Joint Venture agreement – Legal aspects of forming and dissolving a consortium or partnership

The essence of a joint venture lies in the pooling of business partners’ resources – capital, know-how, personnel, technology and market contacts – whilst sharing both the benefits and the risks associated with the project. This structure, which has its origins in US law, is widely used in commercial practice, particularly in relation to projects characterised by a higher degree of complexity or risk, or those requiring significant financial resources.

Choice of form: consortium vs company

Polish law does not provide for separate, autonomous regulatory provisions for joint ventures. In practice, such cooperation is most often carried out under one of two models:

1. a consortium, based solely on a contractual relationship,
2. a joint venture company, i.e. a separate entity under commercial law.

The choice of one of these forms is of fundamental importance for the scope of the parties’ liability, the method of managing the project, the rules of financing and settlement, and above all – for the mechanisms governing the commencement and termination of the cooperation.

A consortium as a form of joint venture

A consortium is a contractual form of cooperation between two or more independent businesses, entered into for the purpose of carrying out a specific economic project. Cooperation in the form of a consortium is therefore not of a permanent nature, even though it may last for a considerable period of time. The aim is to jointly carry out a specific infrastructure investment or a major contract (e.g. the construction of a specific underground station).

A characteristic feature of a consortium is that there is no need to establish a new entity – the parties operate within existing organisational structures, and the entire cooperation is based on the terms of the consortium agreement. This document should precisely regulate, in particular:

• the purpose and scope of the project,
• the division of tasks, costs and risks,
• the rules of representation vis-à-vis contractors (often through the consortium leader),
• financial settlement mechanisms,
• the scope of the parties’ liability, including recourse liability.

The formation of a consortium usually begins with agreeing the project parameters and determining the contributions of individual participants – both financial and non-financial, such as personnel, equipment or know-how. The flexibility of this form and the speed with which it can be established make a consortium an attractive solution for one-off projects.

A joint venture as a separate entity

In situations where partners plan close and long-term cooperation, a joint venture established by setting up a separate company is a much more common solution. During the preparatory stage, the parties agree on the project’s basic parameters, such as its objective, duration, scope of activities and key risks, which are then translated into the corporate structure of the venture, with the choice of the appropriate legal form of the company being of particular importance.

Most often, a joint venture takes the form of a limited liability company or a public limited company, which allows for a clear separation of the company’s assets, well-defined rules of representation and easier access to financing. The parties also set out the rules governing management, the financing of operations and cooperation between the partners, and sometimes also the international nature of the venture.

Once the articles of association (and usually also the shareholders’ agreement) have been signed, the shares have been subscribed, the governing bodies have been appointed and the company has been registered with the relevant registry, the joint venture becomes an independent participant in economic transactions – capable of entering into contracts, acquiring rights and incurring liabilities.

Termination of a joint venture

The manner in which a joint venture is dissolved depends directly on the form of cooperation adopted.

In the case of a consortium, the cooperation usually ends upon the achievement of the objective for which it was established, or as a result of events provided for in the consortium agreement. It is then of key importance to ensure a proper settlement between the parties, covering the allocation of remuneration, costs and any contractual penalties, as well as the determination of recourse liability amongst the consortium members. Additional complications may arise if one of the parties to the consortium agreement is ‘excluded’ from participating in the project whilst it is still ongoing. In such cases, it becomes necessary to obtain the other party’s consent to change the composition of the contractors or for the remaining consortium members to assume the obligations.

The difference stems primarily from the nature of the two structures: a consortium is a purely contractual relationship between independent entities, whereas a joint venture (JV) is a separate legal entity, the ‘winding up’ of which requires the application of company law mechanisms and the completion of formal procedures.

The dissolution of a joint venture is of a more formal nature. The simplest way to terminate such a company is for one of the partners to withdraw, for example by selling their shares to one of the remaining partners or to an external investor.

Another possible scenario is the actual cessation of the company’s operations, involving its dissolution and the conduct of liquidation proceedings, which include the appointment of liquidators, the settlement of outstanding matters, the satisfaction of creditors and the distribution of the remaining assets. This process is generally more time-consuming and costly than the termination of cooperation within a consortium.

Summary

A joint venture is an effective tool for economic cooperation, enabling the implementation of projects that would be too costly, risky or organisationally difficult for a single entrepreneur to undertake. The choice between a consortium and a joint venture should always be preceded by an analysis of the nature of the project, its timeframe and the expected degree of integration between the partners.

A consortium offers greater flexibility and a simpler termination of cooperation, but requires a precisely drafted agreement. A joint venture offers a more structured framework and stability, but its dissolution involves a greater degree of formalisation. Proper planning of the form of cooperation right from the outset allows for a significant reduction in legal and organisational risks in the future.