Joint Ventures 2024 Comparisons

Global inflation, exacerbated by geopolitical tensions, may have affected the cost of raw materials and imported products, thus influencing business in Senegal. Fluctuations in interest rates and the political uncertainty that Senegal has faced recently may also have an impact on the establishment and financing of joint ventures.

The war in Ukraine is hurting supply chains and – in addition to raw-materials prices – energy prices, which may impact the operating costs and profit margins of companies in Senegal. This could encourage companies to look for partners to share risk.

On the economic front, Senegal is experiencing sustained economic growth, thanks, in particular, to infrastructure projects and the discovery of natural resources, which could stimulate interest in joint ventures, particularly in the energy and infrastructure sectors.

The Senegalese government’s initiatives to encourage foreign investment and public-private partnerships could also influence the type and activity rate of joint ventures.

Joint ventures (JVs) have been set up in strategic and fast-growing sectors of the Senegalese economy. With the discovery of oil and gas off the coast of Senegal, this sector has seen an increase in its core business and logistics activities.

In terms of infrastructure, the development of projects such as roads, ports and railways has stimulated investment. Government initiatives to modernise infrastructure are attracting foreign investors.

On the digital front, the rapid growth in demand for digital services has encouraged the development of digital infrastructures and innovative services.

In Senegal, joint ventures can generally take two main forms: incorporated joint ventures and contractual joint ventures.

Incorporated Joint Venture

This involves the creation of a new legal entity, often in the form of a company. The partners contribute capital and share management, profits and risks in proportion to their shareholding.

The most common types of company are the société à responsabilité limitée (SARL), the société anonyme (SA) and the société par actions simplifiée (SAS).

Contractual Joint Venture (Unincorporated)

Unlike the corporate form of joint venture, this form does not require the creation of a new entity. The partners sign an agreement defining the rights and obligations of each party.

The contractual joint venture is often used for specific or short-term projects, where flexibility and simplicity are essential.

Each type of JV has its advantages and disadvantages, and the choice will depend on the strategic objectives of the partners, the duration of the project and tax and legal considerations.

The main advantage of contractual joint ventures is that the partners can retain their legal, accounting and tax independence without sharing the risks. By working together in a contractual joint venture, each partner retains its own legal personality. In contrast, the associative joint venture is designed as an enhanced joint venture, in which the partners create a joint company and pool resources and risks. In return, management is shared.

In terms of ease of doing business, in practice, it is easier to form or start a contractual joint venture. This is due, in particular, to: (i) the absence of registration requirements and associated costs; and (ii) greater flexibility, as contractual JVs are not subject to the mandatory provisions of company law.

The disadvantage of the absence of registration is that the conclusion of contracts with third parties generally requires a guarantee from one or more members of the joint venture.

At the same time, registering a joint venture provides legal certainty with regard to the structure and regulation of the venture. The disadvantage is that there will be some difficulties in setting it up (creation, administrative obligations, etc).

In terms of the way a company is managed, the advantage of a contractual joint venture is that this cannot be disclosed to third parties and is not subject to filing and publication obligations. The disadvantage is that the distribution of profits will be more difficult. In practice, day-to-day management appears easier when everything is incorporated. Administrative and reporting obligations, among other things, are a disadvantage, however.

The main factor in the choice between a contractual JV and a shareholder JV is whether or not the partners wish to remain independent. Partners who do wish to remain independent, especially from the point of view of accounting, taxation and decision-making, will be more inclined to use a contractual JV, particularly when they are joining forces with a local partner with whom they are not very familiar.

It should be noted that, in the jurisdiction of Senegal, there is no regulatory authority for joint ventures.

In Senegal, several key regulatory bodies oversee JVs depending on the sector and activities involved. The following is a non-exhaustive list.

• Agence de Régulation de la Commande Public (ARCOP), formerly Agence de Régulation des Marchés Publics (ARMP) – regulates public procurement, ensuring transparency and competition. Joint ventures involved in public procurement must comply with ARMP guidelines.
• Direction Générale des Impôts et des Domaines (DGID) – oversees taxation and land registration, requiring joint ventures to register for tax and comply with corporate income tax regulations.
• Ministère de l'Economie, du Plan et de la Coopération – oversees investments, particularly those involving foreign capital or large-scale projects, under the Investment Code.
• Autorité de Régulation des Télécommunications et des Postes (ARTP) – regulates the granting of licences and the allocation of frequencies for joint ventures in the telecommunications sector.
• Commission Nationale de la Concurrence (CNC) – oversees the application of competition law and ensures that joint ventures do not engage in anti-competitive practices.
• Ministre de l’Energie, du Pétrole et des Mines – regulates the extractive industries under the relevant code, requiring local content and respect for the environment.

