Over the last 12 months, macro-economic pressures and shifting geopolitical landscapes have forced a distinct operational pivot in how joint ventures (JVs) are structured and deployed, particularly within unique jurisdictions like Puerto Rico (PR). Persistent global inflation and central bank interest rate fluctuations have effectively increased the cost of traditional capital, making debt-heavy domestic ventures less attractive. This reality, combined with compounding geopolitical instability, ranging from the ongoing wars in Ukraine and the Middle East to escalating trade frictions and unpredictable tariff policies, has driven corporate actors to look beyond traditional, heavily regulated Western economies. Instead, there is a visible, surging trend towards establishing cross-border JVs and strategic operations in non-traditional spaces, specifically targeting developing economies, decentralised financial frameworks (such as tokenised digital assets and cryptocurrency ventures), and jurisdictions offering aggressive, legal offshore tax insulation. Companies and high net worth investors are no longer hesitant to venture out; they are actively seeking structured, tax-advantaged safe harbours to protect their margins from domestic fiscal squeeze.

This global search for capital efficiency has turned sophisticated tax planning from a secondary corporate consideration into a primary driver for JV structuring. Beyond looking for simple zero-tax havens, modern investors actively pursue cross-border joint ventures to gain access to comprehensive corporate tax incentives, such as reduced preferential corporate income tax rates, generous research and development tax credits, and exemptions on foreign-sourced dividends or capital gains. Furthermore, the rapid democratisation of cross-border tax planning information, alongside the rise of specialised global compliance networks, has stripped away the historical intimidation of setting up offshore operations. JV participants are now highly equipped with real-time data, enabling them to execute hyper-precise, compliant and multi-layered entity structures that legally maximise local tax decrees while seamlessly shielding global corporate margins from domestic fiscal drag.

The technology and fintech sectors have experienced rapid growth in recent years, particularly in artificial intelligence (AI), which has elevated data analytics and security to critical priorities that must be managed within a fast-paced development environment. Simultaneously, the real estate development sector has seen a notable increase in joint venture activity as both foreign individuals and legal entities flock to Puerto Rico to develop new business areas and infrastructure. These technological shifts are significantly affecting joint venture vehicles by necessitating robust contractual frameworks to address evolving regulations regarding data privacy, storage and cross-border data sharing. As emerging technologies integrate into operations, joint ventures must increasingly incorporate specific provisions addressing AI accountability, intellectual property ownership of algorithmic outputs and strict liability protocols for data usage to remain compliant in an ever-changing regulatory landscape.

While many initial collaborations begin through contractual obligations, often structured as collaboration or cooperation agreements, these are frequently, and subsequently, paired with the formation of a separate legal entity, most commonly a limited liability company (LLC). The LLC has emerged as the preferred vehicle primarily due to the significant degree of “private ordering” permitted under the Puerto Rico General Corporations Act. This legislative framework grants members extensive flexibility to dictate internal management, voting rights and profit participation through a custom Operating Agreement, which stands in stark contrast to the more rigid governance requirements of traditional corporations. Furthermore, because the LLC provides a robust structure for external business dealings while simultaneously offering the benefits of limited liability and highly adaptable tax elections, allowing participants to choose between pass-through or corporate-level taxation, it effectively serves as the most versatile instrument for navigating the complex commercial and regulatory landscape of the island. By leveraging these statutory provisions, legal professionals can create bespoke governance structures that address specific venture needs, while maintaining a clear, protected legal barrier between the joint venture’s operations and the members’ independent business interests.

Selecting a joint venture vehicle requires aligning the operational and financial goals of the partners and/or entities with short, medium and long-term objectives. Key drivers include management control, which is often most flexible under an LLC, and the ability to isolate liabilities through structured risk sharing, and corporate assets. Furthermore, tax treatment is essential to determine corporate strategy and governance, as well as any possible tax incentives or preferential tax treatment, eg, under Act 60-2019.

Joint ventures in Puerto Rico, USA sit under two sets of regulators at once: local agencies, and US federal agencies that have direct jurisdiction because Puerto Rico is US territory.

The main statutory provisions begin with the entity law: a joint venture organised as a company formed under the Puerto Rico General Corporations Act (Act 164-2009), which is modelled on Delaware law; a purely contractual venture rests on the Puerto Rico Civil Code. Tax sits under the Internal Revenue Code of Puerto Rico (Act 1-2011) and, where the structure reaches US-source income or US persons, the federal Internal Revenue Code.

