Joint Ventures 2025 Comparisons

While it would be inaccurate to claim that inflation, interest rate fluctuations, geopolitical tensions like the war in Ukraine, ongoing Middle Eastern conflicts, resurgence of US political unpredictability, or shifting market demands have not impacted Luxembourg-based joint ventures, the jurisdiction remains appealing for JV structuring. This is largely due to its political and economic stability, as well as its reliable, business-friendly, and flexible legal framework.

In recent years, family offices have increasingly invested alongside commercial partners or institutional investors, such as private equity firms, through joint ventures. These JVs are frequently used to acquire assets located outside Luxembourg, with the involved parties often situated internationally. Luxembourg serves as a compromise, a “safe haven”, for incorporating the holding structure that will ultimately own assets across the EU or even globally.

The trend in these segments clearly leans towards controlling and sharing both financial and corporate risks while ensuring the distribution of profits to co-investors. In uncertain times, JVs have proved to be a strategic option for parties to pool resources and expertise, leveraging their combined strengths, funds, and shared risks to pursue specific projects or opportunities.

In Luxembourg, several sectors have seen heightened JV activity, notably financial services, renewable energy, real estate, healthcare and life sciences, logistics and supply chain, as well as technology and fintech. Luxembourg is a leading financial and tech hub for innovation in financial technology. The country’s strategic support for the space technology sector has also attracted numerous private space companies and tech firms.

This increase in JV activity can be attributed to the factors described in 1.1 Geopolitical and Economic Factors, particularly the stable but very flexible legal environment of the Grand-Duchy of Luxembourg.

JVs are not legally defined under Luxembourg laws. A JV is an arrangement between at least two parties reflecting their willingness to share a venture, for either joint commercial or joint investment purposes, by gathering their resources and sharing the risks implied by the project.

While JVs in Luxembourg are not required to take any prescribed legal form, they are generally structured in two ways. The first is the corporate JV – which in most cases involves the incorporation of a separate JV vehicle by the participants (should an operational company not already have been incorporated by one participant in the JV). The second is the contractual JV, which is based on a single contractual arrangement whereby the participants define the scope of their collaboration and their respective rights and obligations.

Contractual JVs are recommended for short-term collaborations focused on a specific project. Under this structure, the participants remain liable for the JV liabilities, but do not have to bear the costs associated with the incorporation and day-to-day management of a common JV vehicle. Although not all aspects of Luxembourg law applicable to agreements can be detailed here, it is worth mentioning that contractual JVs are not subject to compulsory formalities. The joint venture agreement is structured as a private contract executed by the parties thereto. There is no requirement to have it enacted by a notary, to adopt any specific form, and there are no stamp or registration duties. The agreement may be written in English without requiring translation into any of Luxembourg’s national languages.

As to the content of the agreement, the principle of freedom of contract largely applies, provided that the terms do not conflict with public policy rules. For any Luxembourg law-governed agreement, an overriding duty of good faith always applies not only to the performance of the provisions of the agreement itself, but also to pre-contractual discussions and any enforcement of the agreement that may be required.

While a corporate JV involves some additional costs and complexity, for instance in compliance and governance, it offers limited liability to participants, an established governance structure, and capital-raising capabilities to support future business growth.

A successful JV requires a high level of collaboration and co-operation, which may explain the dominance of corporate JVs in Luxembourg.

The forms of JV vehicles most commonly adopted for corporate JVs in Luxembourg are:

• private limited liability company (société à responsabilité limitée – SARL);
• public limited liability company (société anonyme – SA);
• simplified joint stock company (société par actions simplifiée – SAS);
• partnership limited by shares (société en commandite par actions – SCA); and
• limited or special limited partnership (société en commandite simple – SCS, or société en commandite spéciale – SCSp).

For the SCA, SCS and SCSp, the JV participants are limited partners with limited liability and the general partner has unlimited liability.

In Luxembourg, the choice of the most appropriate legal form for the JV vehicle depends on several factors, notably the possibility of the structure to provide for tailored decision-making  arrangements within the JV, management preferences, capital requirements, profit and loss sharing, transfers of shares, and accounting and tax considerations.

If the JV is not established to conduct a regulated activity or to issue securities to the public, then the SARL is typically the preferred vehicle as it offers greater flexibility and is not subject to extensive statutory requirements. As per the law on commercial companies of 10 August 1915, as amended (LCC), the SARL has a share capital of at least EUR12,000, is managed by a single manager or a board of managers, and cannot make public offers of shares or debt securities. Furthermore, the transfer of shares in an SARL to non-shareholders requires the approval of the existing shareholders holding at least 75% of the issued share capital by way of a formal shareholder resolution – though the articles of associations can provide for a lower threshold, provided it is not less than 50%. Given the importance attributed to the individual identity of the shareholders, it is not permissible to adopt such resolutions of approval at the inception of the joint venture without knowing the identity of the proposed future transferees. The JV agreement could, however, include a provision whereby all shareholders at the time of execution of the JV agreement commit to vote in favour of such a resolution. Voting arrangements are, subject to certain conditions, valid under Luxembourg laws. It should also be noted that the identities of the shareholders of an SARL must be mandatorily disclosed in the Trade and Companies Register (Registre de Commerce et des Sociétés – RCS).

