Construction and Real Estate Development, Energy related Projects and Technology Sector. Joint ventures are commonly used to secure public tenders.

There is no actual statutory definition constituting a joint venture (JV) in Cyprus law, however in current practice four forms of joint ventures can be identified: contractual joint ventures, partnership joint ventures (general or limited), corporate joint ventures, and European Economic Interest Groupings (EEIG).

Partnership Joint Ventures and Corporate Joint Ventures.

The key factors to be considered for the structure of a joint venture and the respective vehicle are the legal framework, governance, liability and taxation. Depending on the chosen vehicle, the law applicable will vary.

Contractual Joint ventures are governed by the Cyprus Contract Law. Therefore, the JV’s operations and parties’ relationship are regulated by a contract. Each party to the contract is liable to third parties individually and each one is taxed separately.

Partnership Joint Ventures are governed by the Partnership Law whereas the JV’s operations and parties’ relationship are regulated by the terms of a Partnership Agreement. The parties are liable according to the nature of the partnership (general partners have unlimited liability whereas limited partnerships have limited liability for some partners). The profits of a partnership joint venture are taxed separately for each individual partner.

Corporate Joint Ventures are governed by the Cyprus Companies Law. The operations and parties’ relationship are regulated by the Memorandum and Articles of Association and most commonly a Shareholder’s Agreement. Each party’s liability is limited to the amount of the capital contributed and the entity is subject to a corporate tax.

European Economic Interest Groupings (governed by Regulation (EEC) no. 2137/85 and the European Economic Interest Grouping (Implementing Provisions) Law of 2012 (161(I)/2012)) operate at EU level allowing the formation of a joint venture to be active cross-border with at least two (2) members from different EU countries. The structure is flexible allowing for both legal and fiscal independence for the entities involved. The liability is joint and several and the members are taxed separately.

Depending on the type of the joint venture, the legal documentation providing the terms can vary. Typically, the terms are set out in either a contract, a partnership agreement, a shareholder agreement and for corporate joint ventures the Memorandum and Articles of Associations are vital.

The terms of a contractual joint venture are contained in a contract that provides for the activities of the JV and the relationship of the parties.

For partnership joint ventures (general or limited), the parties negotiate for the formation of a partnership agreement which sets out the terms of the JV. Registration with the Registrar of Companies in Cyprus is also a pre-requisite.

In a corporate joint venture where commonly both a shareholders’ agreement exists in addition to the Company’s constitution, the parties should mind that the provisions contained in all legal documents are in alignment. The contracting parties to the shareholders’ agreement have the freedom to elect to insert the provisions of their private contractual arrangement in the articles of association of the company. However, it should be emphasized that the validity of any corporate action will be governed by the articles of association even though such an action may be contrary to the shareholders’ agreement.

The contract for the formation of a European Economic Interest Grouping (EEIG) should at least include the name of the grouping, the official address, its objects, name, corporate name, legal form, residence or corporate seat and its duration (if not indefinite). The contract is filed with the Registrar of Companies in Cyprus along with the request for its registration.

The time required to form a joint venture (JV) in Cyprus depends on the type of JV structure chosen and the complexity of the arrangement. Specifically, the process of drafting and negotiating a contractual JV agreement can vary depending on the terms and the parties’ alignment. The JV can be operational as soon as the parties conclude the Agreement. For partnership joint ventures the drafting and finalizing of the partnership agreement may also vary from case to case, whereas the registration with the Registrar of Companies typically takes five (5) business days. Similarly, to estimate the time needed for the formation of a corporate joint venture the drafting and agreeing on the Memorandum and Articles of Association and shareholders’ agreement should be taken into consideration, whereas the Company Registration with the Registrar of Companies usually takes five (5) business days. The Registrar of Companies in Cyprus acts swiftly for the formation of a European Economic Interest Grouping provided that the terms of the agreement between the interested parties are concluded.

It is worth noting that depending on the industry regulatory approvals may be required which will consequently extend the commencement of the operations of the JV.

The liability of the members of a private limited liability company by shares registered Cyprus is limited to any unpaid amount for the shares they own.  If the JV is structured as a private limited company the company itself will be responsible for its debts and obligations. Therefore, provided that the entity is structured correctly, and the parties comply with the legal and governance requirements a corporate joint venture is effective in protecting the parties from liability of the JV entity.

Contractual joint ventures are an unincorporated form of arrangement based on the contract of the parties without a separate legal personality. Consequently, securing funding from third parties is limited. Financing is mostly granted through the parties to the contract. Additionally, due to the lack of the distinct legal personality any business assets and intellectual property rights cannot be contributed to the JV itself.

