Joint venture structures allow companies to benefit from pooled resources and expertise while mitigating individual financial and operational risks. In Germany, joint ventures are commonly used across several industries, with a particular prevalence in sectors that are research-intensive or require significant capital expenditures, technology- and risk-sharing due to high entry barriers, regulatory requirements, or rapid innovation. The most notable sectors in Germany where joint ventures are commonly established include:

Automotive, which heavily relies on joint ventures for product development, research and international market expansion (e.g., Toyota Motor Corporation and BMW Group recently renewed their collaboration agreement to work together on the development of fuel cells systems and the improvement of infrastructure).

Energy, since in Germany energy companies usually establish joint ventures to pool resources and expertise related to renewable energy (e.g., ACCIONA Group and Nordex established a joint venture in early 2023 to develop green hydrogen projects, targeting a production of 500,000 tons of green hydrogen annually by 2033).

Technology and Telecommunications, where German companies usually partner with international tech companies to bring advanced technologies into the domestic market (e.g., Telefónica Group and Allianz Group concluded a joint venture agreement in 2020, aiming to deploy Fibre-to-the-Home (FTTH) networks across underserved areas in Germany and to offer FTTH wholesale access to all telecommunications service providers).

Pharmaceuticals and Healthcare, where joint ventures are commonly established by pharmaceutical companies to share research and development costs and to access specialized knowledge (e.g., during the Covid-19 pandemic, Bayer entered into a collaboration and services agreement to support the development, supply and key territory operations of CureVac´s COVID-19 vaccine candidate CVnCoV).

There is no standard form of a joint venture in Germany. When deciding on the appropriate structure, the joint venture parties typically consider factors such as the objectives of the joint venture, the intended duration of the cooperation (e.g., in case of a specific underlying project), confidentiality and the like.

The two most common types of joint ventures are contractual joint ventures (so-called unincorporated joint ventures) and equity joint ventures (so-called incorporated joint ventures).

In an unincorporated joint venture, the joint venture parties cooperate on a purely contractual basis without establishing a separate legal entity to carry out the joint business activity. The underlying joint venture agreement (JVA) regulates the relationship among the joint venture parties and sets forth the key terms of their corporation, including the (business) objective of the joint venture, the contributions of both joint venture parties, profits and risk allocation, exit etc. Unincorporated joint ventures usually take the form of cooperation, license, franchise, distribution, joint research and development or service agreements.

In contrast, an equity joint venture requires the formation of a new legal entity or the participation in an existing legal entity by the joint venture parties. Such joint ventures are usually established when the joint venture parties are dependent on certain services or assets of the respective other joint venture party and do not want to make their own contributions available to a third-party for use, but nevertheless also do not want to enter the market alone, due to unfamiliarity with the regional (national) market or lack of sufficient financial capacity.

In Germany, the most frequently used corporate vehicles for equity joint ventures are the limited liability company (Gesellschaft mit beschränkter Haftung), the stock corporation (Aktiengesellschaft), the limited partnership (Kommanditgesellschaft) and, in some cases, the European company (Societas Europaea).

The establishment of a limited liability company is particularly popular due to its flexibility, allowing the joint venture parties to tailor the governance structure and shareholders’ rights in the articles of association and an accompanying shareholders’ agreement, and because the possibility of influencing the management is significantly greater than, for example, in case of a stock corporation. It also provides limited liability protection, requiring a minimum share capital of only EUR 25,000.00 (or even less if the joint venture parties opt to organize themselves in a limited liability entrepreneurial company (Unternehmergesellschaft (haftungsbeschränkt)). For larger-scale equity joint ventures or those intending to access the capital markets, the stock corporation is the preferred vehicle because of its suitability for public offerings and its clear governance rules under the German Stock Corporation Act. The SE is chosen in cross-border contexts within the European Union, offering a supranational framework and enhanced mobility for businesses.

Several factors influence the structure of a joint venture and the choice of the joint venture vehicle. First, the commercial objectives of the joint venture play a critical role; for example, a partnership for shared resources may favor a simpler structure, while capital-intensive or operationally complex ventures may require a more robust corporate form. Second, liability considerations often dictate the choice, as entities like the limited liability company and the stock corporation provide shareholders with limited liability, shielding their personal assets. Tax efficiency is another major factor, as joint venture parties consider the corporate tax implications, such as double taxation treaties or the ability to offset losses. Governance flexibility is also important; the limited liability company, for instance, allows bespoke governance arrangements (see question 3), while the stock corporation has stricter statutory requirements. Other considerations include regulatory compliance, particularly in highly regulated industries like banking or healthcare, and exit strategies, with vehicles like the stock corporation being suitable for public offerings. Finally, the identity of the joint venture parties, including whether they are publicly listed or foreign entities, may introduce additional requirements or preferences.

