Joint venture is a common strategy for investments and the enhancement of products and services in collaboration with other actors within the same or different business contexts. The presence of joint ventures is not limited to any specific industry or sector, and we see clients setting up partnership arrangements in a wide variety of sectors. The structure of a joint venture is primarily contingent upon the objectives of the partners and larger scale trends, such as macroeconomics, tax and the political landscape, rather than trends within specific industries.

It is common that financial investors desire to invest in certain businesses, yet lack the operational expertise or capacity to manage such businesses successfully. A suitable solution to these issues is the formation of a joint venture together with an industrial partner who possesses the requisite know-how to effectively manage the business. Industrial partners may also engage in joint ventures with another industrial partner to benefit from each other’s know-how in the development and enhancement of products or services. Such joint ventures are more prevalent in industries such as construction, pharmaceuticals and technology. Other, less common but frequently occurring, reasons are for public actors to engage together with private actors in sectors not strictly within the governmental sector but where public actors are active and where there is a need to raise capital from the private sector.

In Sweden, the term “joint venture” lacks a specific legal definition and there are no regulatory requirements pertaining to the structure of a joint venture. Joint ventures may be structured in a multitude of ways, with no predefined or regulated format of which a joint venture should be structured. The structure and type of the joint venture are contingent upon the needs and intentions of the cooperating partners, and the structure of the partnership could be adapted accordingly.

In principle, there are two general methods of structuring a joint venture: either through a purely contractual-based partnership or an entity-based partnership through a corporate vehicle.

The simplest form of a joint venture is a purely contractual-based partnership by way of a co-operation agreement setting forth the scope of the venture, the obligations and commitments of the partners and other specific terms for the partnership. In this structure there are no requirements for equity participation and the parties are able to freely tailor the terms of the joint venture, as the general principle of freedom of contracts applies. However, if the agreement between the partners has a mutual intention of incorporation and the partners are obligated to facilitate such intention, the agreement itself could constitute a non-registered partnership in accordance with the Partnership and Non-registered Partnership Act. This would entail the application of certain statutory provisions to the contractual-based joint venture as a non-registered partnership, which should be recognised by the partners in connection with the formation of the joint venture.

A more common and legally more structured and foreseeable type of joint venture is an entity-based partnership through a corporate vehicle as further described below.

An entity-based joint venture could be structured trough any available corporate vehicle which allows for co-ownership, without any restrictions specific to joint ventures. The most frequently used corporate vehicle for joint ventures is a private limited liability company, but a joint venture could also be structured through a general partnership, limited partnership, cooperative association or non-registered partnership. All corporate vehicles above (except non-registered partnership) constitute separate legal entities with legal competence to enter into agreements and undertake rights and obligations.

Limited liability company

A limited liability company could be registered as either a public or private company. For the purposes of setting up a joint venture the most relevant and frequently used structure is a private company. Consequently, we have excluded factors solely applicable to public companies from this guideline.

Private limited liability companies need to have an issued share capital of at least SEK 25,000 to be paid by its founders and be registered at the Swedish Companies Registration Office (the “SCRO”) and the Swedish Tax Agency. When setting up a joint venture through a limited liability company, the most common and efficient method is to purchase a dormant shelf company and allocate the shares to the partners in proportion to their financial, or other, contribution. The shareholders may be either legal entities or physical persons and the joint venture will be represented by the board of directors appointed by the shareholders.

A limited liability company is generally obligated to keep accounts and submit audited annual accounts to the SCRO, which becomes publicly available upon submission. The company may be required to appoint and register an auditor if the company reaches a certain size. The shareholders are generally not liable for the company’s debts and liabilities. Proceeds may be allocated to the shareholders through dividends in relation to the rights connected with the shares of each shareholder.

General partnership

A general partnership constitutes a legal entity able to enter into agreements, undertake rights and obligations, own property and appear in court. A general partnership does not require any share capital or other requirements in regard to the capitalisation of the entity. However, the liability of a general partnership is not limited to its own financials and the partners could be held liable if the entity is unable to pay its debts. The partners’ liability over the general partnership is joint and several.