Partnership joint ventures (general or limited) do not have separate legal personality. Therefore, they usually receive financing from the contribution of capital and/or assets by the partners.

A corporate joint venture may receive financing from its shareholders, whilst other institutions will often grant facilities to a newly incorporate joint venture only if adequate security is provided. A corporate joint venture may hold assets in its own name including any contribution of the assets to it.

Members of a European Economic Interest Grouping can be financed by capital invested by the members, by loans or donations from them or others, as the grouping does not necessarily have to be formed with capital. An EEIG may not invite investment by the public.

Cyprus Company Law provides a robust framework for the protection of minority shareholders.

Statutory Protection: Article 202 of the Companies Law (Cap. 113) which mimics Article 210 of the English Company’s Act 1948 provides protection for minority shareholders in circumstances where the company’s affairs are conducted in a manner oppressive or prejudicial to their interests. Oppression of the minority is a term that has been the subject of several court judgments and has been held to include actions that encompass lack of probity or fair dealing towards the shareholders. In contrast, inefficiency or negligence regarding the administration of the affairs of the company has been held not to amount to oppression of the minority. Upon a successful petition under Article 202, the Court may, for the purpose of resolving matters in respect of which a complaint has been submitted, issue such an order as it deems appropriate, either for regulating the future conduct of the company’s affairs, or for the purchase of the shares of any members of the company by other members of the company or by the company itself, and, in the case of a purchase by the company, for the corresponding reduction of the company’s capital, or otherwise.

Derivative Actions: Cyprus, being a common law jurisdiction, abides by the principle of majority rule as articulated in Foss v Harbottle (1843) 2 Hare 461 (Court of Chancery). The general common law principle is well-established, whereby the corporate rights of a member are rights that each member has agreed to subject to the will of the majority, provided that such will is expressed in accordance with the law and the articles of association. As explained in Edwards v Halliwell (1950) v. Halliwell (1950) 2 All E.R., the specific implications of this principle are that (a) the appropriate plaintiff in an action concerning an alleged wrong done to the company is, prima facie, the company itself and (b) where the alleged wrong is a transaction that could be rendered binding on the company and all its members by a simple majority of the members, no individual member is permitted to bring an action in relation to that matter. This is because if the majority ratifies the transaction, the company has not been wronged. Conversely, if the majority challenges the transaction, there is no good reason why the company should not bring the action. To bypass the general principle and successfully file a derivative action, the minority shareholder must prove that there has been a fraud perpetrated against the company and the wrongdoers are in control of the company. In this scenario, the action is derivative because it is brought by the shareholder on behalf of the company who must in turn prove fraud and that the wrongdoer maintains such a degree of control over the company that the company is effectively prevented from suing in its own name.

In relation to corporate joint ventures, in addition to the aforementioned protections, joint venture agreements may offer enhanced protections in specific circumstances. Commonly, the parties may agree veto rights or unanimous board / shareholder approval for decisions that relate to major asset sales or capital restructurings. Minority shareholders may negotiate enhanced information rights or put options to exit at fair market value.

The duties of directors in an equity joint venture in Cyprus are primarily governed by the Cyprus Companies Law (Cap. 113), common law principles and the specific terms of the joint venture agreement or shareholders’ agreement. These duties include both statutory and fiduciary obligations, with special attention to handling conflicts of interest.

Directors owe fiduciary duties to the equity joint venture and must act in the company’s best interests with a specific duty to act in good faith, care and skill, exercising the powers vested in them for proper purposes. In instances of conflict of interest, directors must fully disclose any direct or indirect interest in contracts, transactions or arrangement involving the Joint Venture. They should not participate in discussion or voting on matters where the conflict arises. It is common that the JV agreement and/or Articles of Association will specify mechanisms for addressing such conflicts.

The structure of a joint venture’s (JV) management body or board is typically tailored to the nature and the terms of the JV.

In contractual joint ventures the contract outlines the manner in which the decisions are made amongst the parties. Therefore, the parties are free to agree on the voting rights, veto powers and responsibilities.

For general partnerships, all partners typically have equal rights to participate in management unless the partnership agreement provides otherwise. For limited partnerships, management is usually undertaken by the general partners, while limited partners typically do not have direct involvement in the decision-making process.

Corporate joint venture operate through a board of directors. The composition of the board is commonly based on the ownership structure whereby depending in the proportion of each party’s shares they appoint respective directors. A management body is often appointed in larger joint ventures for the day-to-day decisions.

