In this third instalment in our clean energy joint ventures series, we look at the key documents needed to establish a joint venture.
In our previous instalment of this series on clean energy joint ventures, we looked at the different types of entity that could be used in a joint venture.
Once you have decided on the most suitable legal entity for your joint venture, the next step is putting the right legal documents in place. In this next instalment in our series, we look at the key documents involved in establishing and governing a joint venture.
Of course, different forms of legal entities require different documentation, but for the purposes of this article we are going to assume that a private limited company is the best fit for your joint venture in the clean energy sector.
Key documents
The main legal documents are:
- the joint venture company's articles of association ("articles"); and
- the shareholders' agreement (SHA), otherwise known as a Joint Venture Agreement (JVA).
Articles of association
The articles of a company are one of its constitutional documents, dictating the company's management and administrative structure.
The articles will regulate the internal affairs of the company, including:
- the issue and transfer of shares, including pre-emption rights or restrictions;
- the rights attached to different classes of shares (such as dividend rights, capital rights, and voting rights);
- board and shareholder meetings, including the quorum and process for these;
- director appointment and removal;
- the powers and duties of directors; and
- the company's borrowing powers.
It is worth noting that a company's articles will be publicly available on Companies House and, therefore, consideration should be given to ensuring that any commercially sensitive matters (such as budgets or bid arrangements for any auction processes, including Contracts for Difference rounds), which the parties may not want shared publicly, are instead included in the SHA.
Shareholders' agreement
The other key document is the SHA. While the length and detail included in an SHA will vary, as a base, the document typically includes the following provisions:
- the purpose and scope of the joint venture;
- the responsibilities and other contributions of the parties (e.g. intellectual property rights, know-how, secondment of staff, or provision of premises);
- any funding requirements and obligations;
- a set of consent matters, requiring either board or shareholder consent before they can be implemented;
- provisions for resolving a deadlock or dispute (which we will deal with in more detail later in this series);
- provisions regulating key decision-making processes, such as taking financial investment decisions or bidding into auctions;
- restrictive covenants on the parties, which seek to prevent a joint venture party from competing with the underlying aim of the joint venture company;
- a distribution policy, which sets out when dividends/distributions may be made;
- ESG requirements for the joint venture;
- confidentiality and information access rights;
- provisions relating to the termination of the joint venture and/or exit by one of the parties; and
- provisions dealing with the ability for a new party to adhere to the SHA and be bound by its provisions through the entry into of a deed of adherence.
Care must be taken when crafting your SHA and articles to ensure that the SHA itself does not require to be lodged at Companies House.
To keep in mind
Both documents are up for negotiation, and you rarely see two that are identical.
Unlike most sale and purchase transactions, a joint venture relationship may go on for many years and, while most parties will enter the relationship with a view to succeeding collectively, it is not uncommon for relationships to break down during a project.
It is often when relationships sour that the SHA and articles will be relied on most, e.g. if one party is looking to exit the relationship. Therefore, it is important when drafting the documents to not only to consider the position today, but also potential future actions by the parties.
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.
