Joint Ventures 2024 Comparisons

The Netherlands offers an attractive business and investment environment is a welcoming location for foreign investors, thanks to its business-friendly climate, investor-friendly tax treaties, stable political and macroeconomic climate, highly developed financial sector, location, well-educated and productive labour force, and high-quality physical and communications infrastructure.

In the past 12 months, the Dutch joint venture market has been influenced by inflation and interest rate fluctuations, as well as the ongoing uncertainty caused by geopolitical tensions and the impact that had and still has on the global macroeconomic climate. It has also been affected by changes in the regulatory landscape – for example, with regard to:

• ESG-related due diligence and related reporting requirements;
• sanctions and export controls;
• the EU Artificial Intelligence Act (the “EU AI Act”); the second iteration of the EU’s Network and Information Security (NIS) Directive (the “NIS2 Directive”);
• the Digital Services Act; and
• the Data Act.

The past 12 months have witnessed significant economic shifts, with inflation rates reaching levels not seen in decades. In response, central banks, including the European Central Bank (ECB), have adjusted interest rates to curb inflationary pressures. This has had an obvious impact on the cost of capital (as borrowing became more expensive). Investors are reconsidering the scale and scope of their investments because the cost of borrowing increased. Joint ventures offered a way to share the financial burden.

Inflation has also affected asset valuations, prompting businesses to reassess their investment strategies. Joint ventures allow for more flexible and adaptive valuation mechanisms, which can be particularly advantageous in an inflationary environment.

The ongoing conflict in Ukraine and instability in the Middle East have disrupted global supply chains and heightened geopolitical risks. In the past 12 months it has become clear that joint ventures can be a useful tool to deal with uncertainties caused by the geopolitical climate. Joint venture partners have been tackling complex projects, navigating uncertain markets and sharing risks by pooling resources and expertise in a joint venture.

More than ever, parties should carefully evaluate potential joint ventures and their future partners, considering the financial stability and local expertise of prospective partners. Comprehensive due diligence remains critical to understand the risks that may be associated with the joint venture. Given the uncertainties, structuring joint ventures with flexibility in terms of capital contributions, governance and exit strategies can provide a competitive advantage. Staying abreast of legal and regulatory changes in the Netherlands and the EU is essential for a joint venture’s success, especially in a rapidly changing economic environment.

In the past 12 months, the Netherlands has seen relatively more activity in the (renewable) energy sector and sustainable technology sector (including, for example, electric vehicle (EV) charging), the food sector (in particular, R&D related-ventures) and the financial services and technology sector (including, for example, cryptocurrency platforms and data centres).

Types of Joint Venture

There is no prescribed form for a joint venture under Dutch law. The main differentiator between the different types of joint ventures is the incorporated joint venture (a separate legal entity) on the one hand and the unincorporated joint venture on the other hand. The first choice the joint venture partners ought to make is whether or not to incorporate a separate legal entity.

Incorporated joint ventures

The most commonly used type of joint venture is an incorporated joint venture in the form of a private company with limited liability (besloten venootschap met beperkte aansprakelijkheid,or BV). A BV is a separate legal entity and has a capital divided into shares. The liability of the joint venture partners (the shareholders) is, in principle, limited to the obligation to pay up the nominal value of their shares. A BV offers flexibility, both in terms of structuring as well as its governance. The process of incorporating a BV is straightforward but formal (it requires the involvement of a Dutch civil law notary) and there are virtually no capital requirements.

Unincorporated joint ventures

Unincorporated joint ventures are established by an agreement between the joint venture partners and can take the following forms:

• a contractual partnership with a separate estate (maatschap or vennootschap onder firma (VOF)) or without a separate estate (stille maatschap);
• a limited liability partnerships with a separate estate (commanditaire vennootschap, or CV)
• a co-operative (coöperatief); or
• the joint venture partners co-operating together on the basis of a consortium, co-operation, collaboration, joint development, or any other type of agreement.

Partnerships are often used taking into consideration the tax treatments (usually with the intent to achieve transparent vehicles). In contrast, co-operation agreements are often used in earlier stages of the co-operation, in single projects, or with partners elsewhere in the supply chain (eg, exclusive co-operation).

Advantages and Disadvantages

The advantages and disadvantages of a particular type of joint venture compared to another type heavily depend on the circumstances, the activities of the joint venture, and its purpose. What follows are examples of advantages and disadvantages but this is by no means an exhaustive list. Many considerations play a role in determining what form a joint venture should take. The preferred form for a specific co-operation will need to be assessed on a case-by-case basis. What under certain circumstances might be seen as an advantage might be seen as a disadvantage under other circumstances.

