Companies’ joint venture

Joint Venture is a system of collaboration of several companies for a certain period of time. The purpose of the JV is the development or execution of a work, service or supply.

It is the most typical association in public procurement in Spain.

Legal framework:

• Law 18/1982, of 26 May, on the tax regime of groupings and temporary unions of companies and regional industrial development companies.
• Law 9/2017, of November 8, on Public Sector Contracts and its regulations.

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Concept

Its incorporation is intended to develop or execute  a work, project or service that requires large resources. In other words, it allows the execution of what could not be carried out individually. The companies member of the joint venture act as a group, reducing costs and sharing risks.

There is no limitation on the number of members or their nationality. Although it has no personality, statutes and a common funds must be established.

The JV is constituted through the conclusion of a contract that results in the emergence of an autonomous company. This company (the JV) has a single address.

A basic feature is that JVs do not have legal personality. They do not have the capacity to hold rights and contract obligations, nor do they have the capacity to have their own assets. What they do have are assets that have been contributed by the members of the UTE.

Through the manager of the JV, it has the procedural capacity to be a party.

JVs have a limited duration, which will be the same as the work, service or project for which they were created. For tax purposes, they have a maximum duration of 25 years. As an exception, they may last 50 years if their purpose is the execution of works or the operation of public services.

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Members

They have to be entrepreneurs – natural or legal persons – who are subject to a regime of joint and several liability. Therefore, they are liable to third parties for the acts and operations carried out by the joint venture. Creditors will be directed against the JV, and when the JV’s balance is exhausted, they may be directed against any of its members. The member who pays the debt of the UTE will have return action against the other members. That return action shall be proportional to the percentage each member holds in the joint venture.

Administration

It corresponds to a single manager, who will be granted sufficient powers for the development of his functions. These powers must be granted by the members of the JV. This appointment is revocable since it is essentially a power of attorney.

In addition to the figure of the manager, two structural bodies are articulated, the Board of Entrepreneurs and the Management Committee.

Entrepreneurs’ Board

It is the superior body and is formed by the representatives of each member of the JV.

The issues of the board are those set out in the statutes. The board is responsible for modifying the statutes, approving the management and accounts of the joint venture and distributing the results.

It plays a fundamental role as it is the body that decides the future of the joint venture.

Management Committee.

It is the body in charge of projecting the direction of the work or service in question. It controls and directs the execution of the purpose for which it has been constituted. The committee will meet as often as necessary and will adopt its agreements by majority vote.

In practice, the execution of the project may be carried out by:

• The JV itself (with its own staff).
• The companies´ member. They will distribute the different works to be carried out.
• A subcontracted third party.

Financing

The JV is supported by the contributions made by its members. The contributions are disbursed at the time of the constitution and during the execution of the project. They can consist in monetary or non-monetary contributions. It is very common for extraordinary expenses to arise during the life of the JV.

The members will be responsible for the amount of their initial contributions and for all the funds. It is important that the constitution (statutes) establishes the rules and agreements that impose certain discipline. The internal agreements that members may have reached cannot avoid responsibility towards third parties.

Extinction

Once the purpose for which it was formed has been fulfilled, the joint venture is extinguished, by means of liquidation. The JV cannot be used for any other purpose. Once the liquidation is opened, the debts will be settled and if there is a surplus, it will be distributed among the members according to their participation. The extinction is formalized in a public deed and is removed from the special register.

Practical questions about JVs

To prove the economic and financial solvency, bidders may rely on the solvency of other entities. They must maintain this solvency during the execution (which may also be technical or professional).

With few exceptions [1], the solvency of external means does not require the participation of the third party in the execution.

[1] Article 75 of the Public Sector’s Contracts Act

Can an association of companies be anti-competitive?  It will depend on each case. If several companies join to share out the bids, then yes.

If the only way to bid is through a joint venture:

• Competition law will not be infringed if the companies are not competitors. E.g., when the bidding documents require the provision of several services and the companies complement each other.
• In other cases, a self-evaluation is required to review the restrictions in the tender document.