The principal legal documents governing a joint venture in Germany are the (i) JVA related to and (ii) articles of association of, the joint venture entity. The JVA serves as the overarching framework, comparable with and similar to a shareholders’ agreement, setting out the parties’ roles, contributions, profit-sharing arrangements, governance structure, and mechanisms for resolving disputes or deadlocks. The articles of association, required for corporate vehicles like the limited liability company or the stock corporation and considered to be the joint venture entities’ constitutional document, implement the JVA’s terms within the legal framework of German corporate law. For example, voting rights, capital contributions, and shareholder responsibilities defined in the JVA are (partly) mirrored in the articles of association to ensure enforceability. In addition, there are certain areas of organizational law that must be regulated, albeit only rudimentarily, in the articles of association. The interaction between the JVA and the articles of association must be carefully managed to ensure consistency and compliance with statutory requirements under the German Limited Liability Companies Act or German Stock Corporation Act.

Additional agreements, such as service, supply, or intellectual property agreements, may be necessary to govern specific aspects of the joint venture’s operations.

For establishing an incorporated joint venture, the timeline depends on whether the chosen structure is a corporation (e.g., limited liability company or stock corporation) or a partnership (e.g., limited partnership). Setting up a limited liability company in average requires around two to four weeks if the corporate documentation is prepared quickly and no major regulatory approvals are required, though negotiations on shareholders’ agreements, JVAs and contribution documentation can (sometimes significantly) extend this timeframe. Regulatory or merger control clearance (e.g., from the Federal Cartel Office) may add several months, especially for more complex or cross-border joint ventures. Partnerships also require certain registrations (e.g., with the commercial register) but do not have a minimum share capital requirement, which can simplify the process slightly; however, any significant regulatory hurdles can still prolong the formation period.

For establishing an unincorporated joint venture, no separate legal entity is created, so the joint venture can be set up as soon as a cooperation or collaboration agreement is signed. Theoretically, this can be achieved very quickly, but the overall timeline still depends on how long it takes to negotiate the underlying JVA, as well as on any merger control or other regulatory filings that might be triggered by the nature or scope of the collaboration.

Yes, using a corporate joint venture structure, such as a limited liability company or stock corporation, but also a limited partnership with a corporation being the limited partnership’s general partner, is effective in shielding the joint venture parties from personal liabilities under German law. Such corporate form ensures that the joint venture operates as a separate legal entity, distinct from its shareholders. As a result, the joint venture parties’ liability is generally limited to their respective capital contributions, providing a clear separation between the joint venture’s obligations and the personal or corporate assets of the joint venture parties.

This structural advantage is significant when compared to unincorporated joint ventures, where liability may be shared directly between the joint venture parties without limitation. In an equity joint venture, creditors of the legal entity can only seek recourse against the assets of the joint venture itself, barring exceptional circumstances such as fraud or misuse of the corporate structure. Additionally, a joint venture vehicle provides a formal governance framework, with clearly defined decision-making processes, reducing the risk of disputes escalating into liability issues.

From a practical perspective, the corporate structure also facilitates joint ownership and control, making it easier to attract external financing, manage intellectual property, and oversee complex regulatory obligations. Without a formal joint venture entity, these functions would rely solely on contractual agreements, which are often less flexible and may not offer the same level of legal certainty or enforceability. Furthermore, the joint venture structure enhances the joint venture parties’ ability to insulate themselves from operational risks, ensuring that liabilities from day-to-day business activities do not automatically pass through to them.

By creating a distinct corporate vehicle, the joint venture parties can also better manage their exit strategies, allowing for smoother transitions and less risk of entanglement in long-term liabilities. This makes the equity joint venture an optimal choice for joint venture parties seeking to balance collaboration with robust liability protection.

In incorporated joint ventures, the joint venture parties generally select either a corporation or a partnership. Corporations must comply with the statutory minimum share capital requirements (i.e., EUR 25,000.00 for a limited liability company (with the possibility of setting up an entrepreneurial company with lower minimum capital requirements) and EUR 50,000.00 for a stock corporation) and strict capital maintenance rules, such as proper valuation for in-kind contributions, restrictions on upstream or cross-stream guarantees, and subordination rules for shareholder loans. Real estate transfer tax, VAT and other taxes can arise upon asset transfers. Partnerships, on the other hand, do not have a minimum share capital requirement and do not face the same capital maintenance rules, providing the joint venture parties with more flexibility in structuring contributions and liabilities. However, partnerships may still trigger tax implications and require attention to how the joint venture parties share profits and bear risks.

In unincorporated joint ventures, no separate legal entity is created. Financing often involves cost-sharing or reimbursement arrangements rather than formal share capital, and assets (e.g., IP rights) are usually licensed or made available rather than contributed. Although unincorporated joint ventures sidestep certain corporate formalities, tax and regulatory issues, such as VAT on licensing, merger control, or foreign direct investment screening, can still apply if the arrangement is significant or involves sensitive industries. Liability falls directly on the joint venture parties unless they contractually allocate risks and responsibilities in a detailed JVA.

Minority protection depends on the chosen legal form of the equity joint venture. In principle, minority protection is granted by law for resolutions of the shareholders’ meeting that fundamentally impact upon the membership rights of the individual shareholder (e.g., in case of a limited liability company, a majority requirement of three quarters of the votes cast is required for an amendment to the articles of association; this threshold cannot be decreased). Furthermore, minority rights are granted to initiate processes under company law, particularly the initiation of a democratic decision-making process within the framework of a shareholders’ meeting. To this extent, in a limited liability company, minority shareholders, individually or jointly holding at least 10% of the share capital in the equity joint venture, have the right to convene a shareholders’ meeting.