While often overlooked in practice, the SAS, introduced in Luxembourg in 2016, presents a compelling alternative to the SARL. It provides a high level of confidentiality to shareholders, with their identities and shareholdings remaining undisclosed in the RCS. Moreover, except for mandatory or public order provisions, it permits extensive customisation, particularly concerning management structures, voting features (such as shares with multiple voting rights), and profit and loss sharing through the issuance of preference or ratchet shares.

The SCA, SCS and SCSp legal structures are typically favoured for investment-focused JVs (involving silent investment partners) where some participants prefer not to be as deeply involved in the management decisions as they would be in a different legal structure and, as such, prefer a limited partner position.

From a regulatory perspective, when a JV is established for investment purposes, it must be confirmed that the JV vehicle does not qualify as an alternative investment fund subject to the EU Alternative Investment Fund Managers Directive (AIFMD). If the JV vehicle has characteristics that place it within the scope of alternative investment funds as defined in the AIFMD, the regulatory requirements applicable to the investment vehicle and its manager will be significantly different from those applicable to an unregulated JV vehicle.

In Luxembourg, the main set of rules applicable to the JV vehicle are derived from Luxembourg civil law and the LCC. However, depending on the nature of the JV and the sectors in which it operates ‒ especially if the JV vehicle qualifies as an investment fund ‒ public authorities will need to be involved, such as the Luxembourg Financial Supervisory Authority (Commission de Surveillance du Secteur Financier – CSSF) or the Luxembourg Insurance Commission (Commissariat aux Assurances).

If a JV is structured as an alternative investment fund (AIF) in Luxembourg, it falls into the regulatory framework established by the Alternative Investment Fund Managers (AIFM) Law and the AIFMD. This requires, inter alia, seeking authorisation from and registration with the CSSF, and adhering to, inter alia, investment restrictions and transparency requirements.

According to the Law of 2 September 2011, which regulates access to various professions, any economic activity carried out on a regular basis, subject to a few exceptions, requires a prior business permit from the Ministry of Economy. This permit must be held by a natural person on behalf of the relevant company. The individual must satisfy the following conditions:

• professional integrity;
• the necessary professional qualification relevant to the planned activity:
• establishment in Luxembourg ‒ the business permit is only granted if there is a physical presence in Luxembourg that includes infrastructure suitable for the nature and scale of the concerned activity;
• effective and permanent management of the business by the business permit holder, who must:
1. be physically present in the establishment at all times to ensure effective day-to-day management of the business; and
2. be effectively connected to the business (as an owner or legal representative of the business); and
• compliance with tax and business obligations ‒ the permit holder must not have evaded business and tax obligations (including withholding tax) in their previous or current business activities, whether these activities were carried out in their own name or through a company run by said permit holder.

The key AML legislation applicable in Luxembourg is the Law of 12 November 2004 on the fight against money laundering and terrorist financing (the “AML Law”), as last amended on 29 July 2022.

The AML Law implements the Fourth AML Directive (EU 2015/849) as amended by the Fifth AML Directive (EU 2018/843), and establishes the obligation for entities and individuals listed in Article 2 of the AML Law to:

• implement customer due diligence measures (know your customer – KYC);
• ensure an adequate internal organisation with respect to fighting money laundering and terrorist financing; and
• maintain transactional records as well as report any suspicious transactions or activities to the Luxembourg Financial Intelligence Unit (FIU) (Cellule de Renseignement Financier).

A further EU AML package, partly applicable from early 2025, was adopted on 19 June 2024 by the European Parliament. This package includes the introduction of the Sixth AML Directive, a proposed AML regulation introducing stricter due diligence requirements, enhancing beneficial ownership transparency and strengthening the monitoring of transactions. It also provides for the establishment of a new European AML authority, the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA). AMLA, which is a decentralised EU agency, will progressively co-ordinate national authorities to ensure the correct and consistent application of EU AML rules. It is expected to start direct supervision on 1 January 2028.

In Luxembourg, restrictions on co-operation with JV partners arise from both EU regulations and national legislation. At the EU level, as a member state, Luxembourg is subject to the EU sanctions regulations. At the national level, the Law of 14 July 2023 on Foreign Direct Investment (the “FDI Law”), implementing Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019, establishes a national screening mechanism with respect to foreign direct investments that could impact national security or public order. With some exceptions, the FDI Law requires that direct investments made by foreign investors, ie, natural persons or legal entities residing outside the EEA, seeking to gain control over a Luxembourg entity, be reviewed by the Ministry of the Economy if they involve critical sectors within Luxembourg, such as energy, transport, water, health, communications, data processing and storage, aerospace, defence, finance, media and business, as well as the trade of dual-use goods or which could affect national security. The FDI Law entered into force on 1 September 2023.