Separate legal entity

One advantage of a BV as joint venture vehicle, compared to an unincorporated joint venture, is that the BV is a separate legal entity. As previously mentioned, the liability of the joint venture partners (the shareholders) is – in principle – limited to the obligation to pay up the nominal value of their shares. The insolvency of the BV only affects the assets of the BV itself (and the contributions or investments that were made into the BV), not the assets of the joint venture partners (the shareholders). The general partners in a contractual partnership such as a VOF or CV remain jointly and severally liable for the partnership’s liabilities. A consortium, collaboration, joint development or other type of agreement, is simply an agreement between the parties thereto with no separate estate. Each of these parties’ remains liable for its own actions and losses and, unlike the incorporated entity, the joint venture is taxed at the level of the partners rather than at joint venture level.

As a separate legal entity, a BV owns its own assets. This can be an advantage but could also be a disadvantage if the joint venture partners would like to maintain control and ownership over certain assets (including, for instance, IP) that would otherwise be developed by or contributed or transferred to the BV. For the ownership of jointly developed IP, however, having a separate legal entity can have various practical advantages.

Another advantage of an unincorporated entity might be that it is easier to terminate than an incorporated joint venture such as a BV. By way of example, a contract can be terminated, whereas a BV would have to be dissolved and liquidated. However, even though an unincorporated entity might be easier to terminate (by termination of the agreement), it will be more difficult to monetise an exit – especially if the joint venture partners entered into a collaboration agreement. As per the foregoing, the joint venture partners will maintain ownership of their own assets, whereas the shareholders of a BV can sell their shares in the BV and thus monetise their investment.

Governance structure

Another advantage of a BV is that the BV has a more well-known governance structure, which third parties are familiar with and has its foundation in Dutch law. The governance structure of an unincorporated joint venture, such a partnership or a collaboration agreement, will – respectively – largely or solely be based on a confidential agreement between the parties. If the joint venture is intended to have a (separate and individual) market presence and will contract with third parties, it might be more advantageous if the governance structure of the joint venture is more well-known and familiar to the joint ventures’ counterparties.

Administrative burden

One of the advantages of an unincorporated joint venture, especially if that takes the form of a collaboration or other agreement between the parties, is that this is very straightforward and more informal in nature than incorporating a BV. This also results in fewer administrative obligations compared to the administration of a BV – given that the BV will, for instance, have to keep its own books and records to such a standard that the assets and liabilities of the BV are known at all times and the BV will have to file annual accounts within 12 months after year end. This might be seen as more administratively burdensome.

Main Purpose of Joint Venture

There are many drivers for choosing a particular joint venture vehicle. The purpose of the joint venture is a key factor in deciding whether the joint venture should be formed through incorporating an entity, establishing a partnership or by simply entering into an agreement with the joint venture party. In the authors’ experience, there are three main purposes for parties to enter into a joint venture. These are:

• transferring knowledge – for instance, for the purpose of jointly developing a new product, reducing R&D costs by:
1. dividing these among joint venture partners; or
2. making use of certain R&D resources of one or both of the joint venture partners;
• economies (of scale) – for instance, decreasing costs by sharing resources, or increasing margins by:
1. producing on a bigger scale with a joint venture partner;
2. expanding existing business;
3. leveraging synergies; and
4. benefiting from tax treatment in the jurisdiction in which the joint venture is located; and
• market developments – for instance, entering into new markets (with or without a required local partner) and sharing the risk associated with new/developing markets or technologies.

Questions to Consider

When considering which joint venture vehicle would be most appropriate, asking “Which form creates the most value in the given circumstances? Does an incorporated joint venture or partnership generate more value than a collaboration or other agreement between the joint venture partners at this stage?” is key.

The objectives for entering into a joint venture may vary throughout the life cycle of a product that the joint venture produces or develops. The drivers for collaboration may therefore be different in each phase of the product life cycle. In the beginning, joint ventures will primarily be used to limit risks and investments. In this stage, the joint venture partners may prefer to enter into a collaboration agreement or joint R&D agreement rather than incorporating a separate legal entity already. In subsequent phases, where the product generates or has the potential to generate revenue, joint ventures are more likely to be used to gain accelerated market access. In such a phase (and preferably before significant revenue is generated), it would be advisable to incorporate a separate entity (or alternatively enter into a partnership). In the next phase, when the product has matured, joint ventures can be used to shield the market and counter overcapacity. Lastly, in the final phase of the product life cycle, joint ventures could be used as a tool to simplify market withdrawal.