In addition, local law also provides for bans on voting rights under certain conditions, if it can be assumed that the shareholder concerned is subject to a conflict of interest when exercising voting rights and it cannot be ensured that the voting right is exercised exclusively in the (sole) interest of the equity joint venture. Such a conflict of interest is assumed when, for example, it comes to voting on the assertion of claims by the equity joint venture against a joint venture party.

Finally, the unwritten legal principle of the shareholders’ duty of loyalty to each other under company law requires that the respective joint venture party also takes the interests of its co-shareholders and the joint venture itself into consideration when passing shareholder resolutions (see question 12).

Apart from the statutory minority protection rights, it is customary to provide for certain minority protection rights within the framework of the JVA, a shareholders’ agreement, the joint venture’s articles of association or ancillary documents such as rules of procedure for the management. Such minority protection rights are diverse and depend in part on the specific circumstances of the individual case. In general, however, it can be stated that protective mechanisms such as, contractually agreed majority requirements for certain decisions (e.g., appropriation of funds), rights to withdraw, delegation rights, anti-dilution provisions, distribution of minimum dividends, or the securing of exit scenarios can be identified as customary minority protection rights, irrespective of the individual case.

Under German law, managing directors of equity joint ventures are subject to a range of duties that include both general responsibilities and specific obligations arising from the unique nature of joint ventures. In principle and more or less unique in codified law compared to other legal systems is sec. 181 of the German Civil Code which prohibits representatives, including managing directors acting in their capacity as a legal representative for a third party, from entering into legal transactions with themselves or as a representative of another third party in order to avoid conflicts of interest and potential disadvantages to the represented party. However, this prohibition can be lifted which is common practice to provide managing directors with sufficient flexibility.

Managing directors are mandatorily required to fulfill their duties with the diligence of a prudent businessperson. This involves managing the equity joint venture in a manner that advances its purpose, adheres to the joint venture’s articles of association, and aligns with the terms of the managing director’s service agreement. They act as fiduciaries, entrusted with the responsibility to manage third-party financial interests with independence and loyalty.

In addition to these general duties, managing directors must ensure compliance with statutory requirements and fulfill the equity joint venture’s obligations as a corporate entity. This includes taking organizational measures to promote compliance with applicable laws among employees and implementing effective systems to prevent legal violations. Where a managing director lacks the expertise to assess a specific situation or make an informed decision, they are obligated to seek expert advice as part of their fiduciary responsibilities.

Equity joint ventures often present unique challenges due to their structure, which typically involves multiple shareholders with potentially divergent goals. Consequently, managing directors of equity joint ventures have specific obligations, such as balancing the interests of shareholders equitably, navigating governance structures outlined in the JVA, and resolving conflicts between stakeholders to prevent operational disruptions. Managing directors must ensure that decisions reflect the joint venture’s objectives rather than favoring individual shareholders, thereby maintaining impartiality and fostering cooperation.

For publicly listed equity joint ventures, compliance with the German Corporate Governance Code (GCGC) is mandatory. The GCGC sets out principles of good governance, such as transparency, risk management, and conflict resolution. Non-listed equity joint ventures may choose to adopt these principles, either in full or in part, through their articles of association, rules of procedure, or managing director service agreements, thereby promoting sound governance and aligning with best practices.

Finally, managing directors of equity joint ventures are subject to specific regulatory duties, such as the obligation to file for insolvency without delay if the joint venture becomes illiquid or overindebted, as stipulated in sects. 15a and 15b of the German Insolvency Act. Non-compliance with these obligations can result in personal liability for the managing director.

In conclusion, while managing directors of equity joint ventures share many responsibilities with managing directors of other corporate entities, they must also address distinct challenges inherent to the joint venture structure. These include balancing stakeholder interests and managing complex governance frameworks. These duties collectively aim to safeguard the joint venture’s success and foster trust among its shareholders.

Joint ventures in Germany often adopt governance structures that emphasize shared control and collaborative decision-making, in contrast to the CEO-centric management model adopted in other jurisdictions.

Unincorporated joint ventures are solely managed based on the provisions of the underlying JVAs. In this context, the joint venture parties have significant autonomy and flexibility in determining how a contractual joint venture is to be managed.

Equity joint ventures are primarily managed in accordance with the underlying JVA, the joint venture’s articles of association as well as applicable laws. Since most of the equity joint ventures have the legal form of a limited liability company, by default, the management board is responsible for the operations of the joint venture. To emphasize the equal rights of the joint venture parties, the management board usually has equal representation, i.e., each joint venture party has the right to appoint a managing director, and the managing directors so appointed are usually authorized to represent the joint venture jointly and not individually, in order to ensure mutual operational control.