Beyond sanctions and national security considerations, there are additional regulatory and legal frameworks that may impose restrictions on JVs, including sector-specific regulations, competition law and other compliance requirements.

JVs in Luxembourg are currently not subject to a national ex ante merger control regime. Hence, to date, the antitrust regulation applicable to the setting up of JVs, if the latter qualify as a concentration, is the EU Merger Regulation on the control of concentrations between undertakings (Regulation (EC) No 139/2004) (the “EU Merger Regulation”). The EU Merger Regulation provides for an obligation to notify the European Commission should the thresholds set therein be met by the JV.

At the national level, should the JVs fall outside the scope of the EU Merger Regulation, no mandatory obligation to notify the Luxembourg national competition authority (NCA) currently exists. As per applicable Luxembourg laws, the NCA can only perform an ex post intervention with the aim of ensuring the proper functioning of the EU internal market.

Luxembourg is in the process of reshaping its competition framework, with the proposed enactment of Draft Bill No 8296, which would establish a national ex ante merger control regime. This would require JVs to be notified to the NCA before being created if they could potentially affect competition in Luxembourg. The NCA review will be triggered if the parties involved in the concentration have a combined total turnover generated in Luxembourg of more than EUR60 million and at least two of the parties involved in the concentration have individual turnovers generated in Luxembourg that exceed EUR15 million. The NCA would have the authority to examine a concentration that falls below the above-mentioned thresholds if it considers that such concentration could affect competition in the Luxembourg market. This new regime will undoubtedly impact the timeline for implementing a JV in Luxembourg, adding another layer of regulatory scrutiny alongside any notifications required under the FDI Law.

The mere fact that a listed company (ie, whose securities are admitted to trading on a European regulated market), multilateral trading facility (MTF) or organised trading facility (OTF), participates in a JV in Luxembourg, will not lead to the applicability of specific rules in Luxembourg beyond those set out in the EU capital market directives and regulations applicable to listed companies in general.

Since the entry into force of the Law of 13 January 2019 establishing the Beneficial Owner Register, as amended, (the “RBE Law”), all legal entities registered with the RCS are required to disclose and submit information about their ultimate beneficial owner(s) (UBO(s)) to the Register of Beneficial Owners (Registre des bénéficiaires effectifs – RBE). Such information must be updated within one month of any change. To date, the RBE is only accessible by “professionals” as defined in Article 2 of the AML Law for the purposes of fulfilling their AML/KYC obligations, and by entities registered with the RCS with respect to their own information.

Under Luxembourg laws, a UBO is any natural person (more rarely a group of natural persons, as described below) who, ultimately, directly, or indirectly, owns or controls a legal entity (including by means of bearer shares), by a percentage of more than 25% of the shares, voting rights or an interest in the capital, or by other means. If, after all possible means, no UBO can be identified (and there are no grounds for suspicion), the natural person holding the position of principal executive officer of a legal entity is considered the UBO.

In less common cases, a group of natural persons may also be collectively deemed UBOs of an entity if they together control at least 25% of this entity, such control being considered as “by other means”. A control “by other means” exists when (i) members of a same family holding together more than 25% of the voting rights of an entity act in concert at general meetings, or (ii) if shareholders holding equal voting percentages enter into a shareholders’ agreement whereby they act in concert at general meetings.

Apart from the entry into force of the FDI Law and the ex ante merger control regime proposed by Draft Bill No 8296, there have been no significant court decisions or legal developments in the past three years relating to JVs or business collaborations.

Setting up a JV entails a multi-phase process for the participants. The negotiating phase of a JV typically involves:

• the completion of a due diligence questionnaire focusing not only on the JV itself, its rationale or commercial goals, but also on the JV participants;
• the execution of a mutual non-disclosure agreement (NDA);
• the execution of a head of terms document, which is crucial as it sets forth the main commercial and legal terms the participants have agreed upon during the negotiation; and
• in most cases, the execution of an exclusivity agreement prohibiting the parties from entering into negotiation with others for a restricted period of time.

At a pre-JV agreement stage, the following provisions are typically contemplated and settled in the terms sheet:

• the purpose and scope of the JV;
• the financial contributions of each participant and further funding opportunities;
• the decision-making structure;
• the management structure;
• the transferability of shares and any restriction rights in relation thereto;
• profit-sharing arrangements;
• contemplated dispute resolution mechanisms;
• exit mechanisms; and
• termination of the JV.

Information about the JV will be disclosed between the participants to the JV when the heads of terms are signed. For regulatory requirements regarding disclosure of the JV, please refer to 3.3 Sanctions, National Security and Foreign Investment Controls and 3.4 Competition Law and Antitrust.

Conditions precedent provided for in JV agreements are often linked to:

• regulatory approvals (eg, FDI approval);
• achievement of specific milestones or KPIs by a party to the JV agreement; or
• securing funding and achievement of prior transactions (eg, carve-out of certain assets or activities).