In Senegal, Law 2024-08 of 14 February 2024 to combat money laundering and terrorist financing is the main regulation. The law introduces strict obligations, including enhanced KYC (Know Your Customer) procedures, requiring entities identify their customers and record suspicious transactions. Severe penalties are imposed for non-compliance, involving substantial fines and criminal liability.

There are restrictions, particularly where the joint venture involves a company established in a country that has been sanctioned. Sanctions may include restrictions on the free movement of people or goods, which would have an impact on foreign or local JVs. ECOWAS or the United Nations, for example, may impose sanctions on the member states of their organisation, which has an impact on individual joint ventures.

At local level, restrictions are sector-specific. In Senegal, strategic sectors, such as security, energy and mining, are heavily controlled. Indeed, some applicable laws set restrictions on foreign shareholding, and impose local content requirements that would involve government inspections.

There are various WAEMU texts on antitrust, all of which are general in scope and apply according to the activity covered by the joint venture:

• Regulation No 3/2002/CM/UEMOA/ of 23 May 2002 relating to procedures applicable to cartels and abuses of dominant position within the West African Economic and Monetary Union;
• Regulation No 4/2002/CM/UEMOA of 23 May 2002 relating to State aid in the West African Economic and Monetary Union and the modalities of application of article 88 (c) of the Treaty;
• Directive No 1/2002/CM/UEMOA of 23 May 2002 relating to the transparency of financial relations between Member States and public companies and between Member States and international organisations; and
• Directive No 2/2002/CM/WAEMU of 23 May 2002 on cooperation between the Commission and the national competition authorities of the Member States for the application of Articles 88, 89 and 90 of the WAEMU Treaty.

Certain aspects of the regulations will be applied through merger control, and authorisations will be required for subsequent stages by Senegal’s National Competition Commission.

There are also the texts of the Economic Community of West African States (ECOWAS):

• the Revised ECOWAS Treaty of 24 July 1993;
• Supplementary Act A/SA.1/12/08 of 19 December 2008 adopting the Community competition rules and their application within ECOWAS (“ECOWAS Supplementary Act No 1”); and
• the additional Act A/SA.2/12/08 of 19 December 2008 on the establishment, powers and operation of the ECOWAS Regional Competition Authority (“ECOWAS Additional Act 2”).

Finally, Law 94-63 of 22 August 1994 on prices, competition and economic litigation exists in Senegalese domestic law.

There are no specific rules in Senegal regarding listed participants in JVs.

However, listed parties must generally comply with transparency obligations and disclosure and accountability requirements as mandated by the UEMOA Financial Markets Authority (AMF-UEMOA).

The Anti-Money Laundering Regulations Act 2024 requires full disclosure of Ultimate Beneficial Owners (UBOs). This Act follows on from Act 2021-29 of 5 July 2021 on the Amending Finance Act, which extended the obligation to declare beneficial owners, initially provided for only in the extractive sector, to all sectors.

There have been no major developments with the exception of Law No 2024-08 of 14 February 2024, which reinforces the fight against money laundering and the financing of terrorism. This law imposes stricter KYC, reporting, and beneficial ownership disclosure obligations, directly impacting JV operations across all sectors.

A good practice for any joint venture (whether contractual or associative) is to start with a preliminary verification of the partner and the project. A list of documents to be provided could be sent to the partner to ensure that it has the power and authority (legal and financial) to join the partnership.

There is no list governing the pre-contractual negotiation phase, but various documents may be recommended to establish and organise the collaboration, as follows.

• A letter of intent can be used to express the parties’ willingness to continue negotiations with a view to setting up a joint venture. This can set out the main terms and conditions envisaged for the JV.
• A non-disclosure agreement (NDA) may be crucial to protect confidential information exchanged between the parties during negotiations.
• A Memorandum of Understanding (MoU) could be used to define the main terms and conditions of the future JV, such as shareholding structure, contributions of the parties, governance, etc.

It is also essential to define the ownership and governance structure of the joint venture, including voting rights, board appointment rights, etc.

The contributions of each party to the JV must also be determined, and the conditions under which the parties may leave, including mechanisms for share buy-back, liquidation, etc, must be provided for, in particular by means of a shareholders’ agreement.