The following list of considerations the joint venture partners should take into account when assessing which form the joint venture should take is by no means exhaustive.

• Is it important to shield the joint venture partners from liability?
• Is business continuity an important factor? Should the joint venture be able to continue its activities if one of the partners goes bankrupt?
• What is the financial strength of each of the partners? What will each partner contribute (both financially and in kind)?
• Is there a need for external financing? If so, incorporating a separate entity that can provide security seems more obvious.
• What is the culture of each of the partners?
• What will be the term of the collaboration or joint venture and what needs to occur upon termination? Should the partners be able to easily terminate the joint venture?
• Should the assets (including developed IP) be owned by the joint venture, co-owned by the joint venture partners, or should ownership be retained by each joint venture partner?
• Should a separate joint venture vehicle be taxed or should the joint venture partners be taxed? This can be relevant for setting losses – ie, should the joint venture benefit from carry-forward losses or should the joint venture partners?
• How will the proceeds of the joint venture be treated from a tax perspective?

Whether the joint venture is subject to the supervision of one or more regulators in the Netherlands depends on the activities of the joint venture. For any considerations from an antitrust and competition law perspective, as well as considerations with regard to the EU Foreign Subsidies Regulation and potential restriction on foreign direct investments, please refer to 3.3 Restrictions and National Security Considerations and 3.4 Competition Considerations.

The primary regulators in the Netherlands are as follows.

• The Netherlands Authority for Consumers and Markets (Autoriteit Consument & Markt, or ACM) is the primary supervisory body for the functioning of Dutch markets, some specific sectors, and consumer rights. The ACM functions as the Dutch competition authority.
• The Dutch Central Bank (De Nederlandsche Bank, or DNB) is responsible for the prudential supervision of the financial markets – meaning it will, inter alia, monitor whether the financial institutions can meet their financial obligations;
• The Dutch Authority for the Financial Markets (Autoriteit Financiële Markten, or AFM) is responsible for the supervision of the conduct of the financial sector to ensure a reliable and transparent financial market.
• The Dutch Healthcare Authority (Nederlandse Zorgautoriteit, or NZa) supervises the Dutch healthcare sector.
• The Dutch Investment Screening Bureau (Bureau Toetsing Investeringen, or BTI) is responsible for foreign investment screenings. This includes the screening of investments in companies that are considered “telecommunications entities”, as well as certain energy providers and “vital providers”, or companies possessing “sensitive technology” that are not screened by another sector-specific supervisory body.

The Dutch Act on the prevention of money laundering and financing of terrorism (Wet ter voorkoming van witwassen en financiering van terrorisme, or Wwft) is the primary AML legislation in the Netherlands. This act implemented the various EU Anti-Money Laundering Directives.

There is no specific legislation relating specifically to joint ventures and, in general, foreign investments are not treated differently to domestic investments in the Netherlands. However, certain legislation may restrict joint ventures as well, as follows.

Foreign Direct Investments

On 1 March 2020, the Telecommunications Sector (Undesirable Control) Act (Wet ongewenste zeggenschap telecommunicatie) came into force. Pursuant to this law, a party that intends to acquire a controlling interest in a telecommunications entity must notify the competent minister if such control will lead to relevant influence within the telecommunications sector.

From 11 October 2020, EU Regulation 2019/452 established a framework for screening foreign direct investments (FDI) into the EU on the grounds of security and public order considerations. The regulation does not make it mandatory for EU member states to adopt FDI control regimes; however, those that do so must comply with the requirements of EU Regulation 2019/452, particularly with regard to transparency and non-discrimination. In this context, on 1 June 2023, the Investments, Mergers and Acquisitions Security Screening Act (Wet veiligheidstoets investeringen, fusies en overnames, or Vifo) came into force. Vifo introduced a mandatory and suspensory FDI screening framework for investments and M&A in target companies active in vital processes and companies active in sensitive technologies that might pose a threat to national security. The law presents a notification obligation for these vital or sensitive companies and covers investment activities by EU and non-EU investors alike. To the extent a joint venture is formed that conducts business in a sector that is covered by Vifo, such investment may be subject to screening by the Dutch Investment Screening Bureau (Bureau Toetsing Investeringen, or BTI).

Foreign Subsidies Regulation

The EU’s Foreign Subsidies Regulation (FSR) entered into force on 12 January 2023 and creates a new regime aimed at combating distortions of competition in the EU internal market caused by foreign subsidies. It imposes mandatory notification and approval requirements for acquisitions of significant EU businesses (including existing joint ventures) and large EU public tenders. It also gives the EC extensive powers to launch ex officio investigations.

