SWEDEN Law and Practice Contributed by: Johannes Wårdman and Erik Frykenholt, CMS Wistrand
clauses or veto rights to prevent a party from squeez - ing out another party. 6.4 Deadlocks Irrespective of whether the JV is set up and conducted through a corporate vehicle or not, deadlocks in deci - sion-making are usually resolved through predeter - mined mechanisms designed to ensure the expedient resolution of deadlocks and the maintenance of oper - ational continuity. Resolving deadlocks in JVs usually involves negotiation and further delegation to higher management levels, where the parties are encouraged to resolve deadlocks 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 des - ignated individual, such as the chairperson, may be granted the authority to cast a deciding vote in order to break the deadlock. If a deadlock arises regarding a technical or financial matter, the parties may refer the issue to an independ - ent expert for resolution. If the deadlock persists, it may result in the dissolution or termination of the JV. Alternatively, the JV agreement may provide for the incorporation of buy-sell mechanisms, whereby one party can purchase the other’s interest in the venture at pre-agreed prices or at the highest bid presented by the parties. One example of such a mechanism is the use of put and/or call options, whereby one party can require the other to sell or buy their interest in the JV if the parties cannot resolve the deadlock. 6.5 Other Documentation When setting up a JV, additional documents besides the JV agreement or shareholders’ agreement are usu - ally required. The type of documents needed are highly dependent on the specific project and the objectives of the JV. Additional documents and agreements may be, for example: • asset transfer agreements for transferring assets to the JV vehicle (carve-in/carve-out); • asset management agreements or service agree - ments regarding personnel, knowledge and other services between the JV vehicle and the JV part - ners or other parties;
• the business plan and instructions to the board of directors regarding the governance of the JV; • articles of association and other corporate docu - mentation adapted to the preferred share structure, etc; • IP licence agreements for the transfer or use of IP rights held by any of the JV partners; and • property development agreements and lease agreements. 6.6 Rights and Obligations of JV Partners The JV partners’ rights and obligations in a JV in the form of a limited liability company are governed by the shareholders’ agreement. Such agreement usu - ally contains provisions with regards to activity obliga - tions, non-compete provisions, right to information, restrictions on transfer of shares, etc. Even though the Companies Act provides certain rights and obligations for shareholders in a limited liability company, there is usually a need to enhance or adapt such rights and obligations between the parties. The distribution of dividends in a limited liability com - pany may only be distributed from distributable profits, which include retained earnings, current-year profits, and any other unrestricted equity as reflected in the most recently 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 stabil - ity, considering its financial position and prospective obligations. Generally, dividends shall be distributed equally across shares of the same class and pro rata in relation to the number of shares held by each JV partner. If other allocations are desired, it may be ben - eficial to issue separate classes of preferential shares with other rights to dividends. As contractual JVs are not carried out through a cor - porate vehicle, the distribution of profits of the con - tractual JV is completely contingent upon the terms of the JV agreement. The JV partners’ liability for debts and obligations of the JV is dependent on the choice of JV vehicle as set forth in 2.1 Typical JV Structures .
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