It is necessary to distinguish between corporate and contractual JVs:

• For a corporate JV, in Senegal, the creation of the venture follows the same process and requirements as the incorporation of the type of company chosen by the parties. For example, the company’s Articles of Association must be notarised, along with all the documentation required to form the company (minutes appointing the corporate bodies), before the formalities for filing with the Trade Register can be carried out. Publication in a legal gazette is also required.
• For a contractual JV, there do not appear to be any specific disclosure requirements, except in certain regulated sectors where JV agreements have to be filed with the local authorities, particularly at the time of invitations to tender.

Finally, it is important to note that certain regulatory requirements may apply depending on the sector of activity and the laws in force, for regulated activities in particular.

To set up a joint venture in Senegal, it is essential to know the other party well. The stronger and more trusting the relationship, the more likely it is that a partnership JV will be used.

However, if knowledge of the partner is limited, it is prudent to focus on a joint venture agreement to minimise the shared risks.

In Senegal, particularly in extractive industries such as mining, and oil and gas, the contractual form of joint venture is the most commonly adopted, and often works effectively. These JVs do not have their own legal personality and are not subject to registration with the Trade Registry, unlike corporate entities.

To document the terms of a joint venture, it is important to recall that a joint venture can take the form of a separate company or a contractual partnership.

In the case of an incorporated joint venture, the Articles of Association are fundamental. They define the legal structure, the capital, the rights and obligations of the shareholders, and the operating rules of the company. Then there is the shareholders’ agreement, an essential and recommended document governing relation between the shareholders. This agreement can generally cover the distribution of profits, the management of the company, procedures for resolving disputes, and the terms and conditions for transferring shares.

For a contractual joint venture, the JV agreement is the key document. It sets out the objectives of the partnership, the responsibilities of each party, the distribution of income and losses, and the arrangements for managing the joint project. Unlike the corporate structure, this type of joint venture does not create a separate legal entity.

In both cases, the objective and scope of the joint venture should be clearly defined, as should the contributions of each party, whether financial, technical or other.

The sharing of profits and losses is another important aspect, as are the duration of the partnership and the conditions for early termination. Confidentiality and intellectual property protection clauses are essential to protect sensitive information.

Finally, in the event of conflict, methods of resolution, applicable legislation and the competent jurisdiction in the event of litigation must be established.

It would be essential to define explicitly the arrangements by which decisions would be taken upstream, by establishing clear rules concerning the quorum and the necessary majorities. For example, it could be stipulated that a decision can only be adopted if a specific quorum is reached, and that at least one of the partners must vote in favour of that decision.

It would also be advisable to categorise the types of decision, classifying them according to their importance and specifying the conditions required for each. This would ensure that all stakeholders understand the process and expectations.

It should be noted, however, that any arrangements that might be put in place by the parties will have to comply with Article 2 of the 2014 Uniform Act on Commercial Companies, which provides that the Articles of Association and shareholders’ agreements may not contradict any rule of public policy of the said Uniform Act.

In the case of a contractual JV, there will be no joint company, so the collaboration agreement will have to specify the procedures for making decisions and setting up and operating management committees.

JVs are typically funded through a mix of equity, debt, or hybrid instruments, depending on the project and industry. Key options include the following.

• Equity contributions – partners provide initial capital, with ownership shares reflecting their contributions. Future equity injections are often pre-agreed to prevent dilution.
• Debt financing – JVs may obtain loans from local or international banks, or through shareholder loans that offer tax benefits. Larger projects might issue bonds.
• Hybrid instruments – convertible debt and mezzanine financing provide flexibility, allowing debt to convert into equity if conditions are met.

JVs often include provisions for future capital calls. Partners may agree to mandatory contributions or risk dilution. Anti-dilution clauses and pre-emptive rights protect existing shareholders from significant ownership changes.

Ownership adjustments due to new funding are managed through anti-dilution provisions, pre-emptive rights, and transparent shareholder agreements. This ensures fair treatment of all partners and minimises conflicts.

Senegalese law, under OHADA and tax regulations, governs the structuring of JV funding. Debt is preferred for its tax advantages, but excessive leverage could trigger thin capitalisation rules. Compliance with sector-specific regulations, particularly in extractives and finance, is critical.