Companies engaging in M&A, including the establishment of a joint venture, are obliged to notify these transactions provided they meet certain thresholds. Notably, this requirement only applies to existing full-function joint ventures, where:

• the joint venture has had at least EUR500 million turnover in the EU in the previous financial year; and
• the joint venture and its parents were granted “financial contributions” of more than EUR50 million from non-EU government- or state-owned entities in the three years prior to the conclusion of the joint venture agreement.

“Financial contributions” is a broad category, which covers any form of direct or indirect contribution from non-EU governments or any public or private entity attributable to a third country, including direct grants, interest-free or low-interest loans, tax incentives, state-funded R&D, government contracts, and grants of exclusive rights without adequate remuneration. The authors have developed a tool that helps companies manage the heavy burden of gathering the data required to make the FSR notification.

Sanctions

The Dutch Sanctions Act (Sanctiewet) forms the basis for the development of rules for the implementation of international sanctions issued by institutions such as the EU or the United Nations. Entering into a joint venture with a party that is subject to financial or economic sanctions is likely prohibited, depending on the applicable sanctions.

The Dutch merger control regime catches the creation of so-called “full-function” joint ventures. The concept of full functionality is the same as under the EU Merger Regulation – that is, a joint venture that performs on a lasting basis all the functions of an autonomous economic entity. Such joint ventures must be notified to the ACM prior to their implementation, provided the following turnover thresholds are met (unless the EU thresholds are triggered – in which case, the joint venture will be reviewed by the EC):

• the combined worldwide turnover of the undertakings concerned exceeds EUR150 million; and
• the turnover in the Netherlands of each of at least two of the undertakings concerned is at least EUR30 million.

Non-full function joint ventures fall outside the scope of merger control but may be assessed under the provisions of the Dutch Competition Act prohibiting anti-competitive agreements and concerted practices (Article 6).

There are no specific rules in the Netherlands concerning listed party participants to JVs. General rules applicable to listed entities – for example, market abuse rules (preventing insider trading by requiring disclosure of price-sensitive information) – may be relevant, however.

There are ultimate beneficial owner (UBO)-related disclosure obligations in the Netherlands. On 7 July 2020, the Act implementing registration of ultimate beneficial owners of companies and other legal entities (the “Implementation Act”) was published. The Implementation Act applies to all legal entities (ie, BVs and other incorporated entities but not partnerships, such as CV or VOF, nor other unincorporated entities), apart from listed entities and their full subsidiaries, and obliges these legal entities to submit information regarding their UBOs to the “UBO Register” of the Dutch Chamber of Commerce. UBOs are the natural persons that indirectly or directly hold more than 25% of the shares in a BV. If a BV does not have a UBO in accordance with the requirements set out in the preceding sentence, such BV must register a “pseudo-UBO”. These are usually the highest office-holders of the entity (eg, the managing directors).

In February 2023, the Dutch Supreme Court rendered a judgment that is particularly relevant to the members of the management board of Dutch joint venture entities. In performing its duties, the management board has to act in the corporate interest of the company. In this judgment, the Supreme Court reiterates and supplements its considerations from an earlier judgment (Cancun, which is addressed in 7.2 Directors’ and Board’ Duties and Functions) as to what constitutes the corporate interest of a company – in particular, a joint venture company – and the role of the minority shareholder’s interest therein.

The Supreme Court confirms the corporate interest as a dual concept, as follows.

• The corporate interest is generally determined primarily by promoting the continued success of the business run by the company.
• In promoting the corporate interest, directors should exercise due care with regard to the interests of all those who have been involved in the company and its business (including that of a minority shareholder). In a joint venture vehicle, the emphasis is more on the co-operation between the shareholders. The shareholders’ agreement or joint venture agreement between the joint venture partners plays an important role in determining the corporate interest of the joint venture company. Under certain circumstances, based on the agreements made in a shareholders’ agreement, directors of a joint venture vehicle owe a fiduciary duty towards certain shareholders – specifically, minority shareholders whose interest is diluted or threatened to be diluted (further).

Preliminary transaction documentation such as a mutual non-disclosure agreement, a letter of intent and – to the extent not already included in the letter of intent – an exclusivity agreement is normally used during the negotiating stage of a joint venture. The letter of intent will typically cover the main governance arrangements and the agreed contribution to the joint venture. In addition, parties should consider the antitrust aspects of sharing information.

Generally, there are no disclosure requirements unless filing with antitrust authorities or pursuant to applicable FDI rules is necessary. The filing requirements need to be met before the joint venture actually starts operating.

