Generally speaking, JVs are more common in the commercial as well as in the industrial and manufacturing sectors (e.g., JV agreements can be vertical agreements among manufacturers, agreements for the joint exploitation of IP rights and know-how, joint funding of R&D projects etc.).

The use of JVs continues to spread in a wide variety of sectors also taking into account that Italian corporate law – supported by court jurisprudence and guidelines of public notaries’ boards – has increasingly developed flexible rules to efficiently address the needs of JV parties.

Under Italian law, JVs can be either corporate or contractual.

From a legal standpoint, there is no autonomous legal concept or specific set of rules applicable to JVs (the term is used to encompass multiple kind of ‘cooperation’ arrangements, from partnerships to the temporary grouping of companies as well as corporate JVs).

The JV agreement is the legal instrument through which the JV parties regulate their cooperation, defining mutual obligations and rights, both with regard to the control of the JV and its activities and the sharing of profits and risks.

Contractual JVs refer to arrangements between companies of purely contractual nature aimed at achieving a common project generally intended to last only the time necessary to achieve the relevant business targets (e.g., the construction of a major work, participation in an international tender, distribution of goods between the exporter and the local dealer-importer, etc.).

Corporate JVs are autonomous ad hoc vehicles incorporated by the JV parties for the purposes of achieving more complex and longer term cooperation projects than those that may be pursued through contractual JVs.

The types of corporate vehicles most frequently used for equity JVs are mainly joint-stock companies and limited liability companies (LLCs).

For both such types, Italian corporate law offers an high degree of flexibility in structuring the relevant article of association allowing the implementation of governance objectives and mutual protection of the JV parties.

The choice between a corporate or contractual JV is mainly driven by the need of the parties to establish a separate legal entity for the purposes of creating an effective “corporate veil” and ensuring, to the maximum extent possible, a limited liability for the JV parties.

As anticipated above, also the duration of the business projects may influence the choice of the parties (i.e., the corporate JVs are generally used to achieve more complex and longer-term cooperation projects than those regulated by contractual JVs).

In addition, from a strict corporate stand point, when using a JV vehicle, the choice between the available types of vehicles (joint-stock companies versus LLCs) mainly depends on the governance needs and protections that the parties intend to achieve.

The terms and conditions of the JV (timing and modalities for achieving the common projects, funding and operation and underlying respective obligations of the parties, corporate governance rules – including decision making process, deadlock resolution clauses, allocation of profits and losses, restriction to the transfer of JV vehicle participations, exit routes – non-competition clause, duration of the JV etc.) are mainly set forth by the relevant JV agreement. In addition, also other ancillary agreements can be executed with the aim of regulating in more details certain obligations of the JV parties.

In the event of a corporate JV, the rules related to corporate governance and to transfer of equity participations are, to the maximum extent possible, reflected in the articles of association which is the constitutional document of the JV vehicle. Articles of association of Italian companies can be very flexibly structured for reflecting most of the provisions which are normally included (also) in a shareholders’ agreement.

Although the parties tend to agree among themselves that, in the event of conflict between the provisions of the JV/shareholders’ agreement and those of the articles of association, the shareholders’ agreement will prevail, the protection granted by the articles of association can be generally deemed higher than the one achievable with the mere execution of a JV/shareholders’ agreement. In fact, the provisions of the articles of association are not subject to the time limitation generally applicable to shareholders’ agreement and are enforceable vis-à-vis third parties. This means that a breach of a provision of the articles of association can be opposed not only vis-à-vis the defaulting JV party/ies but also vis-à-vis any third party and the company itself with the result of blocking the transaction/action carried out in breach of such provision.

On the contrary, the violation of a shareholders’ agreement provision – which is enforceable only among the contracting parties – will result in a breach of contract generally entitling the non-defaulting party only to compensation of damages (if the breached provision is not capable of being specifically cured).

The process of incorporating a JV vehicle under Italian law slightly differs on the basis of the selected legal form (LLC versus joint stock company). However, in terms of timing, the incorporation of a JV vehicle can be done in few days, subject to the availability of funds necessary for the incorporation and the agreement of the JV  parties on the articles of association as well as the execution of certain mandatory steps immediately after the incorporation (filing and registration with the Register of Enterprises, Repertorio Economico Amministrativo and Tax Authority).

