In the article "joint ventures in Switzerland - Possible Structure" we described how a joint venture can be legally structured. In the following it shall be shown how the partners can exercise control on a joint venture (as a combination of a joint stock corporation and a shareholders' agreement):

1. The Shareholders' Meeting

a) The shareholders' meeting forms the supreme corporate body of a corporation. Anyone who wants to control the board of directors has to dominate the shareholders' meeting, since this body elects the members of the board of directors who are responsible to run the business of the company. The members of the board of directors can be removed by the shareholders' meeting at its discretion at any time (art. 705 CO).

b) Thus, the partners must determine how resolutions shall be taken in the shareholders' meeting which generally passes its resolutions by absolute majority of the votes allocated to the shares represented (art. 703 CO). It is possible to provide for super-majorities in the articles of incorporation and/or to set forth respective rules in the shareholders' agreement. However, such rules and super-majorities are only useful, if one of the partners controls less than 50% of the votes. In the event of two partners holding each 50% of the shares, unanimity with regard to all resolutions is needed and there is a severe risk of a dead-lock.

Swiss corporate law does not provide for effective means to overcome such a dead-lock situation as long as both partners shall be equally treated. However, there might be solutions to some extent on the basis of casting votes or puts and calls.

c) These considerations show that the control of the joint venture can only partially be achieved by means available in a corporation. The decisive control mechanism must therefore be set forth by the parties in their shareholders' agreement.

2. The Shareholders' Agreement

Basically, the parties are free to agree on those arrangements which fit their purposes best. A shareholders' agreement should, in particular, cover the following items:

  • the structure of the corporate bodies;
  • the modalities of the decision making process;
  • guidelines of the business policy;
  • financing of the company and other contributions by the parties as well as commitments to enter into further agreements;
  • rules on unlocking a dead-lock;
  • exit strategies such as procedures regarding the event that one partner intends
  • so sell its participation in the joint venture.

These core provisions are normally surrounded by further regulations relating to the term of the agreement, assignment, governing law, jurisdiction, etc.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.