On the local side, the primary regulators are:

• the Department of State (State) Department of Economic Development and Commerce (DDEC), which administers the Incentives Code (Act 60-2019) and the Permits Office;
• the Office of the Commissioner of Financial Institutions (OCIF), which oversees banks, mortgage lenders and money transmitters;
• the Department of the Treasury (Hacienda), which enforces local tax;
• the Office of the Commissioner of Insurance (OCS); and
• the Public Corporation for the Supervision and Insurance of Cooperatives (COSSEC).

The federal layer carries equal weight:

• federal securities laws and the Securities and Exchange Commission apply to capital-raising and investor arrangements;
• the Federal Trade Commission and the Department of Justice enforce the antitrust rules that can reach a joint venture (see 3.4 Competition Law and Antitrust);
• OFAC sanctions and CFIUS national-security review apply as they do nationwide (see 3.3 Sanctions, National Security and Foreign Investment Controls); and
• the federal banking regulators, the Federal Communications Commission and other sector agencies govern regulated industries.

The Internal Revenue Service and federal labour authorities also reach activity on the island. The practical point for counsel is that a Puerto Rico venture answers to Washington as directly as it answers to San Juan.

In Puerto Rico, anti-money laundering (AML) and compliance regulations usually operate under a strict, dual-layered framework combining federal US statutes and local laws. At the federal level, enforcement is driven mainly by the US Department of Justice (DOJ) and the Financial Crimes Enforcement Network (FinCEN) under the foundational authority of the Bank Secrecy Act (BSA) and the USA PATRIOT Act. These mandates require institutions to implement comprehensive protocols and Suspicious Activity Reports (SARs). Additionally, recent federal updates under the Anti-Money Laundering Act of 2020 (AMLA) and the Corporate Transparency Act (CTA) enforce safety and transparency provisions to better enable AML structures.

Locally, this federal framework is reinforced by Puerto Rico’s own regulatory bodies, criminal statutes and civil codes to ensure bulletproof corporate compliance. The Office of the Commissioner of Financial Institutions (OCIF) serves as the primary local watchdog, auditing financial entities and money service businesses to ensure they mirror both local regulations and federal FinCEN standards. On the punitive side, the Puerto Rico Penal Code specifically criminalises money laundering as a severe felony, penalising anyone who knowingly facilitates, transports or conceals illicit assets. Furthermore, the Puerto Rico Civil Code serves as a powerful civil shield; under its provisions regarding illicit cause, any contract or corporate transaction structured with laundered funds is deemed null and void ab initio. The Civil Code also imposes strict tort liability under its extra-contractual damage doctrines, allowing third parties to sue corporations or their directors for damages if a failure in corporate due diligence or compliance oversight allows financial fraud or money laundering to occur.

Two layers of law govern this question, and both apply at once. Puerto Rico sets the local rules on entity formation and licensed activity. US federal law applies on the island in full, because Puerto Rico is US territory, so the analysis cannot stop at local statutes.

Foreign participation is generally permitted. A foreign entity must be authorised to do business in Puerto Rico, and no statute bars foreign ownership of a joint venture as such.

Sanctions are the first federal control. The programmes administered by the US Treasury’s Office of Foreign Assets Control (OFAC) reach a Puerto Rico venture just as they reach one formed in any US state. Before forming a venture or admitting a partner or investor, the parties should screen each counterparty, its owners and its ultimate beneficial owners (UBOs) against OFAC’s Specially Designated Nationals (SDN) List and the applicable country programmes. Under OFAC’s 50% rule, an entity owned 50% or more by one or more blocked persons is itself treated as blocked, so the review must follow the full ownership chain. Exposure follows a counterparty’s status rather than its nationality.

National security review is the second. A venture that gives a foreign person control of, or certain rights in, a US business can be a covered transaction before the Committee on Foreign Investment in the United States (CFIUS), which reviews deals wherever in the United States the business operates. Some filings are mandatory and others voluntary, and CFIUS can impose conditions or recommend that the President block or unwind a transaction.

Specific industries carry added requirements. Joint ventures in Puerto Rico are governed generally by the Civil Code of Puerto Rico and industry relevant local statutes, which dictate the rights and obligations of parties in the absence of specialised acts. Financial services answer to the Office of the Commissioner of Financial Institutions and federal regulators; insurance to the Office of the Commissioner of Insurance; communications to the Federal Communications Commission; and maritime transport to federal cabotage rules under the Jones Act. Parties should confirm sector licensing before they commit.