A more time-consuming procedure is necessary in the event that the subscription and payment of the initial corporate capital is implemented through contribution in kind. In such a case, the contributing party is required to submit a appraisal attesting the value of the assets contributed prepared by a qualified expert (appointed by the contributing party for limited liabilities companies or by the court, for joint stock companies).

The choice of a corporate JV is significantly driven by the need of establishing an effective, separate legal entity for assuring, to the maximum extent permitted by Italian law, limited liability of the JV parties. Italian joint stock companies and LLC are liable for their obligations within the limits of the corporate assets and, therefore, each shareholder/quotaholder is liable within the limits of the relevant contribution, without assuming any personal liability for the corporate obligations, except for few specific cases indicated below.

The corporate veil can be pierced in the following main specific circumstances:

1. pursuant to article 2497 of the Italian civil code (“ICC”), the JV partner (e. the shareholder or the quotaholder, as the case may be) exercising management and coordination over the corporate JV – either by contract or de facto – and acting exclusively in its own interest and in breach of the principles of proper corporate and entrepreneurial management, shall be directly liable vis-à-vis third parties for all damages caused to the corporate JV’s assets;
2. pursuant to article art. 2476 of the ICC, directors and shareholders of LLCs who have intentionally decided or authorised acts or resolutions damaging the JV are jointly liable vis-à-vis third parties;
3. according to the opinion of the majority of the scholars, the dominating shareholder of a joint stock company who uses the company as his own property, thus violating corporate regulations through a confusion of assets, may be held personally liable for the company’s debts.

Funding of a JV entity can be made through financing by third parties, shareholders’ loans and contribution of assets.

Debt funds may be provided by financing banks/institutions or may be raised on the market through the issuance of bonds or debt instruments.

The issuance of bonds and debt instruments is subject to certain limitations. In particular, a joint stock company may issue bonds for an amount not exceeding the double of the share capital, legal reserves and other available reserves. Such limitation may be exceeded to the extent the bonds are offered to professional investors subject to prudential control of relevant authorities. Specific provision is provided in case of debt instruments issued by an LLC. In particular, debt instruments may be issued by LLCs to the extent the by-laws expressly provide for such issuance and the instruments are offered to professional investors subject to prudential control of relevant authorities.

JV entities can be also funded through loans granted by their shareholders; however, the reimbursement of these loans is subject to certain limitations, where, under certain circumstances, loans may be treated as subordinated to all other debts of the company, and reimbursements made in the year before bankruptcy shall be clawed back. This provision applies to the extent the relevant shareholder loan is made when there is an excessive imbalance of the debt against net worth of the company or in a situation when it would have been reasonable to make a capital contribution rather than a loan.

The JV entities generally provide as security for the loans received, liens on their own assets and receivables. Shareholders may also secure such loans by pledging their shareholding. The main restrictions for granting security package are: (i) the financial assistance rule which substantially prevents the company to provide loans or securities for the acquisition of its own shares (this is rarely applicable to JVs) and (ii) the corporate benefit restrictions whereby any security or guarantee by a company may be granted generally solely to the extent that the company derives a direct or indirect benefit from the transaction in relation to which the security or guarantee is granted.

As for the contribution of assets, in both joint-stock companies and LLCs, any asset or receivable that can be subject to economic valuation may be contributed in kind. In LLCs, quotaholders may also contribute services or work activity, subject to providing a collateral (insurance policy, bank guarantee or cash).

ICC provides for specific requirements applicable to contributions in kind. In particular, the contributing party is required to submit an appraisal prepared by a qualified expert attesting the value of the assets being contributed. The corporate capital issued in exchange for the contributed assets cannot exceed (including possible share premium) the value set forth in the appraisal.

The appraisal may only be avoided in specific circumstances if the JV entity is a joint-stock company.

If the assets being contributed qualify as a business or line of business, additional requirements provided for by the Italian Civil Code for the transfer of business may apply.

