EGYPT Law and Practice Contributed by: Alex Saleh, Asad Ahmad, Khaled al-Khashab and Mounir Hany, GLA & Company
Two or more persons must jointly “control” the joint venture, either as a result of establishment or acquisi - tion. The joint venture must be intended to permanently operate. The joint venture must be intended to perform all func - tions carried out by independent persons operating in the same market, particularly through the presence of an independent management dedicated to han - dling the joint venture’s daily operations and having separate resources specific to each person, including financing, employees and assets. In this context, independence means the joint venture must be autonomous in its operations. In order to con - sider the operational autonomy of a joint venture, the following factors should be met. The joint venture must engage in an economic activ - ity beyond merely performing a specific function for its controlling persons. The joint venture must also be prepared to perform all functions that independent persons operating in the relevant market carry out. For example, if the controlling persons are active in production, the joint venture’s activity should be the production of a new product different from those pro - duced by the controlling persons. If the joint venture is set up to conduct R&D activities solely for the benefit of its controlling persons, without the involvement of any other persons operating in the market, the joint venture will not be considered independent under the Egyptian Competition Law. The joint venture must have independent resources, including financing, employees and assets. The joint venture must also have an independent management team dedicated to handling its daily operations. In addition, the joint venture must have sufficient sep - arate resources, such as financing, employees and assets, enabling the joint venture to perform its activi - ties independently. The joint venture’s sales and purchases operations must not be limited to the controlling persons. If the joint venture’s sales and purchases operations depend solely on the controlling persons, meaning
that the joint venture has no or limited operations with other market players operating in the market, the joint venture is not deemed to be independent. The follow - ing must be taken into account. Concerning sales: • if the joint venture achieves 50% or more of its total sales with third parties, this will typically be an indication of the joint venture’s independence; • if the joint venture’s sales with third parties do not exceed 50% of its total sales, meaning that the majority of its sales are consistently with the controlling persons, an evaluation is needed to determine if the joint venture is engaging with the controlling persons on a commercial basis, that is, under the same mechanisms and contractual terms as it does with other market players; the joint venture must therefore deal with third parties if they offer better prices or conditions than the controlling persons; and • if the joint venture achieves less than 50% of its total sales with third parties, the market structure should be assessed; eg, if the controlling persons of the joint venture hold more than 50% of the market share in the relevant market, the joint ven - ture’s dependence on the controlling persons for sales does not affect its independence, due to the market structure. Concerning purchasing: • if the joint venture relies on the controlling persons for the majority of its purchases, it is considered independent if it adds value to these purchases. For example, if the joint venture uses the raw mate - rials that it purchases from its parents as produc - tion inputs for other products, the joint venture will be considered independent. However, if the joint venture purchases raw materials from its parents solely for resale, it will not be considered inde - pendent. Except where the joint venture distributes products of the controlling persons alongside those of other market players through its own distribution channels and mechanisms, such as outlets, ware - houses, transport fleets and sales personnel.
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