In addition, rules of procedure are almost always issued for the management, which makes certain management measures subject to the prior approval of the joint venture parties (in their capacity as shareholders) or an advisory board or supervisory board set up by the joint venture parties for this purpose. As with the management, such an advisory board is predominantly composed of equal numbers of members to be delegated by the joint venture parties and, occasionally, a neutral third party with market and industry knowledge is appointed as an additional member to avoid possible deadlocks.

By establishing or joining a joint venture, the joint venture parties assume the obligation to align their actions with the purpose pursued by the joint venture and to actively support its realization. Under German corporate law, the establishment of a corporate relationship gives rise to fiduciary duties between the parties, both towards the joint venture entity itself and towards the co-shareholders.

These fiduciary duties require the joint venture parties to consider the legitimate interests of the respective other joint venture parties when pursuing their own rights and interests within the joint venture. While the joint venture parties are entitled to pursue their individual interests, this must occur in a manner that respects the overarching purpose of the joint venture and does not unjustly harm the interests of the others.

Determining whether a joint venture party has breached its fiduciary duties requires a careful balancing of all conflicting interests, considering the specific circumstances of each individual case. For example, a breach may occur if a joint venture party exercises its legal (membership) rights in a manner that arbitrarily or unjustifiably infringes upon the legal interests of another joint venture party only for the purpose of gaining a special advantage over and to the detriment of other joint venture parties.

Ultimately, fiduciary duties in joint ventures aim to foster cooperation and mutual trust among the joint venture parties, ensuring that the joint venture functions effectively and achieves its intended goals.

In principle, foreign joint venture parties are subject to the same national legal requirements and restrictions as domestic joint venture parties, whereas certain additional restrictions might be applicable depending on the joint venture’s envisaged business purpose and field of operations.

Specifically, the German and/or European investment control may limit or at least significantly restrict a foreign joint venture party’s ability to operate in the German market via a joint venture established in Germany, or requires the German joint venture or, and in addition, the joint venture parties to fulfill certain conditions and/or obtain certain approvals and permits to be issued by governmental authorities.

Such restrictions result primarily from the European Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the Union (FDI or Screening-Regulation) or the German Foreign Trade and Payments Act in conjunction with the Foreign Trade and Payments Ordinance. Crucial for the applicability of the German investment control is whether the joint venture is already established at the time of the foreign joint venture party becoming a shareholder or whether the joint venture is to be newly established with the inclusion of the foreign joint venture party, since it is unclear whether the establishment of a joint venture in which a foreign joint venture party is to receive a participation that exceeds the participation thresholds of German investment control on the merits also falls within the scope of the notification obligation pursuant to the German Foreign Trade and Payments Act. It should also be noted that Germany is currently discussing the enactment of a new Investment Control Act, which is intended to concentrate and restructure the provisions of the Screening-Regulation and components of the German Foreign Trade and Payments Act.

Also, the provisions and proceedings set forth in the Regulation (EU) 2022/2560 on foreign subsidies distorting the internal market (so-called FRS-Regulation) may independently and in addition to merger control proceedings (see question 14) and investment control proceedings apply to the establishment of a joint venture, requiring a prior notification if certain pre-determined thresholds are met or the European Commission demands the prior notification. A prerequisite for the applicability of the FRS provisions is the existence of a concentration subject to the notification obligation pursuant to Art. 20 FRS-Regulation which, inter alia, is given if a change of control on a lasting basis results from, among others, “the creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity…”.

Finally, some areas of activity are usually subject to special regulation in Germany. This applies, among others, to activities in the banking, insurance, telecommunication or energy supply sector. These areas of activity are subject to special state supervision, namely by the Federal Financial Supervisory Authority (BaFin), the European Central Bank and/or the federal network agency, as well as sector-specific regulatory laws such as the German Banking Act, the German Holder Control Ordinance or the German Telecommunication Act. These sector-specific regulatory laws can impose more far-reaching information or verification obligations on foreign joint venture parties than is the case for German joint venture parties (e.g., section 8a(1) of the Holder Control Ordinance).

When establishing a joint venture, both merger control and antitrust aspects must be considered and each joint venture must be examined based on merger control (market power test) and antitrust (restriction of competition test) regulations, whereby the classification of the joint venture itself is of particular importance.

In general, joint ventures can be distinguished from each other and categorized according to the following classifications:

Joint ventures with full-function and partial-function, whereas a joint venture with full-function is given if the joint venture parties have permanently assigned all functions of an independent economic unit to the joint venture.

Horizontal, vertical and conglomerate joint ventures, whereas horizontal joint ventures operate on the production, trading or service level on which the joint venture parties have operated until the formation of the joint venture, vertical joint ventures operate at an upstream (e.g. supplier) or downstream (e.g. customer) level in relation to the joint venture parties, and conglomerate joint ventures operate on markets that are not directly related to the area of activity of the joint venture parties.

Concentrative and cooperative joint ventures, whereas concentrative joint ventures are understood to be those that perform all the functions of a full-function entity independently of the joint venture parties and not in competition with them as opposed to cooperative joint ventures which are all joint ventures that are not classified as being concentrative and usual enable the joint venture parties to coordinate their competitive behavior. This last distinction is specifically important from a competition law perspective.