ICC grants certain statutory rights to all shareholders (or at least to a number of them who, in aggregate, owns a certain portion of the corporate capital). Such rights represent the basic protection ensured to minority shareholders and are, mainly, (i) the right to access to information and documents, (ii) the right to participate and vote in shareholders’ meetings and (iii) the right to subscribe and pay-in a pro rata portion of corporate capital increases (except in case of exclusion of such option right) and (iv) subject to certain conditions, the right to challenge resolutions of the corporate bodies and to bring liability actions against directors.

Additional rights may be granted to the minority investors (through corporate governance rules of the relevant shareholders’ agreement and/or of the articles of association) which would be more significant depending on the percentage of corporate capital owned, reaching a level akin to joint control in the event of a 51:49 per cent split.

Generally speaking, the most common protections are granted with respect to:

1. the decision-making process, through the granting of veto rights to be exercised at shareholders’ meeting level or board of directors’ level (also through the right of designating one or more members of the board). Generally, such veto rights are provided in relation to matters which, in application of the Italian statutory provisions could be passed with majority of votes, and that are key to maintain the stability of the ownership (such as anti-dilution clauses) and/or are strategic for the conduct of the JV business. Such voting rights are typically granted with respect to, among others, capital increases; amendments of the articles of association which adversely impact the minority rights; mergers, demergers; issuance of financial instruments; liquidation of the company and appointment of liquidators; incurring of indebtedness and relevant guarantees; incurring of capital expenditures; disposition of key assets/line of business; execution/amendment/termination of material contracts; adoption of business plans and budgets; hire or dismissal of executives and key personnel; exploitation of new business; and
2. circulation of the JV equity participations and exit and termination events, through appropriate ownership “stabilization” clauses (such as, among others, mutual lock-up restrictions, right of first offer / pre-emption right, tag along and drag along provisions) as well as pre-agreed exit procedures and strategies aimed at maximising the value of the sale in the interest of all JV parties.

The extent of the duties of the directors depends on the effective choice that is made with respect to the composition of the managing body of the JV and the allocation of functions and powers therewithin.

Main duties generally applying to all directors of Italian (joint stock or limit liability) companies include, without limitation: (i) a general duty to manage the company with care, (ii) duty to act within the company’s corporate purpose; (iii) duty to act in compliance with the company’s by-laws and the applicable laws; (iv) duty to give effect to the share/quotaholders’ resolutions, unless such resolutions are prejudicial to the company and/or invalid as a result of their non-compliance with the law or the relevant provisions of the by-laws; (v) duty to keep correctly and accurately the company’s accounts and the corporate books and draft the yearly financial statements; (vi) duty to call the share/quotaholders’ meeting at least once per year in order to approve the yearly company’s financial statements and promptly, in case of losses exceeding 1/3 of the company’s corporate capital or causing the reduction of the company’s corporate capital below the minimum capital requirement applicable to it; (vii) duty not to use for their own advantage or the advantage of third parties any information (including information on business opportunities), of which they aware as a consequence of their office within the company. Directors also have a general duty not to act (directly or indirectly) in competition with the company, except where expressly authorized by the quota/shareholders’ meeting.

In the event that the managing body of the JV is represented by a board of directors that has delegated certain powers to one or more of its members (i.e. the managing directors), the following duties will also find application:

a) managing directors: with respect to the matters that have been delegated to them, have the duty to (i) control and ensure that the organisation of the company (also from the managerial, administrative and accounting view points) is adequate in respect to the size and activities of the company; (ii) act within the limits of the powers granted and (iii) report periodically to the board on the general management of the company, the most significant transactions/events occurred during the relevant period (with respect to the company and also the subsidiaries) and the foreseeable development of the business.

b) non managing directors: have a supervisory duty with respect to the actions taken by the managing director(s).

Directors have the duty to pursue the best interest of the company and its stakeholders (which may also differ from the interest of the JV parties that have designated their appointment). As a consequence, specific duties apply to directors in the event that, when entering into a contract or carrying out a certain transaction, they have a conflict of interest with the company. In particular, the ICC provides that the directors of joint stock companies must inform the other directors and the statutory auditors of the interest they have, on their own or for third parties, in a specific transaction of the company, providing all details thereof. If the director has been granted executive powers, he/she must refrain to carry out the transaction with respect to which he/she holds an interest; the relevant decision must be taken by the board of directors in its collegial composition and the relevant resolution must expressly indicate the reasons why the transaction is beneficial to the company. Similar duties apply also to directors of LLCs (except for the duty to inform the board of their interest).