Antitrust matters in Puerto Rico are governed concurrently by federal laws, such as the Sherman and Clayton Acts, and the local Antitrust Act of Puerto Rico (Law No 77 of 1964). The regulatory landscape is supervised primarily by the Puerto Rico Department of Justice’s Office of Anti-Trust Affairs, which handles issues ranging from monopolisation and price-fixing to merger controls. Additionally, the Department of Consumer Affairs (DACO for its Spanish acronym) holds inherent interest in these practices, particularly concerning consumer protection and unfair competition. Regarding notification and approval requirements, the necessity to seek clearance depends on the specific market and the nature of the transaction. Under the PR Antitrust Act, certain mergers or acquisitions are prohibited if their effect is to substantially reduce competition or create a monopoly. Parties may proactively request an opinion from the Secretary of Justice regarding the legality of a proposed acquisition prior to its consummation, which provides immunity from state action if the opinion is favourable and the parties adhere to the disclosed facts and conditions.

When a publicly traded corporation enters into a JV within this jurisdiction, compliance operates on a combination of federal market transparency, local statutory frameworks and internal corporate gatekeeping. At the federal level, the listed party must satisfy, among other things, Securities and Exchange Commission (SEC) regulations and standard GAAP principles. Locally, if the venture is structured as a new corporate entity or a multi-member LLC, it falls under the Puerto Rico General Corporations Act (Act 164-2009), which governs operational parameters and provides protocols. Furthermore, if the JV entails the contribution, leasing or financing of commercial assets, equipment or accounts receivable, the parties must comply with the Puerto Rico Commercial Transactions Act (Act 208-1995, as amended). This statutory groundwork is bound together by the overarching principles of the Puerto Rico Civil Code, which also enforces the fiduciary duty of the participants to act as “prudent administrators” and invokes direct civil liability for damages if wilful misconduct or gross negligence harms the JV. Finally, the transaction must pass the listed company’s internal institutional gatekeeping. This requires strict adherence to its internal corporate governance rules, ensuring that the JV explicitly meets the specific board voting thresholds and follows rigid internal standard operating procedures (SOPs), which mandate a comprehensive legal audit and a formal compliance committee risk-assessment clearance before an authorised executive can executionally bind the listed entity to the agreement.

As a general rule, a corporation or LLC registered with the Puerto Rico Department of State must file a Beneficial Ownership Information (BOI) report with FinCEN, identifying individuals who own at least 25% of the entity or exercise substantial control over its decisions. Conversely, local Puerto Rico corporate law does not maintain an independent UBO registry, limiting its requirements to tracking standard officers and directors through annual Department of State filings.

In Puerto Rico, there are no recent statutory changes or Supreme Court opinions that alter the fundamental structural definition of a JV, which continues to be governed by traditional corporate and contractual frameworks. However, major legal developments over the past three years have significantly impacted the commercial baseline under which JVs negotiate, operate and structure assignments on the island. Chief among these is the Puerto Rico Supreme Court’s landmark decision in MCG Therapy Group LLC v Maestre Rivera, which evaluated for the first time the validity and third-party efficacy of assigning contracts containing non-compete clauses within independent contractor and professional services relationships. The Court ruled that contract assignments are fully compatible with the local legal system, validating non-compete agreements provided that their temporal, geographical and material restrictions are reasonable, protect the legitimate interests of the contracting party, do not impose disproportionate burdens on the professional and do not harm the public interest, through a case-by-case analysis. Given that many JVs operate contractually or rely heavily on third-party independent contractors to execute operational workflows, this decision outlines exactly how a venture must narrow its non-compete restrictions to safeguard goodwill and prevent partners from unfairly capitalising on assigned corporate structures.

Concurrently, JVs operating in professional and corporate advisory services must adapt to a major regulatory shift approved by the Puerto Rico Supreme Court regarding the local Rules of Professional Conduct. This regulatory amendment dismantles ethical barriers, opening the door for cross-disciplinary corporate joint ventures between legal professionals and alternative commercial entities in Puerto Rico, a structure that was previously prohibited by local ethics rules. Taken together, these judicial developments provide joint ventures in Puerto Rico with much broader latitude to execute strategic corporate assignments and cross-industry partnerships, provided they embed clear metrics of reasonableness and internal regulatory compliance within their operating agreements.

Negotiations typically begin with an informal compatibility check followed by a mutual Non-Disclosure Agreement (NDA) to protect sensitive information. Parties then formalise the deal’s structure and commercial terms using a Letter of Intent (LOI), while utilising a Due Diligence Questionnaire (DDQ) to verify financial and legal standing when deemed necessary. An exclusivity deed may be employed to focus negotiations during this phase, whereas non-compete provisions are generally reserved for the final agreement to protect the venture’s purpose. These pre-agreement stages are critical for defining governance, capital commitments and exit strategies as well to ensure all partners remain aligned.