Incorporation of an incorporated joint venture requires a notarial deed of incorporation. Unincorporated joint ventures (including partnerships) are established by agreement only. Both incorporated joint ventures as well as partnerships need to be registered with the trade register of the Dutch Chamber of Commerce. This is therefore only different for unincorporated joint ventures that are given effect merely through a co-operation or joint development agreement.

Incorporated Entities

The incorporated joint venture (including the BV, being the most widely used joint venture vehicle) is, as per the above, incorporated through a notarial deed of incorporation. This deed includes the company’s articles of association. Generally, parties will in addition thereto enter into a joint venture agreement (also referred to as shareholders’ agreement in the case of BVs).

Dutch law prescribes the minimum content of the articles of association but these generally also include several provisions that replicate what is already included in the Dutch Civil Code. The provisions, inter alia, relate to the company’s name, purpose and capital, as well as the composition and the manner of decision-taking of the corporate bodies (including the board(s) and general meeting of shareholders), the issuance and transfer of shares and dividends, and dissolution. The shareholders’ agreement will cover similar topics, but is generally more elaborate regarding the so-called reserved matters or veto rights, deadlock provisions, transfer provisions (such as tag-along and drag-along provisions) and potentially exit provisions, and will typically include some restrictive covenants such as confidentiality and/or non-compete or non-solicitation provisions.

Unincorporated Entities

For partnerships, the partnership agreement usually covers similar topics but will also cover how legal title to the assets is held and if and how the partnership will be continued upon departure of one or more partners.

If the joint venture is structured by a mere agreement only (eg, collaboration agreement), the content highly depends on the type of co-operation but will likely outline how the business partners will work together on their mutual goal/project, including purpose and scope, roles and responsibilities (and financial responsibilities), restrictive covenants and permitted use of assets, as well as termination and dispute resolution.

Incorporated Entities

The management board of a BV is responsible for the day-to-day management and policy-making of a BV and – in doing so – the members of the management board (referred to as the directors) have a statutory duty to act in accordance with the corporate interests of the BV, taking into account the interests of all stakeholders (such as shareholders, employees, and creditors). In joint ventures, when determining the joint venture’s corporate interest, particular emphasis is given to the continuing co-operation between the joint venture partners.

In the event that a director of a BV has a conflict of interest, that director may not take part in the deliberation and decision-making process of the management board of the BV. Reference is made to 7.3 Conflicts of Interest.

Unincorporated Entities

For partnerships, the general partner(s) will be responsible for the management of the partnership. Dutch law is less descriptive on the governance of partnerships. Important to note is that, in limited partnerships (CVs), the limited partners should refrain from taking part in the management of the partnership to avoid risking unlimited liability.

In collaboration agreements, the concept of a so-called steering committee is often introduced. This consists of representatives of the joint venture partners and is responsible for managing the joint venture (within the boundaries set out in the agreement).

The funding arrangements very much depend on the activities of the joint venture and the preference of the partners. Often it is a mix of debt and equity. It is not customary to include unlimited future funding commitments in the joint venture agreement; however, pre-agreed, capped funding commitments linked to the business plan or certain milestones are not uncommon. Often the joint venture agreement also contains provisions on emergency funding that can be called upon (eg, by the board) and that may result in ownership changes in an incorporated entity.

In a regular, pro-rata funding, the joint venture partners generally opt to either provide shareholder/member loans or contribute equity on their shares or capital account. In these instances, the ownership structure is not affected by the additional funding. To prevent ownership changes, the exclusion of pre-emptive rights and – in BVs – depending on the shareholder percentages, the issuance of new shares can often be blocked by the shareholders. In partnerships, changes in the ownership percentages often already require unanimous approval for tax reasons.

Generally, the joint venture agreement contains some form of dispute resolution for deadlock situations. Often this is triggered by either the members of the board or the joint venture partners themselves continuing to disagree on certain pre-identified topics deemed material for the joint venture. The issue is usually first escalated to senior decision-makers within the organisations of the joint venture partners. If these are unable to resolve the issue, the matter is either:

• referred to an expert, mediation, arbitration or the courts; or
• the parties separate ways.

In that case, the agreement will contain arrangements concerning offering the shares to the other shareholder(s) (in the case of BVs), including agreed pricing, or – less often for BVs – provide for the entity’s or partnership’s liquidation. If the agreement provides for a third-party mechanism to resolve the issue (rather than the parties separating ways), the joint venture agreement sometimes identifies certain topics that are to be resolved by experts and others that go straight to arbitration or the courts.