Typically, the managing bodies of JVs are represented by boards of directors composed of a variable number of members. Also, JV parties typically have the right to designate one or more of such members, also on the basis of the percentage of equity held by them. Without prejudice to the duties generally applicable to the directors, specific veto rights and super-majorities may be set forth respectively in the JV agreement and the by-laws of the JV. In 50/50 JVs, each JV party is typically entitled to designate half of the members of the board with specific deadlock solution clauses being provided in the JV agreement.

Under Italian law a general duty exists of the party to an agreement to perform its contractual obligations in good faith.

Accordingly, the JV parties must act in good faith while performing their duties or exercising their rights under the JV agreement.

Case law has indeed sanctioned conducts consisting in an abusive use of the share/quotaholders rights purposefully acting prejudicially against the interest of the company and against the other share/quotaholders.

Specifically, the abuse of the majority (abuso della maggioranza) has been affirmed whenever, through a distorted use of the majority principle, a shareholders’ meeting resolution has been adopted with the intent to pursue the interests of the majority shareholders that are not in line with the interests of the company and that are detrimental to the prerogatives of the minority shareholders.

Likewise, the abuse of minority (abuso della minoranza) has been found in all cases in which the minority shareholder, through the improper exercise of its rights, has barred the adoption of the resolutions of the shareholders’ meeting with the purpose of paralyzing the business of the company.

In line with the above general principle, article 2476 of the ICC, specifically relating to LLCs, expressly provide that the quotaholders are jointly liable with the directors that have acted in breach of their duties in the event that they have intentionally decided or authorized acts or transactions that have caused damages to the company, its quotaholders or third parties.

There are no specific rules that apply to foreign JV parties.

General principles of Italian law apply to foreign investors such as the ‘principle of reciprocity’ according to which non-Italian investors (whether individuals or companies) are allowed to invest in Italy only if their country of origin allows equivalent rights to Italian investors, or if their country of origin has an international treaty with Italy that permits such investments.

Likewise, foreign direct investment rules (“FDI rules”) find application in case foreign JV parties decide to invest in certain strategic sectors of the Italian economy.

The relevant legal framework for such investment is set out in the Decree Law No. 21/2012 on ‘Special powers on corporate organisations in the sectors of defence and national security, as well as for activities having strategic relevance in the fields of energy, transport and communications’. According to FDI rules, the acquisition of interests in the corporate capital of Italian companies, or the implementation of certain extraordinary transactions involving the transfer or change of control over assets (including IP rights) in certain key/strategic sectors of the Italian economy (i.e., defence and national security, energy, transport, communications, high-tech) is subject to mandatory notification to the Italian Government. The Italian Government has the power to review such investments in Italian companies/assets and veto or impose conditions when the investment may threaten national security or other public interests.

The Italian Government periodically determines which activities and assets are subject to FDI rules, being as of today mainly the following: national security and (military) defence; broadband electronic communication services based on 5G technology; energy, transports, communications, water distribution, electoral services; health; data processed for monitoring of public works, watersheds; finance, including credit and insurance; AI, robots, semiconductors, cybersecurity, nanotechnologies and biotechnologies; non-military space and aerospace infrastructures; food; dual-use items; audiovisual media services.

Under Italian competition law No. 287/1990 (“ICL”), the formation of a JV, whether by creating a new company or through the acquisition of joint control by two or more undertakings over a pre-existing company, may qualify as a ‘concentration’ and be subject to Italian merger control rules.

Under Article 5, paragraph 3, of the ICL, JVs can be considered concentrations and, therefore, be subject to merger review, provided that the ‘full function’ criteria are met (i.e., the JV performs on a lasting basis all the functions of an autonomous economic entity).

In order to assess whether a JV is ‘full function’, the Italian Competition Authority (“ICA”) will consider whether the JV:

• has sufficient resources to operate independently on the market;
• takes over activities that go beyond one specific function for its parent companies;
• is not dependent on sales or purchases from its parent companies (e., it has sufficient means to engage in commercial relationships after a ‘start-up’ period generally not exceeding 3 years);
• is intended to operate on a lasting basis (e., it is permanent or last for a sufficiently long time to alter market conditions).

