Company investment & joint ventures
Charltons is committed to assisting companies, joint venture (JV) partners and investors grow their ideas and investments in Hong Kong and the PRC.
We are experienced in advising both buyers and sellers in private equity transactions. We frequently advise on fund formation, transactions, portfolio management, investment restructuring, exits,leveraged buyouts, management buyouts, buy-ins, venture capital investments and financing transactions. We also advise pre-IPO and cornerstone investors.
The boutique nature of our practice means we are frequently retained by smaller and mid-size businesses and closely-held companies seeking an exit or growth financing. We derive a great deal of satisfaction from managing our clients’ Hong Kong company investment and PRC investment solutions and contributing to their success stories. We are happy to advise clients regardless of their size or the size or complexity of the proposed investment.
We regularly act as Hong Kong legal advisers to PRC based JVs. As well as advising generally on the appropriateness of a particular joint venture structure, we can draft the term sheet, the letter of intent and the joint venture agreement, perform due diligence on PRC joint venture partners together with local lawyers and draft or review and revise other relevant documents such as the sale and purchase agreement and disclosure letter. We also advise on the composition of the board and senior management, regulatory requirements, confidentiality and IP protection. We regularly cooperate with lawyers from other jurisdictions on joint venture related matters. We are also experienced in advising on more traditional partnerships including limited partnerships and limited liability companies where the nature of the relationship is set out in the partnership or operating agreement.
For more information about the services we offer in relation to Hong Kong company investment and joint ventures, please click here.
For further information on how we can assist with company investment and joint ventures in the PRC, please click here.
JV series – Joint venture agreement
The principal documents required for a corporate joint venture are:
- the articles of association of the joint venture company, and
- the joint venture or shareholders’ agreement (the JVA)
The purpose of the joint venture agreement is to establish the rights and obligations of the parties in relation to the joint venture, to ensure that the company and its business is established and run in accordance with the parties’ objectives, and to set out procedures for dealing with any difficulties which may arise.
Key matters covered in the joint venture agreement are:
- the business of the joint venture
- the composition of the board and management arrangements
- share capital and funding of the company
- distribution of profits
- restrictive covenants
- protection of minority and majority interests (if applicable)
- resolution of deadlocks
- transfer of shares, and
Parties to the joint venture agreement
The parties to the joint venture agreement are usually the shareholders of the joint venture company and the joint venture company may be included, eg for the purposes of allotting shares or giving restrictive covenants. If the joint venture company is included as a party, the joint venture agreement should not include any restrictions on the exercise of the company’s statutory powers since any such restrictions will be unenforceable. However, such restrictions may be enforceable as between the shareholders if the joint venture company’s obligations are severable.
In order to ensure that no fetters on the company’s statutory powers are included, the JVA could:
- make it clear that the joint venture company is only a party for the purposes of certain clauses (none of which restrict its statutory powers)
- include indirect restrictions by means of weighted voting rights or by obliging the shareholders to procure that the joint venture company does not take certain actions without the unanimous approval of the shareholders
Certain restrictions on shareholders may also constitute an unenforceable fetter on statutory powers. In particular, a provision in a joint venture agreement which has the effect of preventing a shareholder from exercising its statutory right as a contributory of a company to petition for its winding-up would constitute a fetter on the statutory right conferred by the Companies Ordinance (CO).
In addition, while a shareholder could be given an enforceable right to appoint a representative to the board of directors, an unqualified agreement between shareholders not to remove a particular person as a director would constitute an unlawful fetter on the company’s statutory power to remove a director under the CO, even if contained in a separate shareholders’ agreement between shareholders.
Joint venture agreements are generally valid and enforceable as between individual shareholders on the basis that they create only personal obligations and shareholders may deal with their own interests by contract in such way as they may think fit. However, if the agreement purports to bind future shareholders (for example, by requiring such shareholders to execute a deed of adherence before being registered as a shareholder) then such agreement may be deemed to operate beyond a personal contract between individual shareholders and be “elevated to the status of a regulation” of the joint venture company.
The above issues may be avoided by the use of weighted voting rights, which allow certain shareholders or classes or shareholder to exercise super-voting rights in respect of certain matters.
The parties to the joint venture agreement may want to consider whether any of the shareholders’ obligations should be guaranteed by their respective parent companies. For example, this may be appropriate where the proposed shareholder in the joint venture company is a new company specifically created for the purpose of holding its group’s interest in the joint venture.
Additional considerations should be taken into account if any of the parties is an individual (including the need for specific termination provisions in the event of death or incapacity) or a listed company (including potential amendments which may be required to deadlock and compulsory transfer provisions