A joint venture is a widely used form of cooperation between companies and a popular market entry option in Spain.
A joint venture (common venture) is not a legally or conclusively defined figure. A joint venture is understood as a contractual arrangement for the formation of a new company. A current example of a joint venture is the relationship between Elavon, a leading provider of international payment processing, and the international financial institution Banco Santander in Spain, which was formed in 2013. The departments of this joint venture have assumed responsibility for the existing merchant customers of Santander and want to use the extensive branch network of the bank to search for new business opportunities.
The legal basis for joint ventures in Spain
A joint venture is not defined in Spanish law or in other legal institutions of Anglo-Saxon origin. As a result, the general rules of the Spanish Civil and Commercial Code must be used to determine its legal conditions. In particular, one can look to Article 1255 of the Spanish Civil Code, which is an expression of the principle of freedom of contract and specifies: The Parties may reach agreements, define terms and conditions as they deem expedient, provided they are not contrary to law, morals or public order.
Legal forms of joint ventures in Spain
A joint venture may occur under different legal forms. In addition to the types under the Capital Company Law, the following may be considered:
Temporary Business Unions (UTE)
A UTE (Law 18/1982, of 26/05/1982) is a cooperation – for a definite or indefinite period of time – to carry out a specific project or to provide a given service. This form of joint collaboration of several companies on a project is usually chosen for technical projects or construction projects.
UTEs are not corporations and are not legally capable in other respects.
Economic Interest Groups (AIE)
AIEs are incorporated trading companies. They have their own legal entity, in contrast to a UTE. They may only be established for the purpose of their own members and to serve in support of their objectives. (Law 12/1991, of 29/04/1991).
An AIE may not enter into legal transactions on behalf of or as representatives of their members.
An AIE is mostly used for the provision of centralized services within another trade association or a group of companies such as central purchasing, sales or administration.
A silent partnership is the participation of a contractor who is not at the same time managing investor or partner and is not involved in entrepreneurial activities or anything of its kind which renders money. As a result, the trader will participate in the profits made, in addition to the losses.
Advantages and Disadvantages
The advantages of a joint venture are primarily in the use of resources of the parties, namely the market knowledge of the local partner, market positioning, expertise or production. Synergies benefiting the project are implemented due to the combined forces of the company.
The disadvantages lie in the often considerable use of resources, such as employees, capital and know-how and possibly one disadvantage created by the merger of companies, of dependence and cultural compatibility issues.
Catharina Jung & Karl Lincke
This article is not considered as legal advice