In Puerto Rico, there is no general statutory requirement to publicly disclose a private, contract-based JV at any stage. However, the timing and obligation to disclose may be triggered if a participant is a publicly traded company subject to SEC rules; if the JV is structured by forming a new legal entity (like a PR LLC or Corporation), the disclosure occurs at closing when the organisation documents are filed with the Puerto Rico Department of State; and/or if the JV crosses specific market concentration thresholds, a notification must be filed with the Office of Monopolistic Affairs of the PR Department of Justice prior to closing. If none of these conditions apply, the JV remains an entirely private contractual matter.

Regarding conditions precedent, the parties typically establish specific milestones that must be met before the transaction closes, such as:

• obtaining necessary regulatory licences;
• ensuring compliance with industry-specific statutory requirements;
• securing initial capital funding; and
• verifying the availability of a specialised workforce or necessary technology.

These conditions are tailored to the joint venture’s specific industry and are essential for ensuring the entity is legally and operationally ready to launch.

Regarding any material adverse change (MAC) and force majeure, these provisions are standard negotiation points addressed during the drafting stage to protect parties against significant, unforeseen disruptions. A MAC clause allows parties to address substantive negative shifts in the other partner’s business or financial status, while force majeure covers uncontrollable events, such as natural disasters or civil disturbances, that could render performance impossible. If these events occur, they can lead to the suspension, renegotiation or termination of the deal, which is why parties must meticulously define the triggers and consequences of these clauses before the final agreement is signed.

Setting up a joint venture in Puerto Rico usually begins with one of two choices: (i) a purely contractual arrangement, or (ii) a dedicated legal entity. Where the parties want a separate vehicle, the limited liability company is the most common option. It is formed by filing a certificate of formation with the Puerto Rico Department of State under the General Corporations Act (Act 164-2009) and is governed by a negotiated operating agreement. Corporations are available under the same statute. A contractual joint venture requires no public filing and takes effect on the terms the parties agree.

Puerto Rico law sets no minimum capital requirement for an LLC or a corporation, although a best practice is to include a nominal capital contribution upon formation. The parties fix capital contributions, their timing and the consequences of a failure to fund in the operating or joint venture agreement.

Foreign participation faces no general ownership restriction. Non-residents may hold up to 100% of a Puerto Rico LLC or corporation and may serve as directors or officers. A foreign entity that transacts business on the island must obtain authorisation to do business from the Department of State and maintain a resident agent there; the registered-agent requirement sits at 14 LPRA Section 3810 for foreign corporations and Section 4023 for foreign limited liability companies. A foreign entity that does business without that authorisation cannot bring suit in the Puerto Rico courts until it qualifies. Sector-specific approvals can apply in regulated industries. US federal sanctions apply in Puerto Rico, so foreign participants should also be screened for OFAC exposure before admission (see 3.3 Sanctions, National Security and Foreign Investment Controls).

A different path applies when the venture targets a government project under the Public-Private Partnerships Act (Act 29-2009, codified at 27 LPRA Section 2601 et seq). The Act lets parties bid as a consortium without first forming a registered Puerto Rico entity, and the consortium is qualified on the combined capabilities of its members (Article 9(d); Authority’s 2017 procurement regulation, Section 5, Qualification of Proponents). At that stage the participants register with the Public-Private Partnerships Authority as prospective proponents; the procurement does not run through the Department of State. Registration with the Department of State is the ordinary step of qualifying a vehicle to do business under the General Corporations Act (Act 164-2009), and it matters only if the consortium is selected and organises an entity to execute and perform the partnership contract. That sequence lets bidders pursue a procurement before they stand up and capitalise a formal entity.

Documenting a JV is fundamentally a business decision that must be codified into a legally sound structure, with the specific form often determined by the industry and the nature of the relationship. While a JV can be structured as a simple contractual agreement between parties, it is also standard practice to create a new, distinct legal entity, typically an LLC, to house the joint enterprise. Regardless of the chosen vehicle, the terms must be commercially acceptable to ensure long-term operational alignment. A comprehensive corporate JV agreement should explicitly cover, among other things:

• the specific or general purpose and objectives of the venture to ensure all parties remain aligned;
• the established duration of the relationship or the entity’s existence, as applicable; and
• the specific roles and responsibilities of each party, clearly delineating who bears accountability for distinct operational functions.

Furthermore, the agreement must include:

• robust exit strategies and buyout provisions to address potential dissolutions; and
• transfer clauses, such as “piggyback” (tag-along) rights, that govern how and when ownership interests may be sold or assigned to third parties, and/or prohibitions for such transfers.