The formation of a (full-function) joint venture regularly constitutes a merger within the meaning of the German Act against Restraints of Competition as well as the European Merger Control Regulation that must be notified under merger control law, irrespective of the joint venture being classified as concentrative or cooperative. In addition, the formation of a joint venture may also result in restrictions of competition between the joint venture parties. The assessment criteria for this are both European and national antitrust law regulations.

If the joint venture is classified as cooperative, the European Merger Control includes the restriction of competition test. However, if the turnover thresholds of the Merger Control Regulation are not met or the joint venture is classified as one with only a partial function, the Merger Control Regulation is not applicable, and the restriction of competition test is applied directly and exclusively. In this regard, it should be noted that since May 1, 2005, the joint venture parties themselves are responsible for checking whether the joint venture complies with (European and national) competition law.

According to German law, the formation of a joint venture always constitutes a merger to be notified under German merger control law, irrespective of whether it is classified as concentrative or cooperative, whereas a classification as a full-function joint venture is not required. If the joint venture is cooperative though, the restriction of competition test must be applied as well and in addition to (and not as a part of) the market power test (so-called double test).

Yes, since the ultimate beneficial owner(s) (UBO) of every legal entity in Germany (with some few exceptions) must be registered with the transparency register. There are no specific requirements for the identification of the UBO of an equity joint venture. Therefore, the general requirements for the identification and registration of the UBO of a legal entity apply regardless of the joint venture’s respective legal form. The legal basis is the German Money Laundering Act pursuant to which an UBO means any natural person who (i) ultimately owns or controls a legal entity, or (ii) on whose behalf a transaction is being conducted or a business relationship is established.

Any natural person establishes ownership and therefore is an UBO if he/she directly or indirectly holds more than 25% of the capital or the voting rights of the legal entity concerned or exercises control in a comparable manner.

Since the joint venture parties are usually not natural persons but rather legal entities themselves, in general no natural person exists as a shareholder of an equity joint venture who at least directly holds more than 25% of the capital or the voting rights. Therefore, the UBO of an equity joint venture usually is a natural person indirectly holding more than 25% of the capital or voting rights of the equity joint venture concerned, whereas only natural persons who have controlling power over the respective joint venture party qualify as the UBO of the equity joint venture in question. Controlling power is assumed if such a natural person in turn holds more than 50% of the capital or the voting rights of the respective joint venture party. It should also be noted that trust arrangements must also be disclosed, and the trustor must be named as the UBO if the thresholds (25% or 50%) are achieved by the trustee. If no such UBO can be identified (because of no natural person controlling directly or indirectly 25% or more of the capital or the voting rights of the equity joint venture), the management directors of the equity joint venture themselves are considered to be the fictitious UBO and must be registered with the transparency register.

The name, date of birth, place and country of residence, citizenship and the type and scope of the UBO’s economic interest (or whether the UBO is a fictitious UBO) must be entered in the transparency register.

Courts and public services have full access to the transparency register. Other obliged parties (e.g., banks, lawyers) within the meaning of the German Money Laundering Act only have access on a case-by-case basis and in fulfillment of their respective obligations arising from the German Money Laundering Act. Apart from that, access to the personal data of the UBO is only granted in case of a validated legitimate interest.

In the context of German law, while there are no specific statutory provisions governing the treatment of intellectual property rights (IP) in joint ventures, it is essential for the joint venture parties to proactively address several key issues to ensure a successful collaboration.

The joint venture parties must identify their pre-existing IP which might be relevant for the joint venture and to clearly delineate which IP assets each joint venture party contributes into the joint venture. This includes specifying ownership and usage rights.

As the joint venture operates, it may develop new IP. IP created during the operation of the joint venture (known as foreground IP) may be owned jointly by all joint venture parties or assigned to a particular joint venture party. The JVA should define who holds the ownership in the IP and outline the terms of use and commercialization. Usually, such foreground IP will only be used for the benefit of the joint venture itself. However, the joint venture parties might obtain a license to use the foreground IP for other fields of use on arm’s-length terms.

Under German law, inventions made by employees are subject to German law on employee inventions. Unless agreed otherwise between the employee and the employer, the employer must file a patent covering Germany. This might cause issues, in case that employees of several joint venture parties are involved in the creation of foreground IP, in case foreign national law requires a first filing in a foreign country.

The JVA should also specify how IP rights (both pre-existing and newly created) will be handled upon termination of the venture. For instance, provisions may govern whether licenses to use pre-existing IP will survive termination, whether foreground IP reverts to one or more joint venture parties, or if the joint venture parties will have a perpetual (cross) license. Furthermore, the JVA may outline whether any joint ownership needs to be dissolved upon termination and how this should be handled. Usually, the IP is allocated to the joint venture parties based on their respective field of business.

Joint ventures often involve the sharing of sensitive information, necessitating stringent confidentiality provisions. These must continue to operate after the termination of the joint venture to protect proprietary know-how, trade secrets, and confidential business strategies. Upon termination, the joint venture parties may need to ensure all confidential material is returned or destroyed, and any IP arising from the joint venture’s use of this information is appropriately addressed.