The shareholders’ agreement is a crucial strategic tool for preventing and resolving deadlocks, ensuring effective governance and safeguarding the interests of all parties involved. This key instrument contains a number of clauses designed to anticipate and manage potential conflicts.

One of the clauses frequently included gives priority to a partner in the event of a tie in voting. This provision enables a decision to be reached quickly, and prevents a deadlock in the decision-making process. In the event of persistent disagreement, recourse to a neutral third party, often a mediator or arbitrator, may be considered to help break the tie. This external approach guarantees an impartial perspective, and can facilitate the search for a mutually acceptable solution.

Finally, when tensions are too great and the previous solutions fail, the shareholders’ agreement may include an exit mechanism. This mechanism sets out the ways in which a partner can withdraw from the joint venture, ensuring an orderly separation and minimising disruption to the rest of the company.

There are no documents specifically required by law. However, it is prudent to establish certain key documents to ensure clarity and protection of the interests of each partner involved.

Firstly, although not compulsory, intellectual property licences are strongly recommended where intangible assets, such as technology or trademarks, are shared. Secondly, asset transfer agreements may play an essential role when assets, whether tangible or intangible, are to be transferred to the joint venture. In particular, they specify the terms and conditions of the transfer, ensuring a clear transition and appropriate valuation of the assets concerned.

Finally, NDAs are also recommended to protect confidential information exchanged between the partners.

For a JV corporate entity, the structuring of the board of directors between the participants is generally defined in the shareholders’ agreement. As stated above, the parties must strictly comply with the AUSCGIE. 

With regard to the question of weighted voting rights, it should be noted that the prevailing principle is that of equal voting rights per director on the Board of Directors. This means that one director is equivalent to one vote when decisions are taken. However, depending on the distribution of capital among the participants, it is possible to negotiate the appointment of a larger number of directors to represent the interests of the shareholders.

Directors must maintain the confidentiality of all information to which they have access, whether at Board meetings or in any other context related to their role. It should be remembered that the powers vested in the Board by Article 435 of the AUSCGIE must be exercised in a collegial manner, implying collective and concerted decision-making, with no possibility for a director to act individually on behalf of the Board.

The legal obligations may be reinforced contractually as part of the agreement or a separate deed with the director.

As for the possibility of the Board of Directors delegating its functions to sub-committees, Article 437 of the AUSCGIE allows the Board to create committees made up of specific directors, defining their composition, powers and responsibilities. These committees act under the supervision and responsibility of the Board, allowing for an efficient division of tasks and specialist appraisal in certain key areas of the management of the company.

The management of conflicts of interest within a joint venture is generally based on the shareholders’ agreement, which usually includes confidentiality and exclusivity clauses to prevent personal interests from interfering with those of the company.

In the event of a breach of duty or a proven conflict of interest, the company that appointed the director is obliged to remove those involved from office and appoint a suitable replacement to ensure the integrity of the decisions taken by the Board.

It is essential to clearly determine the ownership of the intellectual property rights that each party brings to it. This includes both existing rights and intellectual property rights that will be developed during the life of the JV. The licence conditions for the use of these rights must also be established, specifying the scope (exclusive or non-exclusive), the duration and any royalties. The management of intellectual property must be well defined, particularly with regard to responsibilities for the legal protection of rights, such as the filing of patents or the registration of trademarks, and the way in which costs will be shared. Finally, it is important to put in place confidentiality measures to protect sensitive information exchanged between partners and mechanisms for resolving disputes relating to intellectual property rights.

In contractual collaborations, it is essential to clarify the ownership of the IP initially provided by each party, as well as the new IP created as a result of the collaboration. The terms of the licence must be precise, detailing the rights of use, any restrictions, the duration of the licence and the financial terms, such as royalties. It is important to define responsibilities for the protection of intellectual property, including the filing, maintenance and enforcement of intellectual property rights. Agreements should also include confidentiality clauses to protect sensitive information exchanged between the parties. Finally, it is necessary to provide for how intellectual property rights will be managed in the event of termination of the agreement or departure of one of the parties. Trademark licences must be recorded in a special register kept by OAPI.

In a joint venture agreement, the clauses relating to intellectual property must be detailed to avoid any ambiguity. These include, in particular, provisions relating to the ownership of existing IP and IP developed within the framework of the joint venture. Licensing terms should be clearly defined, including scope, duration and financial terms, such as royalties or upfront payments. Responsibilities for the protection and enforcement of intellectual property rights must be specifically allocated, with clauses on the management of associated costs. The agreement must also include mechanisms for resolving disputes relating to intellectual property rights, such as mediation or arbitration, as well as provisions relating to the management of intellectual property rights in the event of termination of the joint venture, particularly with regard to transfers or the continuation of licences.