Decision-making within a JV entity is typically structured based on the scale and complexity of the operation, generally utilising a tiered governance framework. For smaller or less complex JVs, decision-making is often streamlined through direct management by members or managers, where voting is conducted based on established percentages or board consensus. In larger-scale operations, day-to-day operational issues and routine administrative tasks are delegated to managers, administrators or executive officers, while material or strategic decisions are escalated to a board vote or member-level approval to ensure proper oversight of significant business risks.

Joint ventures are typically funded through a hybrid approach combining initial equity contributions from the members and third-party debt sourced from financial institutions, investment funds or accredited investors. To manage the JV’s capital requirements over time, agreements often include “capital call” provisions that mandate additional contributions from partners, while detailing the consequences of non-payment, such as the dilution of the defaulting partner’s ownership interest. To address future equity funding and potential shifts in control, pre-emptive rights are incorporated, as well as rights of first refusal, which allow existing partners to maintain their pro-rata ownership by purchasing new equity before it is offered to external parties. These contractual frameworks are essential to maintain the JV’s stability and investor sentiment, ensuring that ownership changes are handled transparently through updated operating agreements without triggering operational or debt-covenant compliance issues.

Crucially, a professional-grade governance framework must include robust deadlock resolution mechanisms to address impasses, particularly in balanced or 50/50 ownership structures. These mechanisms often include mandatory mediation or arbitration by a neutral third party, or contractual “buy-sell” provisions, which force a partner to either buy out the other or sell their own interest at a specified price. Incorporating these provisions ensures that the venture remains functional during disputes, preventing the operational paralysis that can otherwise arise when stakeholders are unable to reach a consensus on critical business matters.

Although the JV agreement establishes the principal commercial and governance framework, it is rarely sufficient on its own. Experience has shown that the supporting documentation depends on the nature of the business and the assets each party contributes. In addition to the JV entity’s constitutional documents, parties frequently execute separate agreements addressing IP, asset transfers, financing, employment, confidentiality and regulatory compliance. This approach permits greater precision regarding ownership, permitted use, improvements, sublicensing, maintenance obligations and post-termination rights.

Similarly, if tangible or intangible assets are transferred into the JV entity, separate contribution or assignment agreements should clearly identify the transferred assets, establish valuation methodologies, allocate pre-closing liabilities and confirm that all required third-party consents have been obtained. On the other hand, cross-border JVs frequently require additional documentation addressing export controls, data privacy, transfer pricing and tax matters.

The JV parties’ rights and obligations are determined primarily by contract. Since Puerto Rico lacks a dedicated joint venture statute, the parties enjoy broad freedom under the Puerto Rico Civil Code to define their respective economic interests, governance rights, management responsibilities and allocation of business risks, provided their agreement does not contravene mandatory law or public policy. JV agreements typically establish each party’s obligations, economic rights and right to receive financial information concerning the venture’s performance.

Accordingly, Puerto Rico law generally permits participants to determine how profits and losses will be allocated. While distributions frequently align with ownership interests, sophisticated transactions often adopt more complex economic arrangements reflecting unequal capital contributions, preferred returns, performance incentives or staged investment structures. Access to financial and operational information is fundamental to effective JV governance. Accordingly, JV agreements commonly require:

• the preparation and delivery of audited annual financial statements;
• quarterly management reports;
• approved budgets;
• compliance certifications;
• litigation updates; and
• notices of material adverse developments.

The parties’ liability depends principally upon the legal structure selected for the venture. Where the JV operates through an LLC or corporation, parties generally benefit from limited liability and are not personally responsible for the entity’s debts or obligations beyond their agreed capital commitments, absent fraud, abuse of the corporate form, personal guarantees, or other exceptional circumstances warranting disregard of the entity’s separate legal existence. When the parties elect to operate through a contractual arrangement without forming a separate legal entity, liability may be significantly broader.

Although the Puerto Rico General Corporations Act provides certain statutory rights to shareholders and members, sophisticated JVs generally supplement those protections through detailed governance provisions negotiated at the outset of the relationship. The principal objective is to ensure that minority participants retain meaningful oversight without impairing the venture’s efficient operation. Accordingly, JV agreements commonly distinguish between ordinary operational decisions, which management may handle, and fundamental corporate actions that require enhanced approval rights.

Puerto Rico law generally enforces these contractual governance arrangements, reflecting the strong policy favouring freedom of contract embodied in both the Puerto Rico Civil Code and the Puerto Rico General Corporations Act. Particularly in LLCs, the Puerto Rico General Corporations Act permits members to tailor governance arrangements with considerable flexibility, making the operating agreement the principal instrument for protecting minority interests.