A general partnership is based upon a contractual relationship between the partners with the intention to jointly engage in business, and the legal entity is formed through the registration of such partnership agreement with the SCRO and Swedish Tax Agency. The partnership agreement does not become publicly available upon registration.

Both legal entities and physical persons could be partners to a general partnership. The partnership is represented by each of the partners, unless otherwise is regulated in the partnership agreement or through a general power of attorney registered with the SCRO. The partnership agreement could also regulate the allocation of proceeds from the partnership, but in absence of such provisions, the general principle of equal distribution applies.

Limited partnership

The limited partnership is similar to the general partnership, and the general principles above apply, apart from the fundamental difference that some of the partners’ liability (limited partners) is limited to their financial contributions (which shall be at least SEK 1) while at least one partner (general partner) is liable for the debts and liabilities of the partnership without limitation. The general and limited partners shall be registered with the SCRO.

The limited partnership is represented by the general partner and unless a limited partner has a registered power of attorney it may not represent the joint venture against third parties.

The proceeds from the partnership shall be allocated in accordance with the partnership agreement. If the agreement does not provide for such allocation and the partners are unable to agree on the allocation, the matter shall be decided by the general court.

Cooperative association

A cooperative association constitutes a legal entity and may enter into agreements, undertake rights and obligations, own property and appear in court. A cooperative association may be founded by at least three operative partners which may be either legal entities or physical persons. A cooperative association is governed by its registered articles of association which also regulate the financial contribution required by each partner. The amount of the financial contribution may be determined by the partners and each partner’s liability is limited to their contribution.

The cooperative association is represented by a board of at least three directors appointed by the association meeting. The cooperative association is required to appoint and register an auditor, keep accounting records and submit annual reports. Proceeds from the association may be allocated to its members through dividends decided by the association meeting.

The structure of the joint venture, and whether to set up a corporate vehicle or not, is dependent on several factors connected to the partners’ intentions and expectations of the joint venture. If the collaboration between the partners is temporarily, limited to a specific cause and without the need of a specific allocation of assets, e.g. a joint production project with a limited scope, it may be sufficient with a contractual-based partnership with an agreement setting forth each party’s rights and obligations.

If the partners intend to engage with each other during a longer period of time and with a need to structure the management, allocation of profits and ownership of assets in a more foreseeable way, the partners may consider setting up a cooperate vehicle for the joint venture.

A few key factors which may influence the choice of a suitable corporate vehicle may be, for example:

• The nature and size of the joint venture;
• The domicile of the partners;
• The need of limiting each party’s liability for the joint venture;
• The number of partners;
• Tax considerations;
• Whether each party’s financial contribution will be equal or split differently;
• Whether the partners are going to be operational or financial partners;
• The duration of the joint venture; and
• The intention of making an exit through a sale or IPO, or by liquidation.

The list above is in no way exhaustive, and the choice of corporate vehicle is individual to each joint venture. However, the most structured and commonly used corporate vehicle is a limited liability company which is why any references below to an equity-based partnership refers to limited liability companies unless otherwise specified.

For a contractual-based partnership, the principal legal document is the joint venture agreement. However, this agreement could take form in many different ways depending on the nature and purpose of the joint venture. In its simplest of forms, the joint venture agreement could be a manufacturing agreement, research & development agreement, construction agreement etc. The joint venture agreement will most likely be accompanied with several ancillary documents to further regulate the terms of the partnership. Hence, there are no standard form document for a contractual-based partnership and the concept relies on the principle of freedom of contracts. The agreement shall not be registered with any authority as the partnership do not form a legal entity.

For an entity-based partnership through a limited liability company, the founders will need to file an instrument of incorporation and articles of association with the SCRO. A common and efficient way of setting up a limited liability company is to purchase a dormant shelf company with all basic documentation already in place.

Once the company has been registered or acquired, the partners usually, if not always, regulate their commitments and obligations in regard to the joint venture in a shareholders’ agreement. Such shareholders’ agreements will most likely include provisions regarding financial contributions, governance of the company, anti-dilution protection, transfer restrictions, exit provision etc. Certain provisions may also be included in the articles of association of the company, e.g. if the company shall have different classes of shares and preference provisions for dividends or liquidation of the company depending on the contributions of each partner.