Restrictions on how IP generated or used in the joint venture can be deployed in other, potentially competing ventures after termination, may be necessary. These provisions often cover restrictions on using IP to prevent the joint venture parties from directly competing using knowledge or technology developed during the joint venture.

In principle, the transfer of employment relationships to another legal entity can only be agreed upon by mutual consent with the affected employees.

However, if a separable operating business unit is contributed or transferred to a new corporate structure, the employment contracts associated with that business unit are regularly transferred by operations of law to the new legal entity as well (sec. 613a German Civil Code). Such transfer affects all employment relationships allocable to that business unit. Therefore, the joint venture parties cannot choose which employment relationships shall be transferred. The underlying employment contracts remain unchanged. Any termination or changes to these employment contracts are only admissible considering the relevant provisions of protection against dismissal.

Each employee of the business unit to be contributed/transferred has the right to object against the transfer, thereby observing a one-month objection period. In this case, his/her employment relationship remains with the contributing/transferring legal entity.

The employees must be informed in advance about the intention to transfer the business unit and the consequences arising therefrom in writing. The one-month period within which the affected employee can object against the transfer does not commence until the respective employee has received this information. In case of an insufficient information letter, employees may object to the transfer of their employment relationship even years later.

Furthermore, it should always be checked whether a joint venture will result in a change in operations within the meaning of the German Works Constitution Act. In this case, a reconciliation of interests and a social plan would have to be negotiated with an existing works council. This is particularly relevant if, in the context of the joint venture, organizational work units of the participating legal entities are merged, or if fundamental changes are made to the operational organization.

Finally, it is important to observe the thresholds for statutory co-determination and whether such co-determination is applicable in the first place within the context of establishing an equity joint venture. For example, supervisory boards with one-third of employee representatives must be formed if corporations have more than 500 employees; for corporations with more than 2,000 employees, supervisory boards with equal representation are mandatory.

When a publicly listed company is a party to a joint venture, additional legal and regulatory requirements apply. These include disclosure obligations under the German Securities Trading Act which mandate the timely publication of material transactions and potential insider information. Compliance with the German Corporate Governance Code is also required, ensuring transparency and adherence to best practices in corporate governance. Moreover, transactions involving significant assets or commitments may require approval from the listed company’s supervisory board or general meeting, depending on the materiality thresholds outlined in its articles of association or statutory law and taking into account German judicial practice such as the so-called Holzmüller-ruling. Insider trading regulations must be strictly observed, particularly during the negotiation phase of the joint venture. If the joint venture involves the transfer or issuance of substantial equity stakes, the provisions of the German Securities Acquisition and Takeover Act may also become relevant.

The key tax considerations are (i) taxation of the joint venture vehicle and favourable tax options passing profits of the joint venture vehicle to the joint venture parties, (ii) tax liabilities on capital gains from the liquidation or sale of the joint venture vehicle and (iii) funding of the joint venture vehicle.

The taxation of the joint venture vehicle mostly depends on its tax residency and legal form. In case of an equity joint venture, the joint venture vehicle is subject to corporate and trade tax in Germany. Dividends are taxed on the level of the shareholders of the joint venture parties in case of their tax residency in Germany, unless the joint venture parties are entitled to certain tax exemptions. A tax exemption on dividends is usually granted to corporate shareholders holding at least 15% of the shares or voting rights. Non-German resident shareholders may benefit from double tax treaties or, if residing in an EU member state, from the Parent-Subsidiary-Directive. These benefits can be denied if the corporate shareholder residing outside Germany has no substance (e.g., shell companies or mere holding entities). In a nutshell, whether the joint venture parties can claim tax exemption on dividends and if not, how they can alternatively benefit from current profits of the joint venture vehicle without triggering double taxation on these profits (on the level of the joint venture vehicle and the respective joint venture parties), are the main aspects to consider. In case the joint venture vehicle is a so-called tax transparent partnership, the profits of the joint venture vehicle are immediately allocated to the joint venture parties, i.e., without the requirement to resolve on their distribution. In this case, the profits are only taxed on the level of the joint venture parties for income tax purposes. For this reason, the partnership can be a more favourable option if an exemption from withholding tax on dividends would not be available to the joint venture parties. As for foreign joint venture parties, the profit is often exempted in the country of resident based on the applicable double tax treaty. Owing to some German taxation rules on partnerships which are uncommon in other tax jurisdictions, a risk of a double taxation might remain as the involved countries can have a different understanding and rules in determining the taxable income.

The taxation on capital gains in the event of a divestment from the joint venture vehicle differs depending on the legal form and the residency of the joint venture vehicle as well as the joint venture parties. The same applies on the joint venture vehicle’s capital gains in the event of a divestment from its subsidiaries. In both scenarios, a divestment from a corporate vehicle is largely tax exempted, whereas the divestment from a partnership is fully taxed at ordinary rates. However, a tax relief is possible if and to the extent that the asset of the partnership itself is a corporate vehicle.