Under ICL, ‘full-function’ JVs are subject to mandatory notification to the ICA before their implementation provided the following cumulative conditions are met:

• the aggregate Italian turnover of the undertakings concerned exceeds EUR 567 million; and
• the Italian turnover of each of at least two undertakings concerned exceeds EUR 35 million.

Alongside the mandatory notification system, the ACL for 2021 introduced the power by the ICA to require the notification also of below-thresholds transactions. The ICA can now require the parties to notify within 30 days a concentration when:

• only one of the two domestic turnover thresholds is met or the combined worldwide turnover of all the undertakings concerned exceeds EUR 5 billion; and
• the transaction raises concrete competition risks in the national market or a substantial part thereof, taking into account the possible detrimental effects on the development of small enterprises characterised by innovative strategies; and
• the closing did not take place more than 6 months before the request.

The criteria of concrete competitive risks is rather vague. Therefore, the ICA published a Notice on the application of Article 16, paragraph 1-bis of the ICL (Notice on below-threshold transactions) which provides useful guidance on when the ICA might require the notification of below-threshold transactions. Therefore, in order to avoid possible post-closing requests to notify, the undertakings involved in below-threshold transactions may decide to file a voluntary notification to the ICA if they meet the above conditions.

Any risk of coordination between the JV parties is assessed on the basis of the legal test applicable to anticompetitive agreements.

Italian Decree no. 55 of the Minister of Economy and Finance dated March 11, 2022  introduced the mandatory notification (recently upheld by the ruling of the Administrative Court of the Lazio Region dated April 9, 2024) to the Register of Enterprises of the identity of the beneficial owner – i.e., the natural person(s) who ultimately owns or controls a legal entity or is a beneficiary thereof – of companies, private legal persons and legal entities. The obligation set forth in the aforementioned decree is part of the framework legislation implementing the EU Directives (IV and V) on anti-money laundering and countering the financing of terrorism, specifically standing alongside Italian Legislative Decree of November 28, 2007 no. 231. Data entries in the Register of Enterprises are publicly available.

Information concerning beneficial ownership shall be continuously updated. Indeed, any changes in beneficial ownership data and information must be notified within 30 (thirty) days of the completion of the act giving rise to the change.

Issues relating to ownership, or licensing, of IP rights likely to arise in the setup of a JV do not generally differ from those that may arise in the set-up of other company and vary from case to case. Typically, they might arise from claims concerning:

1. ownership and/or right of use of the relevant IP rights: by way of example, third parties (or, in lack of prior clear agreements, shareholders) may challenge the right of use of the IP rights by the JV. Third parties might claim that the company’s shareholders are not the legitimate owners, or licensees, of such rights. Often, this may happen:
   • when the development process of the IP rights has been conducted by several subjects and questions arise as to which one was entitled to register the IP rights under its own name or, in any event, to claim a right of use of the latter;
   • when the IP rights form the subject of a license, and licensors oppose to its use by the JV;
2. infringement issues: a third party may claim that JV’s products, or services, infringe its own IP rights. In a worst case scenario, the JV may be sued in court with lawsuits aimed at getting restrictions to manufacturing and marketing of the products/services, seizure of products already manufactured and already put on sale, compensation of damages.

Conversely, the JV might have to defend against infringement of its own IP rights on products/services, through the manufacturing and marketing of products/services similar to the JV’s ones.

Issues relating to ownership or licensing of IP rights that may arise in the termination of JV typically concerns the title to carry on the exploitation of the IP assets once included in the company’s portfolio (and/or distribution of relevant revenues). Former partners may challenge other partners’ title to keep on using such rights, and claim a right of exclusive, or joint use.

Employment relationships entertained with JVs do not differ (and therefore are subject to the same law provisions) from employment relationships entertained with other companies.