What are the differences between a JV and a Community of Goods?

The JV is plurilateral, with a plurality of parties. It is an associative agreement that generates obligations between the members of the Joint Venture. There is joint ownership of the contractual liability. The members of the JV are co-owners of the contractual rights and obligations. On the other hand, the members of a CoG are co-owners of “rights in rem”.

JVs are governed by their statutes and their agreements, which also differentiates them from communities of property. With respect to JVs, in the event of a legal and contractual gap, the rules of Communities of Property may be applied.

Can JVs have assets in their name?

They cannot own property because they lack legal personality. The assets will belong to those of its members who own them.

How are the JV assets registered?

They are registered as ownership of a joint venture. The Mortgage Regulations prohibit the registration of real estate and rights in rem in favor of entities without legal personality.

Transfer of the status of a joint venture company, are there any administrative requirements to be fulfilled?

If after the incorporation, the JV’s composition is modified, the Public Sector Contract Act provides the following rules:

• Authorization from the contracting authority if the modification involves the increase, decrease or replacement of several companies.

o   It is required that the contract has been executed in at least 20% of its price.

o   In the case of concessions, the exploitation must have been carried out during the fifth part of the term of duration.

• In the event of a merger, spin-off or transfer of a branch of activity, the execution will continue with the awarding of the contract. They will have to have full capacity to act and no prohibition to contract will be allowed.
• In the event of bankruptcy of any of the members of the UTE, the execution of the contract will continue with the others. To do so, it will be necessary to comply with the solvency or classification requirement.

Does the assignment of the contractual position require the consent of the other members?

Yes, it requires the consent of the other persons or entities that are part of the contract. This is true for both the members of the joint venture and the Administration or third party with whom it is contracted.

Is the sale of the JV’s assets by the owner without the consent of the others valid?

If the ownership of the property is held by several members, the consent of all of them will be required.

If the ownership is held by a single entity, it will be free to transfer the ownership. However, it must be taken into account whether this provision implies a breach of the JV contract.

Can liability actions be filed against the managers of the joint venture?

The regulations on commercial companies is not applicable, neither is there a specific liability regime in this regard. This does not mean that they are not liable for their actions.

Under the figure of the mandate, they will respond in accordance with the provisions of the civil code. Or, under the figure of the commission, under the commercial code.

If one of the members of the UTE fails to comply, do the other members enjoy the right of return against the non-compliant party?

Yes, Article 1145 of the CC shall apply, which attributes the return action to the person who has complied. This is without prejudice to the agreements on the internal responsibility of the existing members of the joint venture.

In civil jurisdiction, who has active legitimation to sue?

The JV may sue through its manager. Members of the JV, on their own, cannot sue on behalf of the JV. An alternative is for the JV and its members to sue. In this way, the other party will not be able to raise issues of legal standing.

What about in the labor area?

In the labor field, the UTE can act as a plaintiff or as a defendant.

Who is being sued, the JV, its members, or both?

The LEC attributes  the JV the capacity to be a party. The judgment may be enforced against the JV and its members. Enforcement of the sentence against a member who has been a party to the proceeding could raise procedural issues. Therefore, it is recommended that the JV and its members be expressly sued.

For labor purposes, can the JV hire and act as an employer with a different personality from that of its members?

Yes, the JV will be the employer of the workers it has hired. For labor purposes, it will act as a company.

What responsibility do the members of the JV have regarding the tax obligations of the JV?

The members are jointly and severally liable for the JV’s tax obligations.

Is it possible to file the insolvency proceedings of a joint venture?

It is not possible. It is only possible for a natural or legal person to participate.

What happens if a member of the UTE enters into bankruptcy proceedings?

The creditor of the temporary joint venture will claim against the temporary joint venture and its members.

Can the Bankruptcy Administrator include the assets of the JV in the inventory of the bankrupt member?

In this case, the assets of the JV do not form part of the assets of the bankrupt member. The Bankruptcy Administration may only include in the inventory the share of liquidation corresponding to the JV. When the JV is dissolved, that share will be translated into specific assets.

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