A European Economic Interest Grouping is managed by both its members acting collectively as a body and at least one the manager. Each member is entitled to one vote. However, the contract may grant certain members additional votes, provided that no single member holds a majority of the votes. The relevant law specifies which decisions require unanimous agreement.

Fiduciary duties implied under local law arise primarily when dealing with corporate joint ventures. Directors of the corporate joint venture must act bona fide i.e. in the best interests of the company, exercising their powers in an honest and loyal manner. They must not place themselves in a position where their personal interest conflicts with the interests of the company and must prioritise the joint venture’s objectives over any personal or external interests. They must also with reasonable skill and care when dealing with the affairs of the corporate joint venture.

In relation to duties of good faith, it is commonly stipulated in contractual joint ventures that the parties must act in good faith during negotiations, decision-making and dispute resolution. In the absence of an express agreement as to the duties of good faith between the parties to a joint venture, Cypriot courts relying on equitable principles may infer such a duty to preserve or restore the balance in the joint venture agreement by assessing the nature of the agreement and the relationship between the parties.

Cyprus, as a member of the EU, upholds principles of free movement of capital and freedom of establishment thereby enabling foreign direct investment (FDI) for individuals and entities from EU / EEA member states. Cyprus is an investor-friendly jurisdiction therefore, even in cases of third country nationals, there is minimal intervention in terms of FDI rules. In regulated sectors such as real estate, banking, defence and media, investment approval is needed by the Council of Ministers and/or the relevant regulatory body.

Regulation 2019/452 of the European Parliament and of the Council which calls for establishing a framework for the screening of FDI into the EU aims to provide a framework for the effective screening by member states of FDI “on the grounds of security or public order.” This Regulation has not yet been transposed to national law although there have been recently several calls to Parliament to take swift action. Accordingly, as things stand, there is no general FDI supervisory or regulatory authority in Cyprus.

Foreign joint venture parties are, however, subject to transparency requirements in relation to source of funds and beneficial ownership requirements in line with AML policies mandated by the EU. Therefore, ultimate beneficial owners i.e. individuals holding more than 25% of ownership or control of the joint venture entity must be disclosed to the Central Registry of Beneficial Owners.

Cross-border collaborations or joint ventures involving players holding significant market share are subject to competition law scrutiny under both Cypriot and EU competition regimes. The Protection of Competition Law 2022 (13 (I) / 2022) and the Control of Concentrations Between Undertakings Law (83 (I) / 2014) regulate anti-competitive agreements, abuse of dominance and merger control. At EU level, Articles 101 and 102 of the Treaty on the Functioning of the European Union govern anti-competitive behaviour and abuse of dominance in circumstances when joint ventures may affect trade between EU member states. The EU Merger Regulation (Council Regulation (EC) No. 139/2004) may apply if the joint venture has a significant wider impact within the EU.

At domestic level, Cyprus Law mandates that acts of concentration of significant importance shall be notified to the Cyprus Commission for the Protection of Competition (CPC) before implementation. A concentration is considered of significant importance in circumstances where (i) the total turnover generated by at least two of the participating undertakings exceeds, with respect to each of them, three million five hundred thousand (€3.500.000) euros; (ii) at least two of the participating undertakings generate turnover within the Republic and (iii) at least three million five hundred thousand (€3.500.000) euros of the total turnover of all participating undertakings is generated within the Republic. Joint ventures meeting these thresholds must notify the CPC and obtain clearance before implementation. The CPC undertakes a thorough evaluation to determine whether the concentration raises serious doubts as to the compatibility with the functioning of competition in the market and if so, commences detailed investigation proceedings. Failure to notify the CPC may result in sanctions and/or fines.

In Europe, the Fourth (4AMLD) and Fifth Anti-Money Laundering Directives (5AMLD) have significantly impacted Ultimate Beneficial Owners (UBO) regulations. UBOs who own more than 25% of shares or voting rights shall be disclosed as Ultimate Beneficial owners in the Register for UBOs. The obligation applies to both partnerships and corporations.

The ownership and licensing of intellectual property (IP) rights are critical considerations when structuring any type of joint venture (JV) in Cyprus. The parties must carefully consider how existing and newly created IP rights will be managed upon set up and termination. Distinguishment must be made between ownership of pre-existing IP rights and ownership of IP rights generated in the course of the JV’s operation and the different types of JV that exist in Cyprus.