The period of time to form a joint venture is mainly dependent on the negotiations between the partners and the time to reach a final joint venture agreement or shareholders’ agreement. In case of a contractual-based partnership, the agreement itself constitute the joint venture and is formed upon conclusion.

In case of an entity-based partnership there could be some processing time for filings with the national authorities, but such processing times are usually neglectable and could, to some extent, be avoided by purchasing a shelf company. For reference, the registration of a limited liability company with SCRO has a processing time of approximately 7-10 business days, and other corporate vehicles approximately 14-20 business days. Even though the partners choose to purchase a shelf company, there is usually a need to make corporate changes to the company such as new articles of association, change the board of directors, change the company name etc., which will entail processing times generally up to a month.

In order to shield the partners from liabilities for the joint venture, the partners need to set up a corporate vehicle. The choice of corporate vehicle will determine the liability that the partners undertake.

The joint venture partners are only shielded against liabilities for the operations of the joint venture entity if they choose to set up either a limited liability company, a cooperative association or a limited partnership. The liability of stakeholders to such entities is limited to the equity contributed to the entity and if the entity becomes insolvent it may be dissolved through bankruptcy. However, for limited partnerships, the registered general partner is always liable for all debts and obligations of the partnership and cannot be shielded as opposed to the limited partners.

It should be noted that newly founded limited liability entities, without any substantial business or assets, may struggle to raise external financing without the partners having to enter into guarantees for the obligations of the joint venture entity.

Financial contributions to a limited liability company may be made in different ways and variety in complexity depending on the needs and intentions of the partners. The simplest form of contribution is through unconditioned shareholders’ contributions where one or more shareholders allocate funds to the joint venture company, without any obligation of repayment, which increases its equity. Another way of allocating funds to the joint venture is through a conditioned shareholder’s contribution. This will also increase the equity of the joint venture company as it is not booked as a debt, but the contribution should be reimbursed to the shareholder through future dividends.

A frequently used way of financing a joint venture is by issuance of shares or other instruments in the joint venture entity. This way of financing the entity will give each partner ownership in the company equal to its financial contribution and is a preferable way of engaging new partners to an already existing joint venture. This will, however, entail that the ownership of already existing partners will be diluted. The shares or instruments to be issued may be adapted to the interests of the partners depending on their contribution to the joint venture. For example, a purely financial partner may submit for preference shares with the right to acquire a higher return on their investment, while an operational partner may be more interested in another class of shares with a higher level of influence at the shareholders’ meeting.

As a general principle, most resolutions in a limited liability company require a simple majority of the voting capital. However, the Companies Act provide for several general and more specific mandatory minority protection provisions.

The Companies Act stipulate a general principle of equality of all shares in a limited liability company which means that each share of the same class shall have equal rights. This principle is amended with a general prohibition for the general meeting or board of directors to resolve or invoke resolutions to unduly disfavour one shareholder in favour of another shareholder.

More specific mandatory minority protection provisions in the Companies Act becomes applicable at a certain percentage of shares in the company. A minority of at least one third of the shares has a veto right against certain decisions and may stop resolutions to e.g. change the articles of association, issuances of instruments and rights, decrease the share capital or engage in a merger or demerger of the company. Further, a minority of at least ten percent obtains the right to e.g. convene an extraordinary general meeting, delay certain resolutions, invoke a distribution of dividends (within certain limitations) and refuse discharge of liability for the board of directors. It should however be noted that shareholders of less than ten per cent have little influence over the company and a majority shareholder of more than ninety per cent of the shares may enforce a compulsory buy-out of the minority shares, and the minority shareholder may, vice versa, compel the majority shareholder to purchase its shares.

Most partners to joint ventures wish to implement more enhanced governance provisions adapted to the dynamics of the partners and the joint venture. Such provisions will be regulated in a shareholders’ agreement and may usually include super majority provisions or veto right for certain resolutions, rights to nominate a certain number of directors and occasionally restrictions of the statutory minority protection.

