Joint Ventures: laws and regulations applicable in Spain

Luis García answers Legal 500's Country Comparative Guide Q&A, giving an overview of Spain's joint venture laws and regulations.

1. In what industries or sectors are joint ventures most commonly used in your jurisdiction?

In Spain, JVs are used in a multitude of sectors of activity, in our experience the sector in which they are most frequently used is the public works, infrastructure and construction sector.

2. What are the main types of joint venture in your jurisdiction?

From a regulatory point of view, there are: (i) “Agrupaciones de Interés Económico” (or “AIE”), which have their own legal personality; and (ii) “Uniones Temporales de Empresas” (or “UTE”), which do not have separate legal entity. However, international companies operating in Spain very frequently use unregulated JVs, i.e. a kind of unregulated private consortium without separate legal entity.

3. What types of corporate vehicle are most frequently used for equity joint ventures? 

In our experience, the most frequently used vehicle for equity joint ventures are  "Uniones Temporales de Empresas" (or "UTEs").

4. What are the key factors which influence the structure of the joint venture and the choice of joint venture vehicle? 

Fundamentally, key factors influencing the choice of vehicle are the level of integration that JV members want to develop amongst each other and the capacity to enter into obligations they want the JV to have. In summary the main criterion of choice is based on whether the partners want the JV to have separate legal entity or not, the period for which the partners want to collaborate and the level of formality they would like to provide the JV with.

5. What are the principal legal documents which set out the terms of a joint venture and how does the constitution of the joint venture vehicle interact with the joint venture agreement?

This depends on the choice of JV: (i) if an AIE is incorporated, the AIE must be incorporated by a public notary by executing the relevant public deed and registering it in the Commercial Register.  (ii) if a UTE is formed, the UTE must be incorporated by a public notarial deed. (iii) if you simply want to have a less formal JV without separate legal personality, it is sufficient to sign a JV agreement.

6. How long does it typically take to form a joint venture in your jurisdiction? 

This also depends on the choice of structure (i) if we want to set up an AIE, the deadline for setting up an AIE will depend, firstly, on the willingness of the partners who want to set it up to go to a public notary as soon as possible and, secondly, on the commercial register where the AIE has to be registered. A public notary may usually take 2 or 3 business days to have the deed ready and the registry may take 2 or 3 weeks to complete the registration, provided there are no formal and/or material defects in the deed. (ii) if we want to set up a UTE, the deadline for setting it up will depend on the willingness of the partners who want to set it up to go to a public notary as soon as possible. A public notary may usually take 2 or 3 business days to have the deed ready. L(ii) if we simply want to sign a JV agreement and the JV does not have its own legal personality, the timeframe for having it in place will simply depend on the willingness of the partners who want the JV agreement. 

7. Is using a corporate joint venture structure effective in shielding the joint venture parties from liabilities for the operations of the joint venture entity under local law? 

No, given that the partners of the AIE are personally jointly and severally liable for the debts of the AIE and given that the liability of the partners is subsidiary to that of the AIE.  A similar situation occurs with UTEs as they don´t have separate legal entity and therefore the members of the UTE will be responsible. The only way parties can limit their liability according to Spanish regulation is to form a limited liability company.

8. Are there any legal considerations which apply to the financing of the joint venture or the contribution of assets to it?  

Not particularly, except that the share capital of the AIE, if any, must be stated in the notarial deed of incorporation, with a numerical expression of the participation corresponding to each partner, as well as the contributions of assets or rights indicating the title or concept in which they are made and the value given to them or the basis on which the valuation is to be made. In the case of the UTEs, the contributions, if any, to the common operational fund that each undertaking commits to, as well as the ways in which the common activities will be financed or defrayed.

9. What protections under local law apply to minority shareholders and what additional or enhanced minority protection mechanisms are typically agreed between the joint venture parties?