The allocation of funds to the joint venture vehicle, i.e., through capital contributions or loans often requires deliberations from a tax perspective, since transactions among affiliated entities (including the conclusion of loan agreements), i.e., between the joint venture vehicle and a joint venture party, must comply with “dealing at arm’s lengths” principles. In addition, the deductibility of interest is subject to interest barrier rules. Even though they follow the concept of thin capitalization, effects and the intervention threshold depend on the legal form of the joint venture vehicle.

In the event of the joint venture vehicle being a capital corporation, the capital maintenance principle limits the distribution of profits to the total amount of accumulated profits from previous years and lawful reserves, ensuring the statutory share capital remains intact. Depending on the legal form, interim dividends may be permissible under specific circumstances. By contrast, partnerships have more flexibility in how and when withdrawals are made, provided sufficient funds are available. In this case, withdrawals can be distributed to the joint venture parties at any time, unless otherwise agreed by the joint venture parties in the underlying JVA or the joint venture vehicle’s partnership agreement. Nevertheless, joint venture parties to a partnership often agree on payment restrictions to preserve sufficient liquidity, especially if lenders or commercial considerations so require.

In case of limited partnerships it should be noted that the liability of the limited partner is only applicable if the limited partner completely contributed the agreed and registered liability deposit and to the extent this amount has not been paid back to the limited partner. Payments exceeding the profits attributable to the limited partner are viewed to be repayments of the liability deposit and re-establish the liability of the limited partner up to the agreed and registered amount of such liability deposit.

In unincorporated joint ventures, there is no separate legal entity declaring dividends. Instead, the joint venture parties typically share or allocate revenues under a cooperation agreement. While no corporate law restrictions apply, the JVA itself usually addresses payment limitations, cost allocations, and the need to maintain sufficient funds to cover ongoing business obligations.

Deadlocks in decision-making processes are a common concern in joint ventures (specifically in joint ventures with equal representation of the joint venture parties) and are typically addressed through pre-agreed mechanisms in the underlying JVA. The lowest level of avoidance of such a stalemate is the contractually agreed commitment of the joint venture parties to cooperate and reach an amicable solution. In case such an amicable solution is not achieved, so-called escalation clauses are a widely used method to resolve a disagreement, requiring unresolved issues to be referred to higher levels of management or even to the boards of the respective joint venture parties, thereby observing certain periods for solving a deadlock to avoid the process to be unnecessarily prolonged. In some cases, external mediation or arbitration may be used to resolve the impasse. If an amicable decision cannot be reached between the joint venture parties at any level, even taking into account the escalation procedure, the last resort is to terminate the joint venture. In this case, so-called buy-sell provisions, such as Russian roulette clauses or Texas shootout clauses (see question 22) allow one joint venture party to offer to buy out the other joint venture party at a specified price, with the counterparty having the option to either accept the offer or buy out the offering joint venture party on the same terms. Put and call options are another mechanism, enabling one party to trigger the sale or purchase of shares in the event of a deadlock. For more routine disagreements, the parties may agree to appoint an independent expert or advisor to make binding decisions on specific matters.

In relation to an unincorporated joint venture, exit or termination clauses are provided for in the underlying JVA governing the relationship between the joint venture parties, whereas in an equity joint venture, such provisions are typically outlined in the articles of association and/or the shareholders’ agreement. These provisions are designed to provide clarity and flexibility for the joint venture parties in case of disputes, insolvency, or changes in circumstances.

An obvious termination option is the temporary limitation of the joint venture itself, which is usually considered when the joint venture is entered into for a specific project. When the pre-determined term expires and the joint venture parties decide not to prolong their collaboration, the joint venture will come to an end. Similarly, the articles of association of an equity joint venture may provide for a pre-determined duration of its existence.

Another customary (and mandatory) termination option would be a termination right for good cause which usually will be applicable if (i) a joint venture party violates essential obligations and fails to rectify such violation within a specified grace period, (ii) insolvency proceedings are opened against the assets of a joint venture party or rejected due to lack of assets, or (iii) there is a significant change in control of a joint venture party’s ownership structure.

Furthermore, an exit or termination right is triggered if the joint venture parties cannot reach a consensus on certain fundamental matters concerning the joint venture or its prospective strategic alignment even after exhausting customary escalation procedures, if agreed (see question 21). As already pointed out, such exit mechanisms usually consist of buy-sell-provisions, enabling the joint venture parties to sell all their shares to the respective other joint venture party in compliance with certain pre-defined procedures, or even the liquidation of the legal entity.

Further customary exit provisions provided for in a JVA or the equity joint venture’s articles of association are drag-along and tag-along clauses, obliging or enabling the joint venture parties to co-sell their shares in an equity joint venture to third parties.

In the event of insolvency of a joint venture party, or in case of material breaches of contractual obligations, the articles of association of an equity joint venture usually provide for a redemption right in favour of the other joint venture party which basically constitutes a mandatory obligation to transfer the shares, whereas particular attention must be paid to the economic conditions (book value, nominal value or market value (possibly with discounts)) at which the shares are to be transferred.