The board of directors is the managing and representative body of a limited liability company and is responsible of the organisation and management of the business of the joint venture. Some duties of the directors include a continuous assessment of the company’s financial situation and ensuring proper control of the bookkeeping, management of funds and other financial conditions. The board may delegate the management of the day-to-day business to the managing director appointed by the board.

Specific obligations of the board of directors may arise if the company’s equity amounts to less than half of the registered share capital of the company (critical capital deficit). The board of directors is obligated to draw up a control balance sheet and, if the deficit is confirmed, convene an extraordinary general meeting to resolve upon whether the company shall enter into liquidation or not. Individual directors may be personally liable for the debts of the company if such duties are ignored.

Individual directors may also be held liable for damages caused to the company or shareholders due to intentional or negligent conduct while fulfilling their duties. The liability of the directors does not extend to ensure profitability or making the right business decisions. Personal liability arises only in situations where a director has substantially breached its loyalty commitments to the company and the shareholders.

The Companies Act stipulates that a director may not take part in certain matters where there is a risk of a conflict of interest. Such matters include e.g. agreements between the company and the director, agreements between the company and a third party in which the director has a material interest or an agreement between the company and a legal entity controlled by the director.

For further information regarding the duties of directors in Sweden, please click here.

Limited liability company

The structure of Swedish limited liability company’s management body/board follows the one-tier management system provided by the Swedish Companies Act. A Swedish limited liability company has a shareholders’ meeting and a board of directors. The shareholders’ meeting is the decision-making body in the company, while the board of directors is the executive body. It is at the shareholders’ meeting the shareholders exercise its influence over the company. The shareholders’ meeting is competent to decide on all matters that do not explicitly fall under the exclusive competence of another corporate body.

The board of directors is responsible for the organisation and the overall management of the company’s business, it has a very broad power of decision. The board of directors may also appoint a managing director who is responsible for the day-to-day management of the company. The board of directors’ and the managing director’s discretion may be subject to restrictions from the shareholders’ meeting or a shareholders’ agreement.

Contractual-based joint ventures

The management structure of a purely contractual joint venture is completely contingent upon the terms of the agreement establishing the joint venture. However, joint ventures set up purely as contractual joint ventures tend to have a simpler management structure than joint ventures established through corporate vehicles.

With regard to the limited liability company, the Companies Act does not contain any provisions that would impose any general fiduciary duties or a duty of good faith between the shareholders, or between the shareholders and the company. Nevertheless, some provisions of the Companies Act express a certain duty of loyalty between shareholders. No corporate body may adopt any resolutions that contravene the company’s purpose of generating profit for the shareholders or that provides an undue advantage to a shareholder at the expense of the company or another shareholder.

The shareholders’ agreement and a joint venture agreement in case of a contractual-based partnership typically expressly stipulates a duty of loyalty between the parties. The precise meaning of the duty of loyalty must be determined on a case-by-case basis, considering the specific circumstances of each individual situation. However, as a general rule, the duty of loyalty should be understood to imply that a party to a shareholders’ agreement may not take any measures that would benefit them at the expense of the company or another shareholder.

The Swedish Screening of Foreign Direct Investments Act (2023:560) (the “FDI Act”) authorises the Swedish Inspectorate of Strategic Products (the “ISP”) to screen foreign direct investments in activities worthy of protection. The FDI Act stipulates that a particular screening procedure must be undertaken prior to an investment, whereby an investor (domestic or foreign) acquires a specified level of influence in, or assumes control of, a protected activity.

The FDI Act is applicable irrespective of the corporate vehicle used to undertake the protected activity. Any individual or entity intending to invest, either directly or indirectly, in activities that fall under the purview of the FDI Act is required to notify the ISP. The obligation to notify is applicable to all investors, irrespective of nationality or domicile, provided that a certain level of influence has been attained. Conversely, the company subject to the investment must inform potential investors of the aforementioned obligation to notify, if such obligation exists.

