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10 January 2018 / article

Points of attention when investing through a Belgian joint-venture

An increasing number of investments in today’s market are made by joint-ventures (“JV’s”) in which two or more institutional investors participate. This increased use of joint-ventures gives rise to a number of recurring issues. The most important issues are briefly discussed below.

A) Organisation: partnership or company

JV’s can be structured as “partnerships” (i.e. on a purely contractual basis and not through an entity with separate legal personality) or through joint-venture companies, who have a separate legal personality. The type of company used for the joint-venture will depend on a variety of legal, regulatory and tax considerations. In Belgium, the limited liability company (“naamloze vennootschap” / “société anonyme”) is most often used. For tax purposes, US investors however often prefer the private limiated liability company (“besloten vennootschap met beperkte aansprakelijkheid” / “société privée à responsabilité limitée”).

B) Stability of the JV versus exit possibilities for JV members

One of the key-concerns for most JV’s is finding the right balance between (i) securing the stability of the JV and (ii) offering a realistic exit possibility to the JV members.

The stability of the JV is typically secured through (i) restrictions on the transferability of the shares of the JV company and (ii) change of control clauses (triggered by the change of control over one or more of the JV members). Both types of clauses are, in principle, valid under Belgian law but, depending on the corporate form chosen for the JV, statutory limitations may apply to these clauses. In order for share transfer restrictions to be effective towards third parties (such as the purchaser of the shares), it is advisable to include the share transfer restrictions in the articles of association of the JV (and not only in the JV Agreement itself).


As mentioned above and despite the need for stability, JV members nevertheless often want to include one or more exit mechanisms in the JV Agreement in order to compensate for the “illiquidity” of a JV investment. Again, Belgian law offers a variety of mechanisms, based on the contractual freedom of the parties. Among those most often used are:

  • “joint exit clauses” such as (i) drag along rights (allowing one or more JV partners to oblige the other JV partner to co-sell their shares to a third party), (ii) tag along rights (granting the right to one or more JV partners to co-sell their JV shares to the third party to whom other JV partners sell their shares), (iii) “trade sale” and/or “IPO” clauses (whereby JV partners undertake to co-operate in order to sell the JV to a third party or list it on a stock exchange);
  • “put and call options” whereby one or more JV partners have the right to acquire the shares of other JV partners (call option) or the obligation to acquire the shares of other JV partners, if requested by the latter (put option). These options may be conditional, limited in time,….. Under Belgian law, two legal technical issues must be kept in mind when negotiating and drafting this type of options:
    1. the exercise price of the option must be determined or determinable. This means that the JV agreement must either provide for a fixed exercise price or must contain all elements on the basis of which the exercise price will be calculated (without any further negotiations between the parties being required). Alternatively, and subject to some statutory conditions, the JV partners may also decide to appoint an independent third party/expert to determine the exercise price. The requirement of a “determined or determinable exercise” price is of paramount importance as, in absence of a “determined or determinable exercise price”, the option will be null and void.
    2. the option may not be in violation of Article 32 of the Belgian Companies Code, according to which no shareholder may be (i) excluded from participating in the company’s profits nor (ii) exempt from exposure to the company’s losses. This provision has created quite some legal uncertainty with respect to the validity of put options, allowing a shareholder to sell its shares in a company at a price at least equal to the initial acquisition/subscription price paid for those shares. Although the Belgian Supreme Court (“Hof van Cassatie” / “Cour de Cassation”) seems to have accepted the validity of this type of options (provided they are in the corporate interest of the company), Article 32 of the Belgian Companies Code unfortunately still creates legal uncertainty for this type of (put) options.

C) Governance of the JV

JV agreements typically provide for a detailed description of the governance of the JV: allocation of decision power, composition of the board, (qualified) majority requirements,… In practice, the governance model will to a large extent depend on (i) the structure of the JV (50/50 or majority / minority) and (ii) the corporate form of the JV. From a Belgian legal perspective, it is important to keep the following in mind when negotiating/drafting such governance requirements:

  • voting arrangements between, shareholders are valid provided they are (i) limited in time and (ii) are, at all times, justified by the JV’s corporate interest; and
  • voting arrangements at the level of the JV’s board of directors are not valid as the directors must, at all times, be free to act in the best interest of the JV.

As part of these governance discussions, JV partners often negotiate (or at least consider) including a “deadlock mechanism” in their JV Agreement. This mechanism deals with a situation whereby, due to conflicts or conflicting views between the JV partners, decisions can no longer be taken and the JV risks finding itself in a governance “deadlock”. Depending on the circumstances, general Belgian corporate law may offer some mechanisms to solve such a deadlock (e.g. claim for abuse of minority, forced exclusion of a shareholder, appointment of a provisional administrator). Nevertheless, JV partners often (try to) agree on a contractual deadlock mechanism as well. Again, based on the freedom of contract, Belgian law offers a variety of “deadlock mechanisms”, ranging from the referral of a matter to a third party over put- and call options to the sale or liquidation of the JV in case of a deadlock.

D) Distribution and allocation of profits

Belgian law offers a large freedom to JV partners to make contractual arrangements on profit allocation and distribution. There is no obligation to allocate profits proportionally among JV partners.


Some statutory restrictions do exist on (i) the distributable amounts, (ii) the timing of the distribution(s) and (iii) the allocation of profits between the shareholders (see the above mentioned Article 32 of the Belgian Companies Code, which does not allow clauses excluding a shareholder from participating in the profits). In addition to these statutory limitations, it should be kept in mind that any decision on distribution of profits to JV partners must be justifiable in the corporate interest of the JV. This corporate interest test may indeed override contractual arrangements between the JV partners included in the JV Agreement as well as decisions of the JV’s corporate bodies.

E) Duration of the JV Agreement

In Belgian practice, JV Agreements will typically be limited in time. Although Belgian law only provides for a statutory obligation to limit the duration of certain clauses often included in JV Agreements (mainly voting arrangements and lock-up clauses), a time limitation is typically applied to the entire JV Agreement. This can be explained by the fact that, under general Belgian civil law, each party may, at any time, terminate agreements for an undetermined duration “with reasonable notice”. In order to avoid uncertainty on the duration of their JV agreement, parties therefore usually opt to provide for a specific term for the JV agreement as a whole. In practice, most JV agreements under Belgian law are entered into for a term between 5 and 10 years.



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