Legal possibilities of a cooperation with foreign partners

In this article, we will briefly describe the various possibilities of an economic cooperation between two or more companies.

Choosing the correct legal regulation of such a cooperation is vital. The potential partners have to clarify in advance how closely they intend to cooperate, and for how long. Generally, any number of economic partners can cooperate, but for reasons of simplicity, this article deals with the cooperation of two companies.

1. Contractual joint venture

A contractual joint venture is the simplest alternative. Here, the partners enter into a cooperation agreement which will regulate their rights and obligations. Partners usually choose this form of cooperation if their project is small or of a very limited duration. In practice, this proceeding is most frequently chosen if the partners want to execute a small number of projects together or only one project which exceeds the resources or skills of one partner.

2. Classic joint venture

An alternative to the contractual joint venture is the classic joint venture. Two companies form a daughter company and each of them accepts a certain number of shares. Both partners bear the financial risk and responsibility for the daughter company management to the same extent, unless agreed otherwise. The basis for this cooperation is a joint venture agreement. From an economic point of view, the partners have to define their mutual interests and aims, and how to reach them. From a legal point of view, it is necessary to set up a system for resolving disputes between the shareholders, and possibilities for terminating the cooperation which are fair to all participants. This type of joint ventures is often based on long-term cooperation and trust. Although disputes between the partners may seem unthinkable, lawyers often have the thankless task of approaching uncomfortable topics and taking appropriate steps to prevent damage; this includes a number of exit clauses which address and mitigate the consequences of a dispute.

3. Transfer of shares

In case of a share transfer, one business partner opens its company to another. This should lead to a long-term cooperation and, to a certain extent, reward the former sole shareholder for establishing his company. From an economic point of view, it is necessary to assess the value of the company and set a purchase price for the shares. Economic subjects often choose this form of cooperation if one of the partners is in a much better financial situation than the other. From a legal point of view, the purchased company is often incorporated into an existing group. The consequences are manifold. If incorporated into a group, as a result of the group hierarchy, the decision-making process takes longer. Directors of companies selling shares may lose autonomy to the new shareholders. When setting up this form of cooperation, the partners usually also agree on a pre-emptive right, repurchase right or an option, according to which a partner will be able, under certain terms and conditions, to acquire further shares or the whole share of the other partner.

4. Purchase of a company

In case of a company purchase, one partner acquires all shares of the other partner and assumes complete control. This option will be best for investors who do not wish to have another person with decision-making competences in the company, or if a shareholder-managing director wants to retire and his descendants pursue other careers. A possible risk is loss of knowledge and personal relationships with the departure of the purchased company’s management and owners.

Our article briefly presented the individual alternatives for a cooperation between economic entities. In practice, the choice of an ideal proceeding depends on various factors. Your expert advisors will tailor the optimal solution to your needs.

The law firm bnt attorneys in CEE has long-term experience in the field of local and international commercial and company law. We specialize particularly in cross-border commerce and export between Germany and Slovakia. Our native speakers from Germany and Slovakia will make sure that all negotiations are conducted in a clear and goal-oriented manner.


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