Czech Republic: Formation of Joint Ventures

The concept of a Joint Venture (the “JV”) does not have comprehensive regulation in the Czech law. The abovementioned fact however does not prevent the purpose of JV to be fulfilled through the already existing institutes of the Czech law.

Corporate Documentation

The participation of two entities in a JV itself provided that it is in accordance with provisions of the Act No. 90/2012 Coll., on Commercial Companies and Cooperatives, as amended (the „Business Corporations Act“) and in accordance with rules of the competition law, does not pose a legal problem. The basic rights and obligations of each participant can be set out in the respective founding document of the company, articles, and statutes (the “Corporate Documentation”).

However, the obligatory publicity of the Corporate Documentation (i.e. an obligation to publish such documents in the Commercial Register) usually leads to the Corporate Documentation containing only the bare required minimum, while the participants of a JV seek a different document in which to specify their rights and obligations in greater detail, in a more non-public manner.

Shareholders Agreement

The document in which the participants of a JV specify their rights and obligations is a Shareholders Agreement (in Czech: Akcionářská dohoda) (the “SHA”). SHA usually contains a variety of agreements between the participants, which set out rules for the desired cooperation. The aforementioned can contain different rights to nominate members of the corporate bodies, filling vacant positions, size of the corporate bodies, quorums, and internal limitations of the powers of the corporate bodies. SHAs also contain different rules on disposal with JV’s shares, such as different call options, put options, drag-along and tag-along agreements, rules on solving deadlock situations, etc.

Despite the SHA being most favoured way to specify rights and obligations of JV’s participants, it is important to mention that in case a participant breaches the provisions of SHA, the breach in most cases does not constitute invalidity of the act itself. Said breach shall however render the breaching party to be liable for any damage (including loss of profits) towards the other participant, or the JV itself. Additionally, it is highly advised to stipulate penalties to be applied in case of breach of obligations stipulated in SHA.

Follow-up Agreements

Additionally, it is customary for the matters stipulated in SHA to be further specified in follow-up documents, such as different business cooperation agreements, framework agreements and so on, which are usually considered as “innominate contracts” (in Czech: Inominátní smlouva), i.e. agreements that are not explicitly stipulated as “agreement types” in Czech law.

Conclusion

As mentioned in the beginning, the Czech law does not have a comprehensive regulation on JVs and the regulation of shareholders´ relations covered by law and Corporate Documentation does not and cannot cover all matters of cooperation, this usually results in a JV documentation, that is rather lengthy and complicated, due to the fact that the participants usually require to cover as many eventualities and possible scenarios, as possible.