Employment relationships can usually be transferred to a JV in the event that a JV party subscribes its equity participation in kind by contributing one of its business units or branches of business. In such a case, the following key legal principles apply to the transfer of the employment relationships:

• the employees pertaining to the contributed business are assigned to the transferee by operation of law;
• the transferee cannot prevent any of the employees belonging to the contributed business from being transferred, as it is their right to continue working as employees of the transferee;
• the transferred employees keep all economic and regulatory rights they were granted during the employment relationship with the transferor;
• the transferee is required to apply to the transferred employees the economic and legal treatment set forth by the national, local and company collective bargaining agreements, in force at the time of the contribution, until their expiration, unless they are replaced by other collective bargaining agreements applied by the transferee at the same level;
• the consent of the transferred employees is not necessary; however, the transferred employees whose employment conditions are substantially affected as a result of the contribution may resign for “just cause” during the 3 months following the contribution date;
• according to article 47 of the Italian Law of 29 November 1990 no. 428, in case the transferor is staffed with more than 15 employees (even if the transfer involves less than 15 employees), a specific union consultation procedure shall be mandatorily carried out. In particular, an advance notice in writing shall be sent, at least 25 days before a binding agreement is reached or the transfer is enacted, by both the transferor and the transferee to the competent unions.

The main additional requirements with reference to publicly listed companies that are parties to JVs relate to the disclosure duties imposed by national and EU legislation. EU legislation (the Market Abuse Regulation (MAR – EU Regulation 2014/596) and the Transparency Directive (EU Directive 2004/109)), the national legislation (Consolidated Code of Finance, the “TUF” – legislative decree no. 58/1998) and the Regulations issued by regulatory authorities CONSOB and Borsa Italiana S.p.A., have included the incorporation of new companies and the execution of JV agreements in the list of “privileged information” to be disclosed. Hence, the disclosing duties directly stem from the capability of such agreements to have a significant influence on the prices of listed shares or securities, the business and how it is conducted and financial statements of the public company.

In compliance with the above, articles 113-ter and 114 of TUF provide that public companies are required to communicate such privileged information (with particular attention to price sensitive information) to CONSOB, Borsa Italiana S.p.A. and the general public without delay and within the methods and instructions set by CONSOB itself.

It is also worth noting that, should the corporate JV be in its turn a publicly listed company, the shareholders’ agreement (whether standalone or part of a broader JV agreement) does not need to comply with the general provisions contained in the ICC as applicable to private entities. Pursuant to article 122 of the TUF, shareholders’ agreements referring to a public company must be promptly communicated to CONSOB, published in the daily press and filed with the competent Register of Enterprises. All agreements not compliant with this provision shall be considered null and void. Furthermore, pursuant to article 123 of the TUF, shareholders’ agreements referring to a public company may not exceed three years in duration and are renewable upon expiration. If the shareholders’ agreements are of indefinite duration, each party has the right to terminate the agreement with six months’ prior written notice.

Further limitations, disclosure and transparency duties apply pursuant to the TUF, CONSOB Regulations and article 2391-bis of the Italian Civil Code should a publicly listed company enter into a JV agreement with a related party.

A corporate JV carrying out an entrepreneurial activity, is subject to (i) corporate income tax (“IRES”), and (ii) regional tax on productive activities (“IRAP”) if it is resident in Italy  (i.e., if it has its registered office or place of effective management or principal place of business in Italy for the majority of the tax period).

The IRES rate of 24% is applied to the taxable base determined on the result in the income statement that are subject to tax adjustments pursuant to Article 83 of Presidential Decree No. 917 of December 22, 1986 (“Income Tax Code” – “ITC”).

The ordinary IRAP rate is 3.9% and is subject to local variations at a regional level. The IRAP taxable base is equal to the “value of production” deriving from the activity carried out in the region of establishment. Unlike IRES, certain costs (e.g., interest payments on financial leasing and certain labour costs) are not deductible.