The ISP is entitled to either prohibit the foreign direct investment or to impose specific conditions in conjunction with the granting of authorisation. Should an investment be prohibited, any legal act forming part of the investment or having the purpose of realising the investment will be rendered invalid. Furthermore, the ISP is entitled to issue penalties of up to SEK 100 million for instances of non-compliance.

Several competition law considerations are relevant for the formation and operation of a joint venture.

Initially, the establishment of a “full function” joint venture must be notified and cleared by the competition authority if certain turnover thresholds are met by the parent company. A joint venture is normally considered to be full function when it does not merely perform tasks for its parent companies, but acts independently on the market and has its own management. The competition authority will review if the creation of the joint venture may affect the market – by way of dominance of a sector – in such a way that the creation should be forbidden or mitigated by conditions.

Both the setting up and also the operation of a joint venture is also to be reviewed in line of general competition rules; i.e. the prohibition to enter into anti-competitive agreements and also to abuse a dominant market position. The creation of a joint venture between competitors may be considered as an anti-competitive agreement.

There are guidelines from the European commission on the formation of joint ventures and there are many “exceptions” from the above-mentioned prohibitions, for instance for joint ventures with certain research tasks (which could result in positive findings for the greater public).

The competition law aspects should always be considered before the formation but also regularly (if for instance partners are changed) and on a case-by-case basis.

The majority of Swedish companies, associations, and other legal entities must register beneficial ownership information with the SCRO. A beneficial owner is a natural person who

1. controls more than 25 per cent of the total number of votes in the legal person by virtue of ownership of shares, other equity or membership,
2. has the right to appoint or remove more than half of the directors or equivalent officers of the legal person, or
3. by virtue of an agreement with the owner, member or the legal person, a provision in its statutes, articles of association or similar documents, can exercise the control referred to in (i) or (ii).

The above-mentioned documentation shall be registered with the SCRO and be provided without delay at the request of an authority. The documentation shall also be made available to an operator upon request, should the operator be undertaking customer due diligence measures in relation to a transaction or business relationship with the legal entity.

When setting up a joint venture there are a few general issues to consider regarding the use of intellectual property rights (“IPR”) and confidential information. An initial issue is to clearly identify the IPR that each partner brings into the joint venture and agree upon the ownership of such pre-existing IPR. The partners should also establish who will own any new IPR as a result from the joint venture. Finally, to ensure an efficient termination of the joint venture and minimising the risks of disputes, the partners should develop a clear exit strategy that addresses the handling of IPR upon termination.

The joint venture agreement and the shareholders’ agreement should include provisions to implement protection of confidential information or trade secrets shared between the partners. Such provisions should also specify who will have access to confidential information and under which circumstances it may be used within the joint venture.

Upon termination of the joint venture the partners should also consider what happens to the IPR of the joint venture. The pre-existing IPR could be reverted to its original owners and IPR resulting from the joint venture could be transferred to either or all partners. IPR could also be transferred or assigned to third parties but should be subject to the approval of the other joint venture partners. It is also important that licensing of IPR should be subject to the continuity of the joint venture and that the license shall be terminated if the joint venture is terminated.

In order to ensure an efficient termination of the joint venture and minimising the risks of disputes, the partners should develop a clear exit strategy that addresses the handling of IPR upon termination.

The transfer of employees from a joint venture party to the joint venture involves several legal considerations, primarily whether it constitutes a transfer of an undertaking under section 6b of the Swedish Employment Protection Act (1982:80) (the “EPA“) and if negotiation with trade unions is required.

There are two main ways in which transferring employees can occur; employees can either commence new employment with the joint venture, ending their current employment, or the transfer constitutes a transfer of an undertaking. The transfer of an undertaking is a legal concept that must be interpreted autonomously on a case-by case basis.

If deemed a transfer of undertaking, the joint venture becomes the employer, assuming all past, current and future rights and obligations in relation to the employment, while the joint venture party remains liable for financial obligations relating to the period preceding the transfer. All concerned employees are entitled to decline the transfer and continue their employment with the joint venture party. However, the transfer of an undertaking may result in a redundancy situation for the employee who refuses to be transferred. In the event of a transfer of undertaking, there are also special rules regarding the transfer of collective bargaining agreements, which will not be addressed herein.