Puerto Rico is an attractive jurisdiction for international JV’s because it combines a US legal framework with a civil law tradition. The governing law selected by the parties should reflect the transaction’s nature, the assets’ location, the regulatory environment, and the jurisdictions where they operate.

Where the JV entity is organised under Puerto Rico law, parties commonly designate Puerto Rico law as the substantive law governing the venture’s corporate and contractual aspects. Puerto Rico courts generally recognise and enforce contractual choice-of-law provisions, provided they bear a reasonable relationship to the transaction and do not contravene Puerto Rico public policy or mandatory statutory provisions. For cross-border transactions, parties should also evaluate the interaction between Puerto Rico law, applicable federal law and the laws of other jurisdictions implicated by the venture.

The applicable law and any dispute resolution selection are matters negotiated and agreed upon in the contract. Although parties may submit disputes to the courts of the Commonwealth of Puerto Rico or the United States District Court for the District of Puerto Rico where jurisdiction exists, sophisticated commercial transactions increasingly favour arbitration because of its confidentiality, procedural flexibility and relative efficiency in resolving complex business disputes. Multi-tiered dispute resolution clauses – requiring negotiation, executive escalation, mediation and finally binding arbitration – have become common market practice.

Puerto Rico has adopted the Arbitration Act (Act 147-2024) as controlling in matters involving arbitration agreements. Depending on the transaction, parties often select arbitration rules administered by the American Arbitration Association (AAA) or the International Chamber of Commerce (ICC), particularly when foreign participants are involved. Careful drafting of these provisions substantially reduces jurisdictional disputes and provides greater predictability for international investors, lenders and strategic business partners.

When a JV is organised as a corporation under the Puerto Rico General Corporations Act, management is generally vested in a board of directors. Otherwise, when the JV is structured as an LLC the parties enjoy substantially greater flexibility. This flexibility has made the LLC the preferred vehicle for most private joint ventures in Puerto Rico.

In practice, the parties negotiate and agree on the composition of the board of directors. Each party commonly receives the right to appoint one or more directors proportionate to its ownership interest, although equal representation is frequently negotiated in strategic alliances or 50/50 ventures irrespective of capital contributions. The governing agreement generally distinguishes between ordinary business decisions, which a simple majority may approve, and reserved matters, which require unanimous approval or a super-majority vote.

The Puerto Rico General Corporations Act establishes relatively few restrictions regarding director qualifications. Unless the by-laws state otherwise, directors are not required to be residents or citizens of Puerto Rico, allowing foreign individuals to serve on the boards of Puerto Rico entities. Puerto Rico law strongly embraces the principle of contractual freedom; accordingly, sophisticated JV agreements frequently allocate enhanced governance rights through reserved matters, veto rights, class voting arrangements, appointment rights or shareholder agreements rather than through disproportionate voting power at the board level. The parties should carefully negotiate board composition at the outset of the relationship, ensuring that governance mechanisms strike an appropriate balance between operational efficiency and minority investor protection.

Directors of a corporation organised under Puerto Rico law owe fiduciary duties to the corporation and its shareholders. The Puerto Rico General Corporations Act expressly recognises the duty of care and the duty of loyalty, both of which also apply to officers, managing members, managers of LLCs, and, in certain circumstances, controlling shareholders. These duties require directors to act in good faith, on an informed basis, in the best interests of the entity, while avoiding conflicts between personal interests and corporate interests.

Accordingly, JV governance structures frequently establish specialised committees responsible for audit, compliance or other matters. The Puerto Rico General Corporations Act does not impose comprehensive periodic reporting obligations comparable to those applicable to publicly traded companies. Instead, reporting obligations are generally established through the by-laws, operating agreement, shareholders’ agreement or financing arrangements. In practice, JV agreements commonly require management to provide periodic financial statements and compliance certifications.

Conflicts of interest represent one of the most significant governance risks in a JV because directors frequently maintain ongoing business relationships with their appointing parties. In Puerto Rico, these dual roles are common and not prohibited. Instead, the Puerto Rico General Corporations Act establishes procedural safeguards designed to ensure that conflicted transactions are reviewed and approved fairly and in the corporation’s best interests. Interested-director transactions are not automatically void or voidable merely because of the conflict; rather, their validity generally depends on appropriate disclosure, approval by disinterested decision-makers where applicable, or a demonstration that the transaction is fair to the corporation. Accordingly, JV agreements frequently supplement statutory requirements by establishing detailed conflict-management procedures, including mandatory disclosure of actual or potential conflicts. While the parties enjoy substantial freedom to design governance structures that reflect their commercial expectations, directors remain subject to the duties of care and loyalty. Directors may incur liability if they fail to act in the entity’s best interests or if they engage in unfair self-dealing.