Article 1181 of the Luxembourg Civil Code defines a condition precedent as “a future and uncertain event on which the creation of a right depends”. Attention needs to be paid to the drafting of any condition precedent. If the fulfilment of a condition precedent depends solely on the will of one of the parties to the JV agreement, then the underlying obligation is deemed void by law (condition potestative).

Failure to fulfil the condition precedent renders the agreement ineffective, while fulfilment of the condition precedent triggers its effectiveness. Under Luxembourg Civil Law this effectiveness is retroactive to the date on which the commitment was made, although this retroactive effect may be waived by the parties.

Depending on the type of JV (investment focused or operational JV) material adverse change and force majeure events may also be included as conditions precedent to the entry into force of JV agreements, although they are less common in the negotiation JV agreements.

Material adverse clauses are not specifically regulated and may be freely defined by the parties to the JV agreement. With respect to force majeure, Article 1148 of the Luxembourg Civil Code provides that “No damages shall be due when, as the result of superior force [force majeure] or accident, the debtor has been prevented from delivering or doing what he has bound himself to deliver or to do, or has done what was prohibited”.

The parties to a JV agreement remain free, however, to agree on alternative rules applying to force majeure events and to contractually determine how the force majeure clause shall apply (ie, the parties may narrow down the effect of force majeure effects to specific events or may even completely waive the application of force majeure events).

In the absence of a specific definition of a force majeure event, both legal doctrine and case law establish that three cumulative conditions must be satisfied for an event to be considered as force majeure:

• the event must be external to the debtor;
• it must have been unforeseeable at the time the agreement was executed; and
• it must be insurmountable (irrésistible), meaning that it makes the performance of the contractual obligation impossible, rather than merely more difficult or burdensome.

Setting up a JV under Luxembourg law requires careful planning, and several steps must be complied with, as set out below.

• Drafting the JV agreement: this crucial document will comprehensively outline the rights and obligations of the parties to the JV.
• Drafting the articles of association (or limited partnership agreement) of the JV vehicle: as these documents are publicly available (except for the limited partnership agreements which are only partially published), some parties prefer not to mirror all the provisions of the JV agreement in the articles of association. This is typically negotiated on a case-by-case basis.
• Incorporation of the JV vehicle under the chosen form: generally, the incorporation of a company must be enacted before a Luxembourg notary, except for SCS and SCSp structures, which can also be incorporated under private seal.
• Registration of the newly incorporated JV vehicle: the RCS articles, or an extract of the limited partnership agreement in the case of SCS and SCSp, will be publicly accessible.
• Complying with any regulatory requirements: depending on the nature of the JV’s activities, it may be necessary to comply with specific regulatory requirements. These could include merger control regulations, FDI rules, or obtaining relevant business permits, as applicable.

Regardless of the form of the JV vehicle, the terms the parties agreed upon for the JV will be set out in detail in the JV agreement. In Luxembourg, JV participants can agree that the JV agreement will not be subject to Luxembourg law if the provisions of the chosen foreign law do not contravene public order provisions under Luxembourg law. As is often the case, parties to a JV may be based in different jurisdictions and will prefer to apply a law that is more familiar to them.

The main terms that a JV agreement would be expected to address include:

• scope of the JV, roles and responsibilities of each party;
• share capital modification and related anti-dilution aspects;
• funding obligations of the participants;
• management structure;
• reserved matters;
• deadlocks and dispute resolution mechanism(s);
• restrictions on share transfers, restriction to ensure the maintenance of the share capital and the withdrawal of certain of its shareholders under certain circumstances (drag-along/ tag-along clauses);
• term of the JV;
• termination possibilities;
• plans for future change;
• exit provisions;
• put and/or call options;
• allocation of profits;
• distribution of assets;
• intellectual property rights; and
• confidentiality and non-disclosure obligations.

Structuring the decision-making process within a JV is undeniably one of the most critical aspects to be discussed and carefully considered during its establishment. While the LCC provides a default framework, certain contractual mechanisms can play a vital role in shaping and refining the decision-making process within the JV, ensuring it aligns with the specific needs and objectives of the parties involved.

The following clauses can be inserted in the JV agreement or in its articles (where necessary):

• clauses relating to the allocation of the directors’ mandates – such clauses will enable the JV partners to have a certain degree of representation at the management level by ensuring that the former have one or more of their representatives on the board of directors or managers of the JV vehicle;
• clauses allowing different categories of board members to be created – eg, class A and B, with different powers to act on behalf of the JV vehicle;
• a clause allowing the adjustment of the quorum and majority rules in decision-making bodies, enabling stricter rules in this respect than the ones provided for by the LCC (except for public order provisions);
• observer appointment clauses – in some cases, the JV partners will prefer to have an observer appointed instead of a director with voting prerogatives (an observer may receive all the documentation related to a particular meeting of the board and will be able to attend any board meetings); and
• specific consent clauses – in a classic JV vehicle, decisions by the board on strategic matters can require the approval of all, a majority, or a super-majority of the partners of the JV (the so-called reserved matters).

The funding of JV vehicles generally involves a blend of equity and debt, depending on the financial resources of the JV participants. The latter will make contributions in cash or in kind directly to the JV share capital or grant shareholders loans to the JV vehicle.