The obligation to negotiate with trade union(s) depends on whether the joint venture party is bound by a collective bargaining agreement and if the transfer is a transfer of undertaking. This obligation must be determined on a case-by-case basis. The term ‘negotiate’ is however somewhat misleading, as the trade union(s) has no veto but a right to be consulted. The joint venture party must initiate negotiations, which must be concluded before any decision to avoid liability to the trade union(s).

It must be recognised that the joint venture and the listed joint venture partner are two separate and distinct legal entities. Thus, as a starting point, the rules for private limited companies apply to the joint venture irrespective of whether it has a public party or not.

However, as an exception to the above, when a publicly listed company participates in a joint venture, certain requirements and considerations set it apart from privately held entities:

Disclosure and Transparency:

Publicly listed companies are obligated to comply with strict disclosure regulations. Significant events, such as entering into a joint venture, must be disclosed promptly by the listed company to ensure equal access to material information for shareholders and market participants. This requirement is governed by market rules and legislation concerning market abuse. Even though the requirement directly applies to the listed company and not the joint venture, the joint venture is indirectly affected by the disclosure requirements should any circumstances arise in the joint venture that is of such nature that it could be material information for shareholders and market participants in relation to the listed company.

Financial Reporting Standards:

The listed joint venture party shall apply with specific accounting standards applicable to publicly listed companies. This includes recognition and valuation of the joint venture in financial statements, often with heightened scrutiny due to the transparency required in financial reporting for listed entities. In this context, it means that the joint venture is subject to more stringent reporting requirements to its listed joint venture partner than would be the case if both partners were private companies. The joint venture could, as long as the listed joint venture party presents consolidated group level accounts according to IFRS, choose to not apply the same reporting standards (IFRS) and instead apply K2 or K3 reporting standards, however, this means that the joint venture’s figures need to be restated for inclusion in the group consolidated accounts.

Joint venture parties (all parties limited liability companies)

Taxation of capital contributions, dividends and capital gains: Capital contributions to the Joint Venture entity are generally tax-neutral for the contributing parties and for the Joint Venture entity. However, dividends distributed by the Joint Venture to its owners are subject to taxation for individuals (this typically falls under capital income taxation), while for corporate entities, tax exemptions may apply under the Swedish rules for business-related shares (participation exemption rules). The same applies to capital gains on shares in the Joint Venture.

Transfer of value/enrichment of the other party: If one party contributes more funds or assets than proportional to its ownership share, this could result in the other party being indirectly enriched, potentially leading to tax consequences for the enriched party. It is therefore crucial to ensure that contributions of funds or assets are made pro rata to each party’s ownership share. In addition, hidden income transfers through profit sharing between the Joint Venture parties may, under certain circumstances, be considered as salary income for individuals who are enriched or reclassified as taxable business income for the receiving company.

Joint venture entity (all parties limited liability companies)

Transfer pricing considerations: Transactions between the Joint Venture and its owners must adhere to the arm’s length principle, especially in cross-border arrangements, to avoid adjustments and penalties.

Withholding Tax on Payments: If the joint venture distributes dividends or makes payments such as royalties or interest to foreign owners, withholding tax obligations may arise according to the Coupon Tax Act. This tax is often subject to reduction or exemption under applicable tax treaties or EU directives, but compliance must be ensured.

Interest deduction limitations: If a Swedish Joint Venture entity is financed/capitalized through loans from its owners, it is necessary to consider the Swedish interest deduction limitation rules to ensure that interest expenses are deductible for tax purposes.

General regarding joint venture entity (partnership taxed entity)

In cases where the joint venture is a partnership-taxed entity, taxation is, as a general rule, applied at the partner level. Specific regulations govern this process.

Limited liability company

In Swedish limited liability companies, dividends may only be distributed from distributable profits, which include retained earnings, current-year profits, and any other unrestricted equity as reflected in the most recent adopted balance sheet. The company’s restricted equity, such as share capital and statutory reserves, must remain intact. Moreover, the “prudence rule” stipulates that any dividend distribution must not endanger the company’s liquidity or financial stability, considering its financial position and prospective obligations.