To a large extent, a corporate JV is subject to ordinary tax rules to companies:

1. dividends distributed by the JV to a non-resident company are:
   • exempt from Italian withholding tax if the conditions set forth in Directive (EU) 2011/96 (“Parent-Subsidiary Directive” – “PSD”) are met;
   • subject to a 1.2% withholding tax if dividends are paid to EEA countries when not all the conditions to enjoy the exemption under the PSD are met by the recipient;
   • subject to a reduced withholding tax (generally ranging between 10% or 15%), if dividends are paid to a non-resident person enjoying the benefits under a Tax Treaty;
   • subject to the Italian withholding tax of 26%, if dividends are received by non-resident entity that does not benefit from any of the above tax regimes;
2. interest payments may qualify for exemption from withholding tax if the conditions under Directive (EC) 2003/49 (“Interest and Royalties Directive” – “IRD”) are met. If IRD is not applicable, the (a) reduced withholding tax may apply if all the relevant conditions under an applicable Tax Treaty are met, or (b) ordinary 26% withholding tax applies;
3. the JV is subject to ordinary limitation on interest deduction pursuant to article 96 of the ITC and interest expenses are deductible up to the amount of interest income. The excess amount is deductible up to 30% of the entity’s EBITDA;
4. transactions between the JV and associated enterprises must comply with the transfer pricing rules under article 110 of the ITC; therefore, they must be in line with the arm’s length principle;
5. Controlled Foreign Companies legislation pursuant to Article 167 of the ITC applies also to 50/50 JVs if one of the two stakeholders can direct, de facto, the choices of the foreign company;
6. Minimum Global Tax rule, pursuant to Article 18 of Legislative Decree No. 209 of December 27, 2023, implementing Directive (EU) 2022/2523 (on “GLOBE” rules) applies also to jointly controlled entities located in Italy, including JVs;
7. JVs may be subject to the “non-operating companies” regime, as amended by Article 20 of Legislative Decree No. 192 of December 13, 2024. If the JV does not meet operational test, it is subject to certain tax consequences, including a 10.5% IRES rate surcharge;
8. transactions carried out by the JV can be requalified by Italian Tax Authority, pursuant to Article 10-bis of Law No. 212 of July 27, 2000, if they lack economic substance and are carried out only to obtain undue tax advantages, provided that the JV does not prove the existence of valid economic reasons.

Distributions of dividends can be resolved upon only simultaneously with the approval of year-end financial statements and out of net distributable profits. Such profits can be entirely distributed with the exception of a portion of 1/20 that must be allocated to a mandatory reserve up until such reserve does not reach the amount of 1/5 of the JV’s corporate capital.

Distributions of profits must be proportional with the equity participation of each JV party. It is however possible to provide, in the JV agreement and in the JV by-laws, for so called “waterfall clauses” establishing different criteria of distribution granting preferential rights of distribution.

In certain cases, advances on dividends are permitted only for joint-stock companies the financial statements of which are mandatorily subject to audit. No advance on dividends may be made in the event that the last approved financial statements show losses even if relating to previous years.

The amount of advances on dividends may not exceed the lesser of the amount of profits earned since the close of the previous fiscal year, minus the amounts to be mandatorily allocated to reserves, and the amount of available reserves. Even if it is later determined that the profits for the period resulting from the prospectus do not exist, advances on dividends paid may not be recovered if the shareholders have collected them in good faith.

Deadlock scenarios are typical of 50/50 joint ventures and they can occur either at the share/quotaholders meeting’s level or at the level of the managing body.

Deadlocks scenarios may result in a total or partial paralysis of the entity, hence falling under those identified among the possible causes for the dissolution of companies, i.e., ”non-operation” and/or ” continued inactivity of the shareholders’ meeting”.

In order to resolve deadlock scenarios, it is common to provide in the JV’s bylaws and/or in JV agreement, clauses such as casting vote or escalation mechanisms or deferral of the disputed matter to the binding decision of a third party or an expert (especially where technical matters are involved).

In cases where the deadlock is considered particularly significant, it is common to provide for clauses providing for the exit of one of the JV parties (through put and call options or similar arrangements) or both (through the dissolution of the entity).

A typical clause to such end, the validity of which has also been recently confirmed by the Italian Supreme Court, is the so called “Russian roulette” clause.

Typically, russian roulette clauses grant the right to each JV party to offer to the other one the purchase of its equity participation, setting forth the terms and price, thereby giving the offeree only two options: to accept the offer and sell its participation or to buy the offeror’s equity participation at the same price specified by the same first offeror.