The JV agreement can provide for a future funding obligation to support the JV vehicle, notably with respect to capital requirements, working capital, ongoing operations, or financing of a project. Adjustment clauses addressing default by one partner can help resolve situations where such funding obligations cannot be satisfied by a partner.

Equity funding can lead to a change in the ownership of the JV vehicle and could effectively trigger a dilutive effect on the shareholding of existing participants. Several mechanisms, such as preferential subscription rights, anti-dilution clauses, issuance of instruments such as warrants and options do exist under Luxembourg law to ensure that a JV partner’s shareholding is not diluted. Another equity funding option is a contribution to the capital Account 115 of the JV vehicle without issuing new shares. This approach is widely used and allows for quicker (and generally more cost-efficient) capital injections.

As mentioned in 6.1 Drafting and Structure of the Agreement, one of the most essential issues to be addressed in a JV agreement is the resolution of a deadlock situation.

Provisions relating to confiscation or compulsory purchase of shares are generally valid, as long as they do not deprive shareholders of their shares without payment or deprive them of the right to request the dissolution by court of the JV for cause.

Furthermore, several contractual mechanisms can be contemplated to prevent a deadlock, which can be set forth either in the JV agreement or its articles or in both:

• escalation clauses to senior representatives of the involved parties;
• mediation and negotiation clauses;
• dispute resolution mechanisms (international arbitration or expert determination); and
• exit strategies – put and call options in favour of the dissenting partner, exclusions mechanics provided for in the articles of the JV vehicle.

The set-up of a JV usually further requires the execution of additional documents, each having a specific role to play with respect to the success of the JV, notably:

• NDAs;
• IP licences covering the use of the IP rights held by one of the partners to the JV by the latter;
• agreements to transfer assets to the JV vehicle as the case may be;
• asset management and service agreements;
• business plan; and
• policies (eg, KYC, conflicts of interests).

Depending on the corporate form of the JV vehicle, the general rule for profit sharing between the JV partners is that any profit distributed to the JV partners shall be allocated pro rata to their participation in the JV agreement. The same rules apply for loss sharing.

However, Luxembourg law allows tailored shareholding and thus tailored profit and loss sharing mechanics (eg, by multiple classes of shares with different economic rights granted to each class). In terms of distributions, this specific shareholding makes it possible to grant preferential rights. These preferential rights may be structured as a distribution waterfall or on a case-by-case basis, for example, by reference to specific internal rates of return (IRRs) achieved.

Nevertheless, Article 1855 of the Luxembourg Civil Code sets a limit to the parties’ freedom as it provides that “an agreement giving one of the partners all the profits is null and void” (clause léonine). This prohibition applies to any JV agreement as well as to the articles of association/partnership agreement of a JV vehicle (this legal provision only invalidates the allocation of all profits to a party but does not prevent a significantly disproportionate allocation). Identically to profit sharing, contractual provisions may also provide for specific allocation of losses, though again within the limits of the above legal provision.

The access to information by the JV partners depends on the form the JV takes, which may provide for the communication of broad information regarding the JV and its business to almost no communication. As a matter of fact, if the JV is implemented under the form of a sole JV agreement, then the terms and conditions of said JV agreement will usually specify the information rights of the JV parties. If the JV partners establish a JV entity in the form of a Luxembourg company, then the JV partners, as stakeholders of the entity, shall (for most Luxembourg corporate forms) have access by law at least once a year to a management report prepared by the management body of the JV vehicle and the annual financial statements of the JV entity.

Finally, when it comes to non-compete, without particular contractual commitment, there is no general rule for non-compete obligations under Luxembourg law between JV partners.

There are many ways for minority JV partners to shape control rights to protect their interest, the most common being:

• to ensure access to information through the right to appoint a member to the corporate bodies of the JV vehicle;
• to transfer restriction clauses (such as lock-up clauses, right of approval in the case of a transfer, right of first offer in the case of transfers);
• anti-dilution rights; and
• veto rights on important matters requiring the prior approval of a minority party.

All these rights are usually provided for in the JV agreement and mirrored in the articles/partnership agreement of the JV vehicle (mainly to ensure enforceability towards third parties).

When selecting the substantial and procedural law governing a JV agreement in an international context, several critical factors must be taken into account to ensure the agreement is robust, enforceable, and conducive to the objectives of the JV, among others:

• jurisdictional compatibility ‒ ensuring that the chosen law is recognised and enforceable in all relevant countries involved;
• neutrality ‒ selecting a neutral, internationally respected jurisdiction to avoid bias; and
• contractual flexibility ‒ choosing a law that allows tailored agreements and effective dispute resolution (arbitration/litigation).

Albeit a small country, the Grand Duchy of Luxembourg is extensively focusing on international JVs and is attractive to foreign investors because of its stable and predictable legal system. However, JV agreements may also be subject to foreign law and jurisdiction.

