KUWAIT Law and Practice Contributed by: Michel Ghanem, Patrick Obeid and Michel Ata, Meysan
technology, or operational capabilities. By separating strategic oversight (reserved to the board or man - ager) from day-to-day operations (managed by the OGC), this dual-layer governance approach enhances responsiveness, fosters alignment, and reduces deci - sion-making bottlenecks. In practice, the OGC often meets more frequently than the board and serves as a pragmatic forum for addressing operational challenges in real time, while allowing the board to retain control over higher-level strategic decisions. Overall, joint-venture governance frameworks in Kuwait are carefully structured to achieve a balanced allocation of authority, ensuring operational autonomy where needed, while preserving strategic oversight. This is particularly critical in joint ventures involving international investors or those operating in regulated sectors, where compliance with local requirements is essential. 6.3 Funding Funding of joint ventures in Kuwait generally involves a combination of initial equity contributions and share - holder loans. The method and timing of these capital injections are normally specified in the joint-venture agreement, often broken down into tranches linked to specific milestones such as licensing, facility comple - tion, or customer acquisition targets. Future funding obligations can be structured in a variety of ways. Some agreements require all share - holders to contribute pro rata according to their own - ership interests upon receipt of capital calls. Others give shareholders the option, but not the obligation, to contribute to additional capital needs. In the latter case, mechanisms are often included to address the consequences of a shareholder’s decline or inability to participate in future funding. These may include dilution of the non-contributing party’s inter - est, reclassification of unpaid equity into debt, or even triggering buyout rights. In one Kuwaiti joint venture, a failure to meet capital call obligations within a defined grace period resulted in the loss of certain governance rights, such as voting
on budgetary matters, until the default was cured. This structure incentivised timely compliance with funding obligations while preserving flexibility for the partners. 6.4 Deadlocks Deadlocks can arise in joint ventures where decision- making authority is shared equally or where critical decisions require unanimity. The manner in which deadlocks are addressed varies depending on the commercial relationship and the desired level of con - tinuity. A common approach is to adopt a multi-tiered dispute resolution process. This typically begins with good- faith negotiations between senior executives of the joint-venture partners, followed by escalation to each party’s designated representatives. If the deadlock remains unresolved, the matter may then be referred to an independent expert or arbitrator, depending on the nature of the dispute. Other contractual mechanisms used to resolve deadlocks include structured buy–sell arrangements designed to compel a decision between the parties. Under these provisions, one party may offer to pur - chase the other party’s interest at a specified price. The receiving party must then either accept the offer and sell its stake or elect to purchase the offering party’s stake at the same price. These mechanisms are particularly effective in 50:50 joint ventures where there is no majority shareholder, as they create a clear pathway to resolve impasses and potentially exit the venture in a fair and balanced manner. In one example, a Kuwaiti joint-venture agreement provided that, in the event of a board deadlock per - sisting beyond three scheduled meetings, the matter would first be referred to a neutral director for deter - mination. If the neutral director failed to render a deci - sion within a prescribed timeframe, or if the parties disputed the scope or enforceability of that decision, the issue could then be submitted to arbitration. In another case, a joint-venture agreement established a structured, multi-tiered mechanism for resolving deadlocks at both the board and operational com -
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