Under German law, restrictive covenants must protect a legitimate interest and remain proportionate in scope and duration. Clauses that overly prevent fair competition or extent indefinitely risk are invalid or partially unenforceable. Courts typically find a two to three years’ post-termination restriction acceptable in many business contexts, though each case depends on its specific facts. Competition authorities and courts also assess whether such covenants infringe European and/or German antitrust rules if they go beyond what is strictly necessary to achieve the joint venture’s legitimate aims.

In incorporated joint ventures, these obligations are usually set out in the shareholders’ or partnership agreement. In unincorporated joint ventures, they are integrated into the collaboration agreement. Either way, any non-compete or non-solicitation provision should be tailored to protect genuine confidential information, customer relationships, or trade secrets without unnecessarily stifling market competition. If a covenant is deemed too broad, a court may reduce its scope or declare it unenforceable.

By default, disputes in joint ventures are subject to the jurisdiction of German state courts. However, the JVA may include specified arbitration clauses. Historically, German courts were reluctant regarding arbitration in the context of shareholder disputes. Today, German courts recognize arbitration clauses in JVAs, even in the context of disputes on the validity of shareholder resolutions which historically were understood to be exclusively subject to state court jurisdiction. Arbitration clauses must meet certain standards in this respect, especially regarding the consent of all stakeholders involved and the option of all parties active in the joint venture to participate in an ongoing arbitration regarding the validity of a shareholder resolution. For every shareholder resolution under scrutiny, only one arbitration proceeding may be initiated, to avoid contradicting arbitral awards.

If the joint venture parties choose a joint venture vehicle provided for by German law, the articles of association are mandatorily subject to German law.

It is possible to operate a joint venture vehicle under other European state law regimes (e.g., a British limited) even if its administrative seat is in Germany. However, certain domestic legal provisions, specifically insolvency regulations, still apply if the joint venture vehicle has its centre of operating activities within German borders.

JVAs may be made subject to foreign material law by means of a choice-of-law-clause. Absent such a clause, the JVA will be subject to German law if the joint venture vehicle is subject to German law as well. However, even if the JVA is made subject to foreign material law, it still must consider mandatory German corporate law provisions.

In the dynamic landscape of German joint ventures, several key market trends are shaping current practices and are poised to influence developments in the upcoming years.

Strategic Collaborations in the Automotive Sector

The German automotive industry is increasingly leveraging joint ventures to share the substantial costs associated with technological advancements, particularly in software development, autonomous driving and electric vehicles. This collaborative approach enables market participants to pool resources and expertise, fostering innovation while mitigating financial risks.

Emphasis on Technology and Innovation

Germany’s robust reputation in technology is steering joint venture activities towards tech startups and ventures that prioritize digital transformation. This trend reflects a strategic focus on integrating cutting-edge technologies to maintain competitive advantage in the global market.

Increasing M&A Activities and Strategic Alliances

Recent studies indicate a significant rise in mergers and acquisitions (M&A) and strategic alliances within Germany. Notably, two-thirds of companies are planning to enter into a joint venture or strategic alliance in the near future, signalling a robust inclination towards collaborative growth strategies.

Focus on Sustainable Growth

There is a growing emphasis on sustainable and strategic growth in joint ventures. Companies are prioritizing long-term value creation over short-term gains, aligning with broader environmental, social and governance (ESG) considerations. This trend is evident in the increasing number of joint ventures aimed at advancing green technologies and sustainable practices.

Geopolitical Considerations

Geopolitical events, such as the war in Ukraine, have impacted the German market, leading to a decline in activity in 2023. The effects of these events, along with macroeconomic changes, have continued to influence joint venture strategies, with companies reassessing their international partnerships and market exposures. Also, in response to global economic shifts, Germany is seeking to reduce its reliance on traditional partners like China by exploring joint ventures with emerging markets such as India. This strategic pivot aims to tap into new growth opportunities and mitigate risks associated with over-dependence on a single market.

Legal and Regulatory Considerations

Navigating joint ventures in Germany requires careful attention to competition laws and regulatory frameworks, such as German and European investment control provisions (e.g., FDI or FRS). The Federal Cartel Office oversees joint venture legislation, emphasizing the necessity for joint ventures to engage in genuine entrepreneurial activities. Compliance with these regulations is crucial to ensure the legality and success of joint ventures.

Looking ahead, the trajectory of joint ventures in Germany is expected to be influenced by several factors:

Technological Evolution:

As digitalization and technological innovation continue to accelerate, joint ventures will likely focus more on sectors such as artificial intelligence, renewable energy and advanced manufacturing technologies.

Regulatory Developments:

Anticipated changes in regulatory policies may impact the structuring and operation of joint ventures, necessitating adaptability and proactive compliance strategies.

Global Economic Dynamics:

Shifts in the global economy, including trade relations and market demands, will play a significant role in shaping the strategic directions of joint ventures.

In conclusion, joint ventures remain a pivotal strategy for companies operating in Germany, offering avenues for shared innovation, resource optimization and market expansion. Staying abreast of market trends, technological advancements and regulatory changes will be essential for entities seeking to establish or maintain successful joint ventures in this evolving landscape.