This depends: (i) if an AIE is incorporated, resolutions may be adopted at a meeting of the members, by correspondence or by any other means which allows a written record to be kept of the consultation and the vote cast by the members. Resolutions to amend the articles of association concerning the following matters must be adopted unanimously by all the members of the AIE: a) the object of the AIE; b) the number of votes attributed to each member; c) the conditions for adopting resolutions; d) the planned duration of the AIE; e) the contribution of each member or of any of them to the financing of the AIE. Resolutions on matters not included in these sections shall be adopted unanimously, unless other quorums for constitution and voting have been established in the deed. (ii) if a UTE or JV agreement is simply signed, the protection of the minority partner will be provided by the content of the JV agreement itself, depending on what the shareholders have agreed. However, it is common practice to provide the minority shareholder with some protection by requiring that resolutions affecting important issues of the project to be executed by the UTE/JV, or those resolutions affecting essential issues of the operation of the UTE/JV itself, be adopted unanimously by the partners.

10. What are the duties of directors of an equity joint venture, including in relation to conflicts of interest? 

This depends: (i) in the case of an AIE, it shall be managed by one or more persons designated in the articles of association or appointed by agreement of the members. Unless otherwise provided for in the articles of association, a legal person may be a director. In this case, a natural person must be appointed to act as his representative in the exercise of the functions of the office. Unless otherwise provided for in the articles of association, a shareholder shall not be required to be a director. The prohibitions established by law for directors of public limited companies shall apply to the directors of the Group. The representation of the AIE, in or out of court, shall be the responsibility of the directors. When there are several directors, each of them alone shall represent the AIE, unless the articles of association stipulate that two or more directors must act jointly. In its relations with third parties, any limitation on the representative powers of the directors shall be ineffective, and the AIE shall be bound by the acts performed by them, even when such acts are unrelated to the objects of the company. However, the company shall not be bound in the latter case if it proves that third parties knew that such acts exceeded the object of the AIE or that, given the circumstances, they could not have been unaware of it. The publication of the object of the grouping in the "Official Gazette of the Commercial Register" alone shall not be sufficient to constitute such proof. (ii) in the case of UTEs, there shall be a single Manager with sufficient powers for each of its members to exercise the corresponding rights and contract the corresponding obligations. The actions of the UTE shall be carried out precisely through the Manager, appointed for this purpose, and he/she shall state this in all acts and contracts signed on behalf of the UTE. (iii) in the case of JVs, the duties of the managers will depend on what the parties have decided to agree in such an agreement. Typically, a "Manager" is appointed and given limited power of representation, and all other matters are decided by the "JV Management Committee".

11. What is the typical structure of a joint venture's management body/board?

This depends: (i) in the case of AIEs, they are managed by one or more persons designated in the articles of association or appointed by agreement of the members. In addition, the AIEs have an assembly of members whose purpose is to take all the decisions necessary for the smooth running of the AIE, the technical and economic management, which meets in ordinary or extraordinary session. (ii) in the case of UTEs, there shall be a single Manager of the UTE, with sufficient powers for each and every one of its members to exercise the corresponding rights and contract the corresponding obligations. The actions of the UTE shall be carried out precisely through the Manager, appointed for this purpose, and he/she shall state this in all acts and contracts signed on behalf of the UTE. (iii) in the case of JVs without legal personality, a Management Committee is normally established and a Manager is appointed to report to the Management Committee.

12. Does local law imply any fiduciary duties or duties of good faith between the parties to a joint venture?

 As far as the AIEs are concerned, the administrators must exercise their duties with the diligence of an orderly businessman and a loyal representative. They shall keep the AIE's confidential information secret, even after they have ceased to hold office. The directors shall also be jointly and severally liable for any damage caused to the AIE, unless they can prove that they have acted in accordance with the required diligence.

13. Do any restrictions, such as foreign direct investment rules, apply to foreign joint venture parties? 

The provisions of Royal Decree 571/2023 of 4 July on foreign investment (“Real Decreto 571/2023, de 4 de julio, sobre inversiones exteriores”) regulating the legal regime governing capital movements and economic transactions abroad shall apply in general.

14. What competition law considerations apply to the set up and operation of a joint venture? 

Those derived, in general, from Law 15/2007, of 3 July, on the Defence of Competition (“Ley 15/2007, de 3 de julio, de Defensa de la Competencia”).

15. Are there requirements to disclose the ultimate beneficial ownership of a joint venture entity? 

Whenever a legal entity is going to intervene before a notary, it must always show the “Acta de Titularidad Real”, which is a notarial deed in which the UBO appears. This must be taken into account if a UTE is to be set up and one of its partners is a legal entity.