The decision to license or assign rights depends on the objectives and strategies of the parties involved. Licensing allows the rights holder to retain control while permitting another party to use the rights under defined conditions. This model offers the possibility of generating ongoing revenue while sharing the risks associated with exploiting the IP. However, it can lead to more complex management and less direct control over the use of the rights. On the other hand, assignment of rights involves a complete transfer of ownership, allowing a one-off lump sum payment and preventing ongoing management of the rights. This can free up resources for other projects, but results in the loss of all control and the end of future revenue generation. The potential future value of the IP may also not benefit the transferor. A thorough assessment of short- and long-term objectives, monetisation strategies and management preferences would help determine the most appropriate approach.

ESG factors are essential because they help identify and manage risks that are not visible in a traditional financial analysis, such as environmental risks linked to climate change, social problems linked to labour practices, and governance issues. Proactive management of these risks can avoid financial losses and legal problems.

Good ESG performance can also strengthen a company’s reputation and enhance its brand, gaining the trust of consumers and investors. Conversely, poor performance can damage reputation and lead to loss of market share. Regulatory compliance is also an important issue. Companies that adopt ESG practices are better prepared to comply with current and future regulations, reducing the risk of sanctions and legal problems.

In addition, ESG practices can improve operational efficiency and generate cost savings by optimising operations and reducing waste. They contribute to long-term sustainability by creating value while ensuring that operations are responsible and sustainable.

Also, companies with strong ESG practices are more likely to attract and retain talent, especially from younger generations who value sustainability and ethical values.

There have been no recent court rulings in Senegal on ESG issues, as they are still relatively new to the country. Environmental, social and governance concerns have not yet been fully integrated into the practices of both companies and local populations. In Senegal, the culture of fighting climate change and defending environmental rights is still developing.

Both the JV participants and the JV entity should implement ESG-related measures. Participants should integrate ESG practices aligned with the JV objectives and include specific ESG clauses in the JV agreement. The JV entity must develop appropriate ESG policies, set up reporting systems, ensure regulatory compliance, assess ESG risks and engage stakeholders. These actions help to ensure sustainability and responsibility in the JV’s operations.

The main texts relating to ESG issues in Senegal are as follows:

• the Environmental Code, which establishes the legislative basis for environmental protection;
• Law No 2012-09 of 17 January 2012, which reinforces provisions on waste management and the protection of natural resources;
• Law No 2013-10 of 28 March 2013 on the Extractive Industries Transparency Initiative (EITI), aimed at promoting transparency in the exploitation of natural resources;
• Law No 2014-03 of 12 February 2014, encouraging corporate social responsibility (CSR); and
• Law No 2019-03 of 12 February 2019 on the protection and promotion of the rights of people with disabilities.

It is necessary to distinguish between contractual and associative JVs.

In the case of a contractual JV, the conditions for termination are generally determined by the specific provisions set out in the JV contract. This is thus different from the case of an associative JV, subject to the usual methods of winding companies up under OHADA law.

In the case of a contractual JV, the JV will cease to exist according to the terms agreed by the parties in the JV contract.

When the question of the termination of a joint venture arises, several aspects may be taken into consideration, in particular the termination procedures provided for in the joint venture agreement, including the conditions of notification, the time limits to be respected and the procedures for settling any disputes.

Finally, financial aspects such as the sharing of assets and liabilities of the joint venture, remaining financial obligations, conditions for the repayment of investments and non-competition clauses should also be considered.

In the case of a contractual joint venture, the division of assets is free and must be set out in the initial contract. This allows for the division of assets according to the contributions of each participant to be clearly defined.

In the case of an associative joint-venture, if the company is liquidated, after paying off creditors, any remaining assets will be distributed among the partners in proportion to the contributions of each in the JV.

However, clauses may be included in the statutes or in a shareholders’ agreement to stipulate in advance that a particular asset will be given priority to a particular partner.

For assets generated by the JV, redistribution must follow the terms defined in the agreement, which may include priorities over certain assets.

In addition, it will be important to ensure that no assets are the subject of a guarantee before any assets are distributed. Another important point to note is that all creditors must first be repaid before any redistributions. The financial obligations of the joint venture must be met first, thus protecting the interests of all the parties.