables the Joint Venture to expand its business.
- The acquisition, by one or more new shareholders, of the joint control of an existing company.
Hosting Legal Vehicle for a Joint Venture
There are many different legal structures which can be used as vehicles to run a Joint Venture:
- Capital contributions (cash, in kind or assets);
- Other types of entities, such as, economic interest groupings (groupements d’intérêt économique) (GIEs).
Since the introduction of a very flexible corporate structure, (Société par actions simplifiée) (SAS), it is easier to set up corporate Joint Ventures in France.
Types of Joint Venture Allowed in France
Contractual Joint Ventures
All types of Joint Venture agreements are allowed under French law. Joint Venture agreements must comply with the general rules of French contract law. Signed by all partners, a contractual Joint Venture is a contract stipulating the basic rules of the partnership, its objectives and its means of implementation. The duration of the agreement is at the basis of any Joint Venture.
Let’s take for example the contractual Joint Venture set up between foreign investors Air France-KLM, Delta and Alitalia. This Joint Venture is now the most advanced model of cooperation between airlines. It involves the joint operations and the sharing of revenues and costs of more than 250 daily transatlantic flights operated by Air France, KLM Delta and Alitalia.
An executive committee, made up of the CEOs of all four airlines, defines the strategy of the Joint Venture.
In this example we have a binding contractual Joint Venture that involves a partnership and therefore a division of labour, costs and revenues, without any capital provisions. Each company participating in the Joint Venture undertakes the same risks, commonly investing their resources with the goal of optimizing revenues.
Corporate Joint Ventures
Corporate Joint Ventures can take any existing corporate form, although some are much more common than others.
Companies without Legal Personality (Sociétés en participation)
These companies are created mainly when the purpose of the Joint Venture is a one-time project and where an incorporated entity (whether civil or commercial) is not appropriate (for example, because the Joint Venture partners intend to share profits without creating a company structure or establishing a capital). A Company without Legal Personality is tax transparent.
However, as it has no corporate personality, it cannot enter into any legal act on its own. It must not be disclosed to third parties nor act in commercial matters, otherwise, partners will be indefinitely, jointly and severally, accountable for their actions to third parties.
Commercial Companies: Commercial companies are very commonly used for corporate Joint Ventures, when tax transparency is not required. They include:
- Sociétés à responsabilité limitée (SARLs). These companies are used for small and medium-sized businesses. Rules that apply to SARLs are more flexible than those that apply to Société anonyme (for example, SARLs can have a single shareholder, and statutory restrictions on share transfers, useful in Joint Ventures, are allowed).
- Sociétés par actions simplifiées (SASs). This is the most common corporate form used for Joint Ventures because of its flexibility. The shareholders of an SAS have great flexibility to define their agreement in the articles of association, regarding corporate governance and restrictions on share transfers.
A recent example of a corporate Joint Venture using the SAS matrix is Telefonica Global Solutions France SAS. A joint venture created by Telefonica and Bouygues Telecom to meet the needs of multinationals in France.
This strategic agreement reinforces Telefonica’s position in the European market and sets the basis for future growth in the French multinational companies (MNCs) market. It provides Bouygues Telecom the international coverage required to do business with global corporations and strengthen its presence in the French market.
The vast majority of Joint Ventures in France are SASs.
Other types of Joint Ventures
French Economic Interest Groupings (Groupements d’intérêt économique) (GIEs) can be an alternative to the SAS.
They are flexible structures (which include the voluntary nature of share capital and the freedom to set up rules on decision-making) and provide tax transparency benefits.
The activity of the GIE must constitute an extension of the activity of its members, which fits well with Joint Ventures. However, the liability of a GIE’s member is subject to the principle of indefinite and collective responsibility. In addition, the managers must be a natural person.
There is no public registry listing contractual or corporate Joint Ventures. Corporate Joint Ventures are registered with the French Trade and Companies Registry, like any other non-Joint Venture company.
A Joint Venture member can usually contribute:
- In cash, or through a loan to the Joint Venture (for example, in a shareholder’s account);
- To a corporate Joint Venture through its knowledge, workforce, or a service (apport en industrie). This kind of contribution is sometimes called “sweat equity”. It is used to describe the non-financial investments, in the form of toil and effort that a person contributes to the development of a business;
- In kind (with any assets, tangible or intangible). For example, a Joint Venture member could contribute with a patent.
Other contributions could take the form of the enjoyment of an asset for a fixed period of time, without transfer of ownership to the corporate Joint Venture (e.g. under a lease).
There are specific rules that apply to contributions to Sociétés par actions simplifiée (SASs) under the French law. It’s noteworthy that “sweat equities” are allowed in SASs, and the contributor can receive shares in return for his contribution.
But, these shares are not transferable and the contributions cannot be considered for the calculation of the share capital, although the shares will give the member the right to vote.