Depending on the business or project to be jointly pursued within the joint venture, some of the following other documents are entered into:

• IP licences – for example, with regard to the background IP to be made available by a joint venture partner;
• investment agreements/subscription agreements for the initial investment to be made by the partners (or, in the case of later accession of a new joint venture partner, accompanied by a notarial deed of issuance in the case of an incorporated entity);
• contribution agreements for the contribution of assets to the joint venture vehicle (accompanied by transfer deeds or other transfer documentation if needed to transfer legal title to the relevant asset);
• shareholder loan agreements; and
• service-level agreements or management services agreements for services to be provided by a joint venture partner to the joint venture vehicle.

Typically, each director has one vote and the number of directors that each joint venture partner may appoint is linked to the percentage of shareholdings they hold. Sometimes the joint venture vehicle has an independent management board or executive board, not consisting of nominees of the joint venture partners. If the board consists of independent (executive) directors only, the joint venture partners often appoint members to the supervisory board (in the case of a two-tier structure) or appoint the non-executive board member (in the case of a one-tier board).

Weighted voting rights of directors are not customary but are seen occasionally. Dutch law allows these, provided that one director cannot hold more votes than the other directors jointly. By way of example, where a board consists of three directors, a single director may have a maximum of two votes. This right will need to be included in the articles of association to have the desired (corporate) effect.

In the Netherlands, the principal duty of directors in a BV is defined in the law as “managing the company”. Managing the company includes, among other things, day-to-day management, making plans for the future, and determining the company’s strategy and outlining its policies. Furthermore, the board is responsible for the keeping the books and records, drawing up the accounts and making all required filings.

In performing its duties, the board of directors is bound to act in the corporate interest of the company. The board’s task is not to serve a particular interest (eg, that of the shareholders) but the interests of all stakeholders and also those of, for example, employees, creditors, consumers, suppliers, and group companies. This is referred to as the stakeholder model (rather than the shareholder model seen in certain other jurisdictions).

The Dutch Supreme Court rendered a decision in the Cancun case, in which it sums up what corporate interest entails – specifically, within a joint venture:

• if a legal entity has an undertaking attached to it, the interest of the legal entity is generally determined primarily by promoting the continuing success of that undertaking;
• in the case of a joint venture company, the interest of the legal entity is further determined by the nature and substance of the co-operation agreed between the shareholders;
• the nature and substance of the co-operation in a joint venture company may imply that (also) the interest of the legal entity is served by the continuation of the existing relations between the shareholders;
• directors, in discharging their duties, must act with due care in relation to the interests of all those involved in the company and its affiliated enterprise – this duty of care may entail that directors, in serving the interests of the company, must ensure that the interests of those involved are not disproportionately prejudiced as a result; and
• the duty of directors of a joint venture company to exercise due care towards the shareholders may entail a special duty of care in relation to the position of a shareholder whose interest has been diluted or is (further) likely to be diluted.

In the event a director has a competing duty to the joint venture participant that installed them, an agency problem may arise. Based on Dutch law and case law, which also includes the aforementioned Supreme Court case, the director cannot let the interest of the joint venture participant prevail.

Pursuant to the Dutch Civil Code, a director of a BV does not partake in the deliberation and decision-making when they have a direct or indirect personal interest that is contradictory to the interest of the joint venture company. A qualitative conflict of interest in itself (eg, the fact that the director is an employee of – or otherwise related to – one of the shareholders) is not sufficient for a conflict of interest to exist under Dutch law; rather, the director must not have a personal conflict of interest. Having said that, pursuant to Dutch case law, a director with a purely qualitative conflict of interest may in certain circumstances be expected/required to refrain from taking part in the decision-taking, as taking part therein would be seen as conflicting with the requirement to act reasonably and fairly towards the others involved in the company.

If – as a result of the conflict – no board decision can be taken, the decision will be taken by the supervisory board. In the event there is no supervisory board, the decision will be taken by the shareholders (unless the articles of association determine otherwise).

Generally in a joint venture, if there are two 50% shareholders, both participants want equal influence in the joint venture company. To accomplish this, both parties will want equal representation in the board. This is permitted and not deemed inappropriate. There are different ways to ensure that the equal representation continues to exist despite one of the directors being conflicted – for example, by agreeing that certain resolutions always require the vote in favour of one nominee director of each of the joint venture partners.

On the other hand, there are situations in which one of the joint venture partners should explicitly be excluded from the decision-taking process. An obvious example is the situation where the joint venture partner has entered into an agreement (eg, service agreement) with the joint venture company but is in default under such agreement. In those instances, the joint venture company should be able to act against the joint venture partner and not be blocked by the board member nominated by the defaulting partner. Generally, the joint venture agreement contains an arrangement to allow the non-defaulting joint venture partner (or its nominee on the board) to resolve upon the issue unilaterally.

