GERMANY Law and Practice Contributed by: Leif Gösta Gerling, Matthias Krämer, Anna Reuber and Jiabao Gerling-Li, LPA
which the JV parties have already outlined the essen - tial aspects (albeit possibly only in broad terms). It is then customary to regulate the rights and obligations relating to the structure of the co-operation in a sep - arate JV agreement (or shareholders’ agreement) in addition to the JV’s articles of association and found - ing documentation. The reason for this is that, unlike the articles of association, a JV agreement or share - holders’ agreement is not publicly accessible (see 5.2 Disclosure Obligations ). Finally, if foreign parties are to become shareholders in a JV, provisions of the German Foreign Trade and Payments Act (AWG) and other FDI provisions must also be considered in advance and based on the pur - pose of the JV. 6. Core Terms of a JV Agreement 6.1 Drafting and Structure of the Agreement The documentation of a JV depends on the legal form of the JV, among other matters. In Germany, most corporate JVs are structured as a GmbH, which offers considerable flexibility in governance and liability. Larger or listed JVs may exceptionally use an AG, although this is rare due to its rigid statutory regime and mandatory supervisory board. The GmbH requires notarised articles of association under the GmbHG, addressing statutory matters such as share capital, shareholders, corporate purpose and management. In practice, however, the core arrangements between the JV parties are contained in a separate sharehold - ers’ agreement (JV agreement), which complements the articles of association and governs the contractual relationship of the JV parties. The JV agreement typically defines the scope and business purpose of the JV, and regulates capital and/ or other contributions and funding obligations, includ - ing equity injections, transfers of assets or intellectual property and future financing commitments. It estab - lishes governance structures by determining: • the composition and powers of management and boards; • the allocation of decision-making authority;
• the catalogue of reserved matters requiring unani - mous or qualified consent; and • protections for minority shareholders. It further sets out financial terms, including budget - ing, profit distribution, accounting and audit rights, and it contains detailed provisions on transfer restric - tions and exit mechanisms, such as pre-emption rights, tag-along and drag-along rights, or put and call options. Deadlock resolution is usually addressed through escalation procedures and, if necessary, buy- sell mechanisms, while termination and dissolution are dealt with by reference to specific triggers agreed by the JV parties. In addition, market practice requires clauses on con - fidentiality, non-compete undertakings, intellectual property ownership, compliance obligations and dis - pute resolution, often via arbitration consistent with market practice in order to preserve confidentiality. Overall, the documentation integrates mandatory cor - porate law requirements into a contractual framework that allocates governance, risks and economic rights between the JV parties. 6.2 Governance and Decision-Making Governance and decision-making within a JV depend on the chosen vehicle but follow consistent principles structured through a combination of shareholder-level and board-level governance mechanisms. In corporate JVs, the management body is responsible for day-to- day business, acting within the limits of statutory law, the articles of association and the JV agreement. To safeguard the shareholders’ interests, its powers are typically restricted by a catalogue of reserved matters requiring higher-level consent, such as material acqui - sitions or disposals, financing exceeding certain pre- defined thresholds, entry into significant contracts or any deviation from the approved business plan. These reserved matters are usually incorporated in rules of procedure for the management or in the respective service agreement concluded with the respective member of the management. Strategic authority rests with the owners’ assembly, whether shareholders’ meetings in a GmbH or general meetings in an AG. German law provides that ordinary resolutions in a GmbH require a simple majority of the
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