When parties to a JV fail to agree on the applicable procedural law, there may be confusion about which country’s procedural rules will apply. This can lead to disputes over jurisdiction (forum shopping), the admissibility of evidence, and the conduct of proceedings, causing significant delays in resolving conflicts.

In Luxembourg, there is no general statutory obligation for parties to attempt alternative dispute resolution (ADR) such as mediation or arbitration before initiating court proceedings in civil or commercial matters. Parties are generally free to bring their disputes directly before the courts unless they have contractually agreed to an ADR process (such as a mediation or arbitration clause).

The recognition of a foreign judgment in Luxembourg may require an exequatur procedure in accordance with Article 678 of the Luxembourg New Civil Procedure Code. However, Luxembourg, being an EU member state, it also applies the EU regulations in this domain, such as:

• Regulation (EC) No 593/2008 of 17 June 2008 on the law applicable to contractual obligations (Rome I) to which Luxembourg is a party; and
• Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels Regulation).

Furthermore, Luxembourg is party to several international treaties concerning the choice of forum and the recognition of foreign judgments, such as:

• the Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters, signed in Lugano on 30 October 2007 (Lugano Convention); and
• the Hague Convention of 30 June 2005 on Choice of Court Agreements (Hague Convention).

Please refer to 6.2 Governance and Decision-Making for an overview of governance organisation and notably, the possibility of the shareholders of the JV vehicle being represented at the board by proposing candidates to be appointed as board members of the JV vehicle.

With respect to weighted voting rights, even though the current Luxembourg legal landscape tends to recognise them as a means to ensure board control, they are not commonly used in Luxembourg. The Luxembourg doctrine strongly upholds the principle of “one vote per person”.

The management body of a JV vehicle is often either the board of managers for an SARL, the board of directors for a one-tier SA, the management board for a two-tier SA, or the president for an SAS (and any director as the case may be). This management body has the broadest powers to take any actions necessary or useful to realise the corporate object of the JV vehicle, except those expressly reserved by the LCC or the articles of association for the shareholders of the JV vehicles.

The members of the management body of the JV vehicle, which can also be legal entities, must:

• act with loyalty and in good faith for the benefit and in the corporate interests of the JV vehicle, exercising their duties with as much diligence and care as a reasonable person acting in the same circumstances;
• represent the JV vehicle in dealings with third parties;
• avoid any conflicts of interests; and
• exercise their mandate in compliance with, inter alia, the LCC and the articles of association of the JV vehicle.

It is possible to include an explicit non-compete obligation of any member of the management body. Should this member be a natural person employed by the JV vehicle, this obligation will need to be compensated financially and be limited in duration and geographic scope in order not to be considered void under applicable laws.

In terms of delegation of functions, the management body of the JV is authorised to delegate certain functions to committees or subcommittees, depending on the legal form chosen for the JV vehicle. When committees or subcommittees are created, it is recommended that each of them adopts a policy, rules of procedure or common charter relating to their functioning and scope of intervention.

The management body can also delegate the day-to-day management of the JV vehicle and the power to represent it in dealings with third parties to one or more persons who are not necessarily members of the management body. These individuals are referred to as day-to-day managers (délégué à la gestion journalière). Nonetheless, the liability for these delegated functions remains with the management body of the JV vehicle, which supervises the actions of those in charge of such delegated functions.

Pursuant to the LCC, a member of the management body of the JV vehicle having, directly or indirectly, an interest of a financial nature conflicting with those of the JV vehicle, in relation to an operation within the competence of such management body, must disclose such conflict of interest to the other members of the management body and must not participate in the deliberation of or vote on the conflicted matter. Any conflict of interest must be recorded in the minutes or resolutions of the management body’s meeting and a special report in this respect will need to be made to the shareholders of the JV vehicle at the next general meeting of shareholders before any resolution is put to the vote.

As contemplated under 6.2 Governance and Decision-Making, it is common that a director/manager of a JV participant is appointed as a director/manager of the JV vehicle, as long as they perform their duties in the best interests of the JV vehicle and not in the best interests of the JV participant. According to case law, the mere fact that an individual holds an executive role at a JV participant does not, in itself, establish a conflicting financial interest with the JV vehicle.

Key IP Issues

From an IP perspective, when setting up a JV corporate entity, three main IP issues need to be considered.

Corporate entity

Firstly, the ownership of pre-existing IP that each party brings into the JV should be defined, as well as the terms on which the JV will be allowed to use this IP. Secondly, it is important to determine who will own the IP developed during the course of the JV and who will have the rights to use, license, and commercialise the new IP both during the life of the JV and after its termination. Thirdly, clear terms for the protection of confidential information and trade secrets exchanged between the JV partners are to be established. Finally, the conditions under which the JV can license its IP to third parties, including revenue-sharing arrangements and control over licensing decisions, are to be defined, as well as IP valuation methods, especially in order to assess how IP valuation impacts equity shares in the JV.