In relation to contractual JVs, ownership of pre-existing IP rights will typically be retained by each party. The party with ownership of the pre-existing IP right may grant an exclusive or non-exclusive license to the JV to use these IP rights usually for the duration of the joint ventures. Such licensing agreements must be carefully drafted to ensure that the territorial scope, duration and exclusivity are properly defined. IP rights generated in the course of the JV will typically be co-owned by the parties to the JV unless one party demonstrates that they and/or their employees have exclusively created those rights. Upon termination of the contractual JV, the agreement should carefully specify whether the IP rights will remain co-owned or any other provision according to the terms.

IP rights in brought into the partnership JV or have been acquired for the purposes of the partnership JV will be deemed to be owned by the partnership, unless there has been an agreement to the contrary. The partnership agreement should stipulate the ways in which IP rights are to be dealt with upon dissolution of the partnership to avoid disputes.

A corporate JV has the legal capacity to acquire both legal and beneficial ownership of IP rights provided by the parties. Additionally, it retains ownership of any assets purchased using generated profits. For pre-existing IP rights contributed by the parties to the JV, there must be a transfer of ownership. The usual practice is to allow for the licensing of such IP rather than outright transfers. Any IP rights developed by its employees or contractors during their employment or contractual engagement with the corporate JV are automatically owned by the entity, unless otherwise specified in an agreement. Upon dissolution of the corporate JV, the parties usually agree for a buyout of the IP rights by one of the parties or sell the IP to a third party, distributing the proceeds among shareholders.

The transfer of employees into a joint venture requires adherence to Cyprus Employment Law and the Preservation and Protection of the Rights of Employees on the Transfer of undertakings Law (TUPE).

Cyprus Employment Law is equipped with several laws and regulations that safeguard employees’ rights regarding unfair dismissals, social security contributions, annual paid leave, protection of maternity, health and safety and equal treatment and minimum salary. These safeguards operate in addition to any further protections included in the employment agreement.

TUPE applies when the joint venture involves a transfer of an entity that retains its identity such as when an existing business or part of it is contributed to the joint venture. TUPE offers several protections to the employees upon their transfer into a joint venture. Employment contracts, including all rights and obligations, terms of employment, salaries, benefits and collective agreements are automatically transferred into the joint venture entity. Equally, employees benefit from enhanced protection against dismissals and will only be dismissed for necessary economic, technical or organisational reasons.

In circumstances where a joint venture party is a publicly listed company there are a range of specific legal, regulatory and governance requirements imposed to ensure compliance with applicable laws and regulations.

The Transparency Requirements Law (190(I) / 2007) obliges publicly listed companies to disclose any joint venture transaction that constitutes a material development. This entails both a public announcement to the Cyprus Stock Exchange and information about the joint venture to be included in the company’s annual and period reports to shareholders. Failure to meet these requirements may result in stringent regulatory sanctions and severe reputational harm.

The Market Abuse Regulation (EU 596/2014) also imposes requirements of confidentiality and the adoption of appropriate safeguards on the publicly listed company during negotiations of the joint venture to avoid the possibility of insider trading and maintain the integrity of the transaction.

In certain scenarios, there is also the requirement to obtain shareholder approval. Where the joint venture agreement encompasses transfers of significant assets, including intellectual property or operational assets, shareholder consent is mandatory. Furthermore, corporate governance regulations mandate for enhanced disclosure requirements, independent valuations and shareholder approval when joint ventures involve related parties.

Another critical requirement that must be noted is the joint venture’s obligation to align financial treatment with the International Financial Reporting Standards.

Parties in a contractual joint venture are taxed separately, based the profits. Similarly, individual partners to a partnership joint venture are responsible to account to the tax authorities for the respective profits. Corporate Joint Ventures are subject to a corporate tax. Currently the corporate taxation in Cyprus is 12,5%. The members of a European Economic Interest Groupings (EEIG) are taxed separately whilst the profits or losses resulting from the activities of a grouping shall be taxable only in the hands of its members.

In respect to value added tax (VAT), physical persons or legal entities, including partnerships, in the Republic of Cyprus shall register for the VAT in case the taxable transactions value of goods and services performed through the 12 preceding months, or which will be carried out within the next 30 days exceeds or will exceed the amount of €15,600.

There can be legal restrictions on the distribution of profits mainly depending on the structure of the joint venture. Distribution of profits as dividends to a corporate joint venture shareholders must adhere to the Companies Law (Cap.113) whereby the distribution is limited to the profits, ensuring that the entity has pass the necessary solvency tests and capital maintenance rules are safeguarded. The Articles of Association may also specify different rights to a class of shares such as preferential dividend rights.  The law will uphold any agreement between the partners to a partnership joint venture or the parties to a contractual joint venture in respect to the distribution of profits. Commonly, that the partners in a partnership JV decide to share the profits according to the percentage of their contribution to the Partnership. The profits of an EEIG will be deemed to be the profits of its members and will be allocated either according to the relevant clause in the contract or, in the absence of such a clause, in equal shares.