Typical exit provisions are aimed at ensuring that the JV parties are not subject to either undesired changes of the other JV party (pre-emption right) or controlling shareholder (tag-along clauses) or that a JV party is not in the position of frustrating the exit of the other JV party (drag-along clauses).

It is also common to provide that, in case no exit occurs within a given period of time, both JV parties agree to commence a process aimed at ensuring the exit (either through an M&A process or a IPO of the JV entity).

Non-compete covenants are typically analysed by the ICA in the context of a merger control proceedings. The ICA’s assessment of the notified transaction contains an analysis of the restrictive clauses (such as non-compete, non-solicitation), thus clearance decisions also cover restrictions considered by the ICA to be “ancillary” (i.e. directly related and necessary for the implementation of the JV).

The ICA considers a non-compete obligation between the JV parties and the JV as “ancillary” where such obligation is limited to the products, services and territories covered by the JV agreement or the JV’s bylaws and to the lifetime of the JV. The same principle applies also to non-solicitation and confidentiality covenants.

Conversely, if the restrictive covenants are not considered “ancillary”, they will be assessed under competition rules on anticompetitive agreement.

Arbitration is, in most of the cases, the preferred dispute resolution mechanism for JVs because it is faster than ordinary court proceedings and has the advantage of entrusting the dispute to a third party arbitrator having specific technical expertise in the relevant field.

If the arbitration proceedings take place in Italy, different procedural rules apply depending on whether the proceedings concern a corporate JV or a contractual JV.

On the one hand, disputes arising between the JV partners and/or between any of them and the corporate JV are regulated by the Italian procedural rules on the Corporate Arbitration proceedings, set forth in articles 838-bis to 838-quinquies of the Italian Code of Civil Procedure (ICCP), as far as certain conditions are met, including: (a) the arbitration clause is specifically inserted in the articles of association; (b) litigation concerns disposable rights related to any corporate relationship; and (c) the dispute does not involve a matter requiring the intervention of the Public Prosecutor.

On the other hand, disputes of contractual JVs are regulated by the Italian procedural rules on Ordinary Arbitration proceedings, set forth in Articles 806 to 838 of the Italian Code of Civil Procedure, provided that the relevant dispute concerns disposable rights and does not involve matters mandatorily falling within Ordinary State jurisdiction (e.g. Criminal law, Administrative law, Tax law, etc).

As for JV between partis of different jurisdictions, JV parties usually decide to entrust the dispute to a specific international arbitration institution (such as the ICC or the LCIA) and to apply its institutional rules (the so-called Institutional Arbitration proceedings).

JV parties may agree to refer disputes to Italian Courts. In such cases, according to Law Decree No. 1 of 24 January 2012, corporate JVs’ disputes fall under the jurisdiction of the Italian Business Court. Disputes concerning contractual JVs are within the jurisdiction of the Italian Ordinary Court.

Italian legislation establishes some principles specifically governing the constitution and functioning of JVs.

Partners of a corporate JV have no freedom to decide the governing law, since the JV vehicle shall be regulated by the law of the country in whose territory the JV has been incorporated.

Parties of a contractual JV can choose the law applicable to whole or part of the JV agreement. Nevertheless, where “all the elements relevant to the situation at the time of the choice” are located in one or more EU Member States, parties’ choice of a law other than that of an EU Member State shall not prejudice the application of mandatory EU law provisions.

JV parties’ can choose the dispute resolution forum provided that (a) the choice is proven in writing and (b) the dispute concerns disposable rights.

Trends affecting JVs are the same trends that impact standard investments. 2024 has registered a record of investments (foreign and domestic) in the Italian markets, notwithstanding the unstable global political climate.

Propension of investors to operate in the Italian market is directly affected by the Italian Government’s decisions on any forms of incentives applicable to specifical market sectors (such as energy transition) and by the clarity of the legal framework applicable to JVs.

A growing focus by the Italian political parties on sustainability an innovation makes both sectors highly attractive. Expansive policies and PNRR funds provide a unique opportunity to consolidate this trend.

Studies from primary auditing firms indicate manufacture, ICT and Food & Beverage, health care and pharma as the key sectors for investments in 2025.

Investors continue to focus on projects with a great potential for growth, both organically and through consolidation via M&A (buy&build).