Contractual collaboration

When engaging in contractual collaborations, several key IP issues should be carefully considered to ensure that the rights, obligations, and expectations of all parties are clear and protected. In particular, ownership of pre-existing and newly created IP during the collaboration is to be clearly defined, just as questions of revenue sharing and royalties are to be answered. Liability issues, if the collaboration results in the infringement of third-party IP rights, are to be addressed, along with what happens to the IP after the collaboration ends, including rights to continued use, licensing, and the return or destruction of confidential materials.

JV agreement

IP issues are usually comprehensively addressed in JV agreements. They cover questions regarding the ownership of pre-existing IP and which usage rights are licensed to the JV and to the other party, the ownership of newly created IP and how to commercialise and exploit it, and what happens to the IP if the collaboration ends.

Moreover, in complex JVs, dispute mechanisms should be included to handle any conflicts over IP ownership, usage, or infringement. Strict NDAs ensure that all IP and proprietary information exchanged remains confidential, helping to build and foster trust within the JV.

When deciding whether to license or assign IP rights, it is important to conduct a thorough evaluation of the IP owner’s long-term objectives, financial requirements, and strategic interests.

Licensing IP rights is ideal when the IP owner wants to retain control over the IP, continue benefiting from the IP, and is interested in long-term revenue streams. Assigning IP rights should be considered when the IP owner seeks immediate capital or wants to transfer the responsibility of managing and exploiting the IP to another party. The assignor, however, loses all control and future revenue potential from the IP.

ESG Regulations and Developments Affecting JVs

Even if a JV is not classified as a fund, ESG factors still warrant careful attention. Depending on the business activity of the JV and its shareholders, the structure may be subject to varying levels of ESG obligations and commitments, and the JV contract will, at a minimum, stipulate certain obligations in this respect (mostly to comply with the internal policies of certain shareholders).

ESG issues may also have a greater or lesser impact on customer/supplier relations, on internal governance procedures and risk management (including sustainability risks), depending on the JV’s field of activity and where this business is operated. In fact, ESG-focused evaluation criteria are increasingly being used in management incentive packages, further emphasising their growing importance. In summary, JV partners are strongly advised to adopt a comprehensive risk-based approach when establishing and operating a new JV. This entails ensuring appropriate ESG compliance and implementing a robust compliance management system that encompasses the JV, its employees, and shareholders.

If the JV vehicle qualifies as a fund, ESG topics are a must. Indeed, since the entry into force of Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial sector (SFDR), the number of ESG and impact funds has been rising. Luxembourg currently stands as the number-one green financial centre in the EU. As a result of pressure from both investors and legislators, it appears certain that sustainable finance products will become a major trend in the investment funds industry in general.

Revision of the EU Disclosure Regulation

Last September, the EU Commission launched a consultation on the review of the SFDR, which ended on 22 December 2023. Some extensive changes could be made to the previous version, which has been in force since March 2021. For example, the disclosure obligations at company level in the SFDR could be removed and replaced by the obligations of Directive (EU) 2022/2464 on sustainability reporting by companies (CSRD), which has not been transposed in Luxembourg yet. Additionally, the current categorisation of financial products into Article 6, 8, or 9 products may be abandoned. Shortcomings in this classification have become apparent in the past, for example from the Article 8-Plus classification created by the market for MiFID marketing. The European Commission is now considering introducing sustainability disclosure standards for all financial products. It is also considering switching to a more differentiated classification system for sustainable products.

ESMA Guidelines on ESG Terms in Fund Names

On 14 May 2024, the European Securities and Markets Authority (ESMA) published its final report on the use of ESG or sustainability-related terms in fund names. Accordingly, the use of ESG or sustainability-related terms in fund names is subject to certain conditions. Fund names incorporating ESG or sustainability-related terms are permissible only if at least 80% of the fund’s investments consider ESG criteria or pursue sustainability objectives. In addition, it is assumed that the exclusion criteria of the Paris-Aligned Benchmarks (PAB) are taken into account and that a significant proportion is invested in sustainable investments within the meaning of Article 2(17) of the SFDR in order to reflect the expectations of investors based on the fund name. The Guidelines also address, for the first time, the use of transition-related terms and the combination of different terms.

Funds that are subject to supervision by the CSSF, regardless of whether they qualify as an Article 6, 8 or 9 product, must use fund denominations that are consistent with the respective investment objective and investment policy of the fund and with the ESMA Guidelines. The CSSF also expects that future developments on this topic will be implemented at the European level.

EU Taxonomy Regulation

Since 1 January 2023, non-financial companies have had to provide evidence of the rate of conformity of their business activities with the environmental objectives of the Taxonomy Regulation as part of their reporting. However, this only applies to the environmental objectives of climate protection and adaptation to climate change. From 1 January 2024, the reporting obligation also applies to financial companies when it comes to these two environmental objectives. With regard to the other environmental objectives, however, non-financial companies fall under the reporting requirement as of 1 January 2025 and financial companies as of 1 January 2026. The implementation of the EU Taxonomy is to be facilitated by a communication on the legal interpretation and implementation of the technical screening criteria.