16. What issues relating to the ownership and licensing of intellectual property rights generally apply to the set up and termination of a joint venture?

 JV agreements should always include an express regulation in relation to intellectual and industrial property rights, both present (i.e. those belonging respectively to each of the partners prior to the signing of the JV agreement or the constitution of the UTE or JV) and future (i.e. those that may arise as a result of the execution of the project being carried out by the UTE or the JV). The content of such agreements will depend on the will of the partners, the scope of the project, etc.

17. What legal considerations apply when transferring employees into a joint venture? 

Only AIEs, which have their own separate legal personality, can have their own employees.

18. Do any additional requirements apply to joint ventures when a joint venture party is a publicly listed company?

No

19. What are the key tax considerations for both the joint venture parties and the joint venture vehicle itself?

This depends:

(i) with respect to AIEs, they will be subject to the general rules of state, regional and local taxation with the particularities set out in the following articles. Said taxation will be independent of that which may correspond to their members for the business activities they carry out.

(ii) with respect to UTEs, exemption from the ITP (Transfer Tax and Stamp Duty) shall apply to incorporation, increase, reduction, dissolution and liquidation operations, as well as preparatory contracts and other documents whose formalisation is legally required for incorporation.

In the Tax on Production, Services and Imports in the Cities of Ceuta and Melilla (“Impuesto sobre la Producción, los Servicios y la Importación en las Ciudades de Ceuta y Melilla”), a rebate of 99 per cent shall be granted on transactions subject to this tax that are carried out between the member companies and the respective temporary joint ventures, provided that the aforementioned transactions are strictly a consequence of the fulfilment of the purposes for which the temporary joint venture was set up.

In the case of transactions carried out between the member companies through the UTE, the application of the relief may not give rise to a lower tax liability than that which would have accrued if those companies had acted directly.

Except as provided for in the preceding paragraph, the relief shall not extend to taxable transactions which directly or indirectly take place between the member companies or between them and third parties.

20. Are there any legal restrictions on the distribution of profits by a joint venture entity?

In the case of AIEs, profits and losses from the activities of the AIE shall be considered as profits of the partners and shall be distributed among them in the proportion provided for in the deed or, failing that, in equal shares.

In the case of UTEs, the time criterion for the allocation of profits or, case may be, income or expenses must be expressly included in the notarial deed of incorporation.

21. How are deadlocks in decision making usually dealt with in a joint venture agreement?

It depends on the specific case. Normally, counterbalancing mechanisms are put in place to ensure that unanimous decision-making does not block the functioning if decisions vital to the normal functioning need to be taken.

22. What exit or termination provisions are typically included in a joint venture agreement?

A general answer can´t be provided as  such provisions will depend on each individual case. However, in the case of AIEs, they can be dissolved:

1. By unanimous agreement of the members. 
2. On expiry of the term or for any other reason established in the deed. 
3. On the opening of the liquidation phase, when the AIE is declared bankrupt. 
4. By termination of the activity that constitutes its object or by impossibility of carrying it out. 
5. For paralysing the corporate bodies in such a way as to make it impossible for them to function. 
6. For the activity of the AIE not being in line with the object of the same. 
7. If the number of members is reduced to one; or
8. For just cause.

23. What restrictions under local law apply when joint venture parties agree to restrictive covenants eg non-compete or non-solicitation obligations?

Those derived, in general, from Law 15/2007, of 3 July, on the Defence of Competition (“Ley 15/2007, de 3 de julio, de Defensa de la Competencia”).

24. What dispute resolution mechanisms usually apply to joint ventures and are there any legal restrictions on the parties' choice of governing law or choice of dispute resolution mechanism?

AIEs and UTEs created in Spain are governed by the provisions of Spanish law. However, the partners may agree, in their internal agreements, on the application of the law, to the internal agreement, and the dispute resolution mechanism they deem appropriate. 

25. What are the key market trends affecting joint ventures in your jurisdiction and how do you see these changing over the next year?

Currently, in Spain, the use of UTEs and JVs is a widely used and well-established practice, and, in our opinion, we do not expect major changes in the coming year.