The key IP issue to be considered in a joint venture is the ownership of the IP, including the registration thereof as well as how to deal with the IP upon a potential exit or bankruptcy.

In the case of a joint venture corporate entity, the entity is the owner of the IP developed by the joint venture. As such, background IP of the joint venture partners will remain with the joint venture partners and will be licensed to the joint venture company. IP developed by the joint venture will be owned by the joint venture company. If a partnership is established under Dutch law, the IP is – in principle – owned by one or more general partners on behalf of the partnership.

If, however, no entity is incorporated and no partnership established but there is a contractual collaboration only, the assets of the joint venture are owned by the joint venture partners either individually or jointly. IP developed by the joint venture may be co-owned by the joint venture partners.

In dealings with third parties, it is typically easier to have a joint venture corporate entity granting licences or entering into non-disclosure agreements and non-competes, etc. For unincorporated joint ventures, the joint venture partners should also carefully assess the risk of sharing non-IP protectable know-how/trade secrets with the joint venture partner before and after setting up the joint venture. Non-disclosure agreements provide some protection, but cannot always be relied on in practice.

From an IP administration perspective, it is also generally easier to register a joint venture corporate entity as the registered owner of patents, designs, trade marks and domain names instead of multiple owners if the IP is jointly owned. For unincorporated joint ventures, registration is usually done by a single joint venture partner that holds legal title and thus is registered in the registers, but for the benefit of the joint venture.

As per the foregoing, it depends on the type of joint venture. Background IP of the joint venture partners, if relevant, will be licensed to the joint venture corporate entity; however, if there is no joint venture corporate entity, the joint venture partners will need to consider how to deal with the foreground and background IP, who should own the IP, and who requires any licenses.

During the past few years, ESG factors have emerged as a critical component of corporate strategy and risk management. With an ever-increasing legislative landscape around ESG and Corporate Social Responsibility (CSR), it is pivotal that businesses consider the importance of implementing measures and policies regarding ESG – and joint ventures are no exception. Shared responsibilities, complex structures, and the potential for significant impact necessitate a comprehensive approach to ESG.

When establishing a joint venture, incorporating ESG considerations is relevant not only for compliance and ethical reasons but also for ensuring sustainable value creation, risk mitigation, and competitive advantage. Often at least one of the joint venture partners has internal principles in place on the topic of ESG that it needs to impose on the joint venture entity as a matter of internal policy.

Specifically, the following key points deserve attention.

• Reputation, brand value, and access to capital – ambitious ESG goals and proper integration of ESG principles can enhance the joint venture’s reputation, attracting investors, customers, and partners who prioritise sustainability and ethical practices. ESG compliance often leads to increased market confidence and a favourable brand image.
• Risk management and regulatory compliance – with the regulatory environment increasingly focusing on ESG, joint ventures must ensure compliance to avoid legal penalties and operational risks. ESG practices help manage environmental and social risks, reducing the likelihood of litigation, fines, and reputational damage. Also, ESG considerations help identify and mitigate ESG risks that can impact a joint venture’s operations and financial performance.
• Operational efficiency, cost savings, and innovation – ESG initiatives such as energy efficiency and waste reduction may lead to cost savings and improve reputation. Moreover, social initiatives that promote employee welfare and community engagement can improve productivity and reduce employee turnover.

Recent Significant Court Decisions

Although the case is not about joint ventures specifically, a Dutch court in a 2021 landmark case ordered Shell to significantly reduce its carbon emissions, holding the company accountable for its contribution to climate change. This ruling underscores the growing importance of ESG considerations. Not only does it highlight the potential legal risks for companies with inadequate climate strategies, but it also emphasises the impact of ESG performance on reputation and brand value. Currently, an appeal to the court ruling (initiated by Shell) is pending.

Implementation of ESG Measures

Action to be considered by the joint venture participants and joint venture entity may include:

• due diligence – conduct ESG due diligence to identify potential risks and opportunities, ensuring that all partners share a commitment to ESG principles;
• ESG policy and framework – develop and implement a clear ESG policy and governance framework, including specific goals, performance metrics, and regular reporting mechanisms;
• board oversight – ensure that the joint venture’s governance structure includes ESG oversight at the board level, with dedicated committees or roles to monitor and guide ESG strategy; and
• stakeholder engagement – engage with stakeholders, including employees, communities, and investors, to understand their ESG expectations and integrate their feedback into the joint venture’s operations.

A joint venture agreement can serve as an effective tool for codifying mutual commitments to ESG principles.