Intellectual property (IP) is frequently among the most valuable assets contributed to or developed by a JV, particularly in Puerto Rico, where companies benefit from tax incentives under Act 60-2019, PR Incentives Code. Given that Puerto Rico does not have a separate statutory regime governing IP ownership, its ownership right is determined principally by contract, subject to applicable federal IP laws and general principles of Puerto Rico contract law. Puerto Rico protects trade secrets primarily through the Industrial and Trade Secret Protection Act of Puerto Rico (Act No 80-2011), which is closely modelled on the Uniform Trade Secrets Act (UTSA). Moreover, because Puerto Rico is a United States jurisdiction, patents, trade marks and copyrights are governed primarily by federal law, along with Puerto Rico’s general contractual and tort principles.

From a corporate perspective, parties should negotiate and identify at the outset whether each IP asset constitutes pre-existing IP contributed by a party or new IP developed through the JV. Where the JV is established through a separate legal entity, usually an LLC, the parties must determine whether contributed IP will be assigned to the JV entity or merely licensed for the duration of the collaboration. In the PR jurisdiction, it is common practice for many contributors to prefer licensing over assignment to preserve ownership of proprietary technology while granting the JV sufficient rights to achieve its commercial objectives. Therefore, the JV agreement should clearly address ownership of pre-existing IP, any improvements and derivative works, trade marks, copyrights and trade secrets developed during the collaboration, and confidentiality obligations, allocation of revenues and rights upon termination of the JV.

When foreign investors participate in a Puerto Rico JV, it is important to consider the territorial scope of IP registrations. Ownership should be co-ordinated with tax planning and transfer pricing considerations to avoid unintended consequences in cross-border operations. In practice, it is recommended to prepare an IP schedule identifying the following before execution of the JV agreement:

• all contributed assets;
• registration numbers;
• pending applications;
• software;
• databases;
• trade secrets;
• proprietary know-how; and
• existing licences.

This approach significantly reduces ownership disputes and facilitates future financing, due diligence exercises, mergers or exits.

Puerto Rico’s legal framework affords considerable flexibility in structuring LLC operating agreements and shareholders’ agreements. This enables parties to tailor the following to the venture’s commercial objectives:

• allocation of ownership;
• management;
• voting rights;
• economic benefits; and
• commercialisation authority.

Likewise, the Puerto Rico Civil Code recognises the autonomy of contracting parties, allowing sophisticated commercial entities broad latitude to determine their respective rights and obligations, provided such agreements do not contravene law, public policy or mandatory legal provisions.

The choice between licensing and assigning IP rights to a JV vehicle requires careful balancing of legal, commercial and tax considerations. It depends on the commercial objectives of the venture and the parties’ negotiations. In Puerto Rico, there is no statutory preference for either structure, and parties generally have broad contractual freedom to determine the most appropriate allocation of ownership. Nonetheless, in most commercial transactions, licensing is the preferred approach because it allows a party to retain ownership while granting the JV the necessary rights to use the technology. Licensing also allows the contributor to continue exploiting the same assets outside the JV, subject to any agreed exclusivity restrictions. By contrast, assignments are typically reserved for IP created exclusively by the JV or when centralised ownership is essential for investment. Special attention should be given to jointly developed IP since disputes frequently arise regarding licensing authority, enforcement rights, revenue sharing and future commercialisation. Accordingly, in Puerto Rico it is common practice to expressly recommend that parties explicitly identify whether jointly developed IP will be owned jointly, assigned to the JV entity or allocated according to each party’s contribution.

In Puerto Rico, due to its political relationship with the United States, location and economic position, ESG considerations have become an increasingly important component of JV planning. On the environmental front, Puerto Rico’s Energy Public Policy Act (Act 17-2019) establishes a statutory commitment to achieve 100% renewable energy by 2050 and has materially affected the energy sector JV landscape as utilities, independent power producers and community energy groups form JV to develop solar, wind and battery storage projects. Significant energy development projects require environmental permitting from the Puerto Rico Department of Natural and Environmental Resources (DRNA) and approvals from the Puerto Rico Energy Bureau. Compliance with these requirements is now routinely addressed in JV representations and covenants.