Deadlocks in joint ventures most frequently arise in circumstances where decision-making between the parties to the joint venture reaches an impasse due to equal ownership, conflicting interest or disagreement on strategic issues. For this reason, it is of paramount importance to draft the agreement with particular care and include specifically designed mechanisms to decrease the probability of reaching a deadlock and if this is not possible to resolve it amicably.

Deadlocks in joint venture agreements may be resolved through negotiation and escalation provided that there is an apparent willingness to cooperate and compromise between the parties with a view to preserve the business interests of the joint venture. The agreement may include clauses such as buy-sell provisions which enable one party to buy-out the other party at pre-determined price or under certain pre-agreed terms.

Commonly, joint venture agreements may include a clause for the appointment of a neutral third party, pre-agreed upon by the parties to the agreement, to provide a recommendation or a binding decision to resolve the deadlock. Similarly, some joint venture agreements may provide that deadlocks are referred to mediation or arbitration or both in circumstances where multi-tiered dispute resolution clauses were included in the agreement.

As a last resort, parties to the joint venture agreement may have provided for the voluntary dissolution of the joint venture with assets and liabilities divided according to defined pre-agreed terms.

The most common termination provision in a joint venture agreement is the time that the project is concluded.  However, other common exit or termination provisions include a material breach of the agreement, mutual consent of the parties, insolvency/bankruptcy of a party, change of ownership, force majeure. These provisions can be drafted based on the nature of the joint venture, the industry, and the parties’ objectives.

Restrictive covenants such as non-compete or non-solicitation obligations commonly form part of joint venture agreements in Cyprus. Non-compete clauses are generally enforceable provided they are reasonable in scope, duration and geographic area as well as serve to protect genuine business interests such as trade secrets, customer relationships or prevent unfair competition.

Restrictive covenants exceeding one to two years will not be enforceable by the Courts unless there are peculiar circumstances that justify greater duration. Equally, the geographic area must be reasonable and not overly broad, and the restrictive covenant must pertain only to activities that compete directly with the joint venture. When deciding the enforceability of a restrictive covenant, Cyprus Courts will aways undertake a balancing exercise against public policy considerations, particularly economic freedom and freedom to contract.

Cyprus is considered an upcoming dispute resolution hub due to the availability of dispute resolution mechanisms in conjunction with the versatility offered by the common law. Parties to a joint venture agreement opt for arbitration especially in cross-border disputes due to the flexibility, confidentiality and efficiency that define the nature of arbitral proceedings. Enforceability under the New York Convention is another vital reason to opt for arbitration as a dispute resolution mechanism in joint venture agreements. Litigation has seen a noticeable decline as a dispute resolution mechanism in joint venture agreements as a result of inefficiencies associated with court proceedings, increased costs and time needed for hearings to commence. Commonly, joint venture agreements opt for hybrid / multi-tiered dispute resolution mechanisms whereby parties opt for mediation at first followed by arbitration to foster amicable resolution of the dispute and avoid escalation.

In relation to the parties’ freedom to choose governing law or method of dispute resolution, Cyprus takes a liberal approach meaning that the choice must align with mandatory provisions of Cypriot law, when mandated, usually in heavily regulated sectors. In all other circumstances, parties to a joint venture are free to choose governing law and the method of dispute resolution since the freedom to contract is a principle entrenched in the Cypriot constitution.

In the post-pandemic economic landscape, Cyprus is experiencing a surge in joint ventures particularly in three key sectors. In alignment with EU policy for the promotion of green energy, joint ventures have been set up to invest in and develop renewable energy projects focusing on offshore wind and solar ventures.

Cyprus has also introduced several regulations and packages to foster greater innovation in the tech ecosystem with a view to create a strong digital economy. Fintech, Artificial Intelligence, Blockchain and Crowdfunding joint ventures are thriving by taking advantage of Cyprus’ pro-innovation regulatory framework, educated workers and the upturn of the banking industry.

Construction and Real Estate Development has always been the primal industry where joint ventures were most commonly seen. Currently, Cyprus is in the midst of a significant increase in construction and real estate development with billions of euros being invested in several projects. Cyprus’ strategic location, EU membership and living conditions continue to attract HNWI and multinational enterprises.

The current market trends will continue to uptick in our jurisdiction, and we expect increasing focus on ESG compliance and the integration of AI in legal and operational frameworks of joint ventures.