Dividends are proposed by the board of directors and must be approved by the general meeting. The general meeting is not permitted to decide on a higher distribution than that proposed by the board unless explicitly permitted by the company’s articles of association. Any distribution in violation of these rules is considered illegal, and recipients may be required to repay the funds, particularly if they were aware of the irregularity.

Contractual-based joint venture

As contractual-based joint ventures are not carried out through a corporate vehicle, the distribution of profits of the contractual based joint venture is completely contingent upon the terms of the joint venture agreement.

Irrespective of whether the joint venture is conducted through a corporate vehicle or not, deadlocks in decision-making within a joint venture are typically addressed through predefined mechanisms designed to ensure the expedient resolution of deadlocks and the maintenance of operational continuity. Typically, the resolution of deadlocks in decision-making within a joint venture entails negotiation and escalation to higher management levels, wherein the parties are encouraged to resolve the deadlock in good faith. In the event that negotiations prove unsuccessful, the matter may be referred to a neutral third party, such as a mediator or arbitrator, for resolution. In some agreements, a designated individual, such as the chairperson, may be granted the authority to cast a deciding vote in order to break the deadlock.

In the case of deadlocks pertaining to a technical or financial issue, independent expert determination may be used, while persistent deadlocks may result in the dissolution or termination of the joint venture. Alternatives to dissolution or termination, is the incorporation of buy-sell mechanisms, which permit one party to purchase the interest of the other under specified terms, or the incorporation of put/call options which may permit one party to require the other to sell or purchase its interest in the event that the parties are unable to resolve a deadlock.

Irrespective of whether the joint venture is conducted through a corporate vehicle or not, the typical exit and termination provisions in a joint venture agreement are designed to ensure an orderly resolution in both instances where the exit or termination is mutually agreed upon and when it is decided unilaterally. The imposition of restrictions on the transfer of shares are commonly used to ensure that existing parties are afforded the initial opportunity to acquire shares before they are sold to third parties. Additionally, tag-along and drag-along rights may be included.

Joint venture agreements also normally stipulate that termination is triggered by specific events, such as deadlocks in decision-making, material breaches, or insolvency of a party. Some agreements allow for termination upon a change of control in a party or due to external factors like force majeure. For joint ventures with a defined purpose or timeline, termination may occur automatically upon achieving the objective or reaching the agreed term.

There are constraints on restrictive covenants in Swedish law. In joint ventures, agreements to not compete are normally valid and legal as long as the joint venture is operational. On the other hand, agreements to not compete that are valid past the cessation of the joint venture may, although frequently occurring, be challenged and voided by a court ruling. A case-by-case assessment of restrictions as the ones mentioned is needed.

The most prevalent mechanism for dispute resolution is arbitration. This is particularly the case when the joint venture is governed or established in accordance with Swedish law. The arbitration is commonly administered by the SCC Institute. Nevertheless, there are no explicit limitations on the parties’ selection of dispute resolution mechanism or the applicable governing law. In the event that the joint venture is conducted through a Swedish corporate vehicle, such as a Swedish limited liability company or a general or limited partnership, Swedish law will apply in regard to the corporate vehicle. In such a case, the most appropriate choice of law for a joint venture agreement or a shareholders’ agreement would be Swedish law.

In addition to the aforementioned mechanisms, the joint venture agreement may also specify alternative forms of dispute resolution, such as mediation. Mediation may be conducted with the SCC Institute in accordance with the mediation rules of the SCC Institute.

Our perception of the market trends in Sweden is that the interest in joint venture partnerships is increasing in most sectors. One of the reasons to establish a joint venture is to distribute the risk and costs between more parties. The increase in interest may be linked to an increased macroeconomic and political risk which tend to make investors more cautious in making investments. Another possible reasons for the increase may be that financial institutions tends to have become more restrictive in providing financing which calls for alternative ways of financing the business.

The increase of joint ventures is present in both traditional markets as well as more disruptive markets. Given the market trends and the current financial and political landscape, we anticipate that the interest of joint ventures will continue to increase over the next year.