On the other hand, the PR General Corporations Act (Act 164-2009) provides a vehicle for socially oriented JVs through its Social Purpose LLC provisions, which combine commercial activity with the advancement of one or more charitable purposes. For JVs with international or institutional investors, ESG due diligence has become a standard component of the pre-closing process. JV agreements now routinely include ESG representations and covenants requiring compliance with applicable environmental laws, anti-corruption standards, human rights due diligence, and financial disclosures. Puerto Rico’s active role in federal disaster recovery programmes following Hurricanes Maria and Fiona has heightened awareness of climate risk as a material ESG factor for JV assets located on the island, and investors now regularly conduct climate resilience assessments as part of JV due diligence.

Unlike certain jurisdictions, Puerto Rico lacks a statutory framework specifically governing the dissolution or termination of JVs. Instead, termination depends on the contractual arrangements negotiated by the parties and, if the JV is a separate legal entity, the applicable provisions of the Puerto Rico General Corporations Act and the Puerto Rico Civil Code.

As a matter of practice, sophisticated JV agreements identify both the events giving rise to termination and the procedures that will govern the winding-up process. Where the JV operates through a Puerto Rico LLC, the operating agreement typically governs dissolution and liquidation. As previously mentioned, the Puerto Rico General Corporations Act affords members substantial contractual flexibility to determine dissolution events, liquidation procedures, voting thresholds, and the distribution of remaining assets. This principle of “private ordering” is a principal reason why LLCs have become the preferred vehicle for joint ventures in Puerto Rico.

If the JV is organised as a corporation, dissolution generally follows the procedures established in the Puerto Rico General Corporations Act, including:

• board and shareholder approval where required;
• filing a certificate of dissolution with the Puerto Rico Department of State;
• satisfying creditors’ claims; and
• distributing remaining assets after paying corporate liabilities.

The Puerto Rico Civil Code further supplements these statutory rules by recognising the binding nature of contractual obligations and the autonomy of contracting parties to establish the causes and consequences of termination, provided such provisions do not violate mandatory law or public policy. Consequently, carefully drafted termination provisions significantly reduce litigation risk by providing certainty regarding post-termination rights and obligations.

The redistribution of assets upon termination frequently represents one of the most heavily negotiated aspects of a JV. Puerto Rico law largely defers to the contractual allocation negotiated by the participants, subject to creditors’ rights and mandatory corporate law provisions applicable during liquidation.

A distinction should be made between assets originally contributed by a party and assets acquired or developed by the JV. Assets contributed by a party may either remain the contributing party’s property under a licence arrangement or become the JV entity’s property through assignment. The agreement should expressly determine whether contributed assets automatically revert to the original owner upon termination, remain with the entity for liquidation, or are subject to purchase by another party. On the other hand, assets acquired or generated during the operation of the JV are generally treated as assets of the JV entity. Unless otherwise agreed, these assets are liquidated or distributed after the venture’s liabilities are paid and in accordance with the ownership interests or distribution waterfall established by the governing agreement (operating agreement, by-laws or JV agreement). Likewise, assigning contractual rights under financing agreements, permits, government contracts or commercial leases may require consent from the lender, landlord or government entity.

Generally, Puerto Rico law affords parties broad contractual freedom to determine how they may exit a JV. Accordingly, most exit mechanisms are governed primarily by the JV agreement, operating agreement, shareholders’ agreement or buy-sell agreement rather than by mandatory statutory provisions. The Puerto Rico General Corporations Act expressly embraces contractual flexibility, particularly for LLCs, allowing members to regulate transfer restrictions and buyout mechanisms with considerable latitude. Although statutory requirements govern certain corporate actions, shareholders’ agreements remain an important mechanism for regulating share transfers, voting arrangements and exit rights.

The most common exit mechanisms used in Puerto Rico include:

• negotiated buyouts among existing parties;
• rights of first refusal;
• tag-along (co-sale) rights;
• drag-along rights;
• mandatory buy-sell provisions;
• third-party sales and mergers or acquisitions involving the JV; and
• voluntary dissolution and liquidation.

Exit provisions frequently become particularly important in 50/50 JV’s where governance deadlocks may prevent effective management. For this reason, in the PR jurisdiction it is common to incorporate mandatory mediation, arbitration or contractual buy-sell procedures designed to avoid prolonged operational paralysis while preserving enterprise value.

Transfer restrictions are equally significant because participants often select their business partners based upon strategic expertise, financial capacity, reputation, qualifications or capabilities. Accordingly, JV agreements commonly prohibit transfers to third parties without prior approval or require existing participants to receive a right of first refusal before any proposed transfer occurs. From a practical standpoint, an effective exit strategy should also address:

• a valuation methodology;
• payment timing;
• financing;
• assumption of liabilities;
• confidentiality obligations; and
• ongoing indemnification responsibilities.