Main ESG Regulations in the Netherlands

As a member state of the EU, the Netherlands is subject to a comprehensive ESG regulatory framework. This framework necessitates proactive ESG risk management and transparent sustainability reporting. The main ESG regulations in the Netherlands can be summarised as follows.

• The Dutch Civil Code (having implemented EU legislation) requires so-called public interest entities (eg, listed companies, banks, insurers and other entities that have been qualified as such) to include certain ESG-related non-financial performance indicators in their annual report.
• The EU Corporate Sustainability Reporting Directive (CSRD), which was due to be implemented by 6 July 2024 (but this deadline has not been met and implementation is still due), imposes ESG reporting obligations on “large companies” (ie, companies with a turnover in excess of EUR50 million, a balance sheet total in excess of EUR25 million, and 250 or more employees on average per year). The CSRD will be implemented in the folllowing phases: 
1. the above-mentioned public interest entities that are already required to report certain non-financial information pursuant to the Dutch Civil Code will have to comply with the CSRD as of FY2024;
2. large, non-listed companies (meeting the above-mentioned criteria) must comply with the CSRD as of FY2025;
3. mid-market listed companies must comply with the CSRD as of FY2026 onwards; and
4. non-EU companies that realised a (consolidated) annual turnover of EUR150 million or more must comply with the CSRD as of FY2028.
• The EU Corporate Sustainability Due Diligence Directive (CSDDD), which has to be implemented by 26 July 2026, introduces ESG due diligence requirements to enhance corporate accountability and transparency throughout the value chain. The implementation of the CSDDD will also be phased, as follows:
1. companies with more than 5,000 employees and a turnover in excess of EUR1.5 billion must comply with the CSDDD as of 26 July 2027;
2. companies with more than 3,000 employees and a turnover in excess of EUR900 million must comply with the CSDDD as of 26 July 2028; and
3. companies with more than 1,000 employees and a turnover in excess of EUR450 million must comply with the CSDDD as of 26 July 2029.

The CSDDD also applies to companies that entered into franchise or licence agreements in the EU, receive royalties in excess of EUR22.5 million per year and have a worldwide turnover in excess of EUR80 million.

The shareholders agreement relating to a joint venture corporate entity generally contains a termination provision pursuant to which the shareholders agreement terminates if there is only one shareholder remaining. In principle, the term of a shareholders’ agreement  is indefinite (the participants would not want to be holding shares in the entity without the shareholders’ agreement in place). Upon the exit of one participant, with the accession of a new participant, the rights and obligations pursuant to the shareholders’ agreement and other agreements such as shareholder loans will – in principle – transfer along.

It depends on the purpose of the joint venture whether parties have an exit strategy focused on value creation (ie, the joint venture is set up with the aim of some point selling the shares for an interesting price, thus creating a gain for the original joint venture parties) or focused on termination of the partnership (ie, the joint venture is set up to collaborate between the partners without the intent to create a stand-alone business). In the latter case, parties may decide to – after a fixed period or once the collaboration is no longer needed – simply dissolve the joint venture entity and return any assets to the joint venture partners. In those situations, deadlocks will also often result in a liquidation rather than a transfer of shares.

There are no legal restrictions on contributing assets or cash to a joint venture entity – although tax and accounting advice should always be sought.

There are restrictions under Dutch law preventing shareholders of a BV from making distributions from capital, whether in cash or in kind (ie, whether to return cash contributions or assets or distribute any cash or assets generated by the BV), as follows.

• If a BV has any mandatory legal reserves (ie, that it is required to maintain pursuant to the law or its articles of association), it may only make distributions to the extent the amount of its equity capital exceeds the amount of the mandatory reserves. If a BV does not have mandatory legal reserves, it is free to distribute from its capital even if this would lead to a negative capital – provided that any distribution is only permitted if, following such distribution, the BV will be able to continue to pay its due debts following the distribution.
• When a resolution for a distribution is adopted, the distribution is subsequently only permitted if the management board has approved the distribution. The management board may only withhold its approval if it knows or reasonably foresees that the BV cannot pay debts that are due and payable following the distribution.

Joint venture partners may choose to fund the joint venture company by way of shareholder or member loans to allow value to be realised by way of interest payments on the loan and to make cash extraction easier.

If the joint venture is set-up as a partnership, the assets originally contributed may still be legally owned by the joint venture partner (either because only the right to use the assets was formally contributed or because the partner operates as the general partner, holding title on behalf of the partnership). This should be considered when setting-up the partnership to prevent issues upon a partner stepping out of the partnership or upon the termination of the partnership in full.