The Main ESG Regulations in Luxembourg

The ESG regulatory framework in Luxembourg is dominated by directly applicable as well as transposed European legislation. The main references in Luxembourg are the SFDR, the SFDR Regulatory Technical Standards (SFDR RTS) and Regulation (EU) 2020/852 (the “Taxonomy Regulation”). This is in addition to specific guidelines provided by the CSSF.

The CSSF’s current priorities with regard to ESG are essentially focused on:

• the integration of sustainability risks by investment fund managers (AIFMs, management companies and external portfolio managers);
• compliance with existing ESG-related requirements; and
• the consistency of pre-contractual information in offering documents and on websites or as marketing material.

Regarding the consideration of sustainability risks, the CSSF emphasises that the delegation of portfolio management functions has no influence on the investment fund manager's obligations to disclose the consideration of sustainability risks. This includes the obligation to implement an adequate risk management framework.

The CSSF will increasingly focus on verifying compliance, in particular with the ongoing disclosure obligations under Article 11 of the SFDR in connection with Articles 50 and 58 of the SFDR RTS.

Particular attention is also paid to the increased control of the consistency of ESG-related disclosures made in pre-contractual documents (in particular offering documents with SFDR RTS annexes), websites and marketing materials.

On 19 November 2024, the Council of the European Union formally adopted the new ESG Ratings Regulation, following a proposal from the European Commission on 13 June 2023 and an agreement with the European Parliament at first reading. This Regulation marks a significant step in the European Union’s efforts to regulate ESG rating activities, addressing long-standing concerns over inconsistencies, lack of transparency, and fragmented practices across member states. This Regulation reflects the EU’s continuing commitment to fostering sustainable finance markets, in pursuit of the EU’s Green Deal objectives. It will be published in the EU’s Official Journal and will enter into force 20 days after publication, with its provisions becoming applicable 18 months later, on 2 July 2026.

Gender Parity on the Boards of Listed Companies

The transposition into Luxembourg law of the European Directive (EU) 2022/2381, known as the “Women on Board” directive should have taken place before 28 December 2024. However, the transposition is slightly behind schedule as Project 8519 of the parliament is still under commission. There is no precise date for the law to be voted on and the Directive transposed but Luxembourg politicians are confident that it will proceed.

JV arrangements can come to an end in several ways, which should be outlined in the JV agreement. The most common include:

• a deadlock situation that has not been resolved;
• at the expiry of a determined period, unless agreed otherwise between the participants to the JV;
• upon termination of the object of the JV – some JVs are only set up for the completion of a specific purpose and once completed, the JV may be terminated;
• by mutual decision of the participants to the JV;
• by any participant to the JV on contractual grounds thoroughly defined in the JV agreement – eg, breaches of certain provisions of the JV agreement, insolvency of a participant, change of control, violation of an IP licence agreement, failure to meet a funding obligation following an unsuccessful cure period; or
• poor performance of the JV.

A JV vehicle can also be dissolved by the Luxembourg courts in accordance with the LCC.

Contemplating the consequences of the termination of the JV is crucial. The main matters that should be dealt with in this respect concern:

• settlement of liabilities;
• allocation of assets;
• employment issues;
• IP issues;
• survival clauses from the JV agreements; and
• de-registration from the RCS if the JV is a registered entity.

The JV agreement can also stipulate that the termination of the JV does not trigger the termination of the JV vehicle. As a separate legal entity, transfer of shares or liquidation of the JV vehicle should also be contemplated.

When contemplating the transfer of the assets owned by the JV to the JV participants, whether they were originally contributed to the JV vehicle by the JV participants or generated directly by the JV, the following main issues should be addressed.

• Assets valuation: the valuation of the assets to be transferred is generally determined in accordance with the calculation method set out in the JV agreement.
• Contractual restrictions over the assets: depending on the nature of the assets, it must be ensured that the asset to be transferred is free from any encumbrances or third-party rights that could prevent the transfer (eg, mortgages, pledges over shares, limitation to the transferability of IP rights).
• Nature of the assets: fulfilment of legal registration requirements may be triggered by the transfer of certain assets (eg, IP rights, real estate).

• Corporate interest: the management body of the JV vehicle must ensure that the transfer of assets contemplated is in the best interests of the JV, either from a corporate perspective or from a business perspective, when assessing the impact of such transfer on the modus operandi of the JV. The decision to transfer assets of the JV to its participants can require the prior approval of an ad hoc committee or the shareholders of the JV vehicle.

The transfer of assets from the JV to its participants is a scenario that is worth contemplating in advance and including directly in the JV agreement.

There are no specific Luxembourg corporate law provisions regulating share transfers, except that the shares of an SARL may be transferred inter vivos to non-shareholders only with the favourable vote of shareholders representing at least 75% of the share capital (which can be decreased to 50%).

The exit strategy can be freely determined by the JV agreement and typically includes exit through a sale to a third party or a winding-up (or any similar corporate transactions, such as mergers).

A mechanism frequently applied is exit via the redemption of entire classes of shares at a value determined in the JV agreement (and mirrored in the Articles).