countries.102 The management of the merging companies and the special negotiating body create an agreement on the participation of the employees.103 If no agreement can be reached, a set of statutory contingency rules applies. In principle, these tie up the pre-merger proportion of employee representatives in the supervisory or administrative body of the companies which were merged. The number of employee representatives in the supervisory or administrative body of the company resulting from the merger is based on the highest proportion of employee representatives among the merged companies.104

5.4.5  The SEVIC Decision of the ECJ

In its SEVIC decision of 2005105, the ECJ handed down another landmark decision expanding a company’s options for cross-border restructuring and mobility under Art. 49, 54 TFEU. This decision remains particularly important for scenarios which are not covered by the Cross-Border Mergers Directive (such as a merger of partnerships). In SEVIC, the ECJ held that the refusal of the German courts to register a cross-border merger between a Luxembourg S.A. and the German SEVIC Systems AG constituted an unjustified restriction of the Freedom of Establishment. Restrictions could only be justified for overriding public interests (none of which was applicable), but a general refusal of such a merger (as under the German transformation laws) was not justified. Thus, as long as the EU Cross-Border Mergers Directive had not been implemented in all Member States, this ECJ judgment provided for an alternative option. Even after the implementation of the Cross-Border Mergers Directive in the Member States, the decision still is important, as it (1) applies to non-corporate business forms, such as partnerships and (2) allows cross-border restructuring measures other than mergers, e.g. de-mergers, divisions or spin-offs.106

5.5  International Joint Ventures—A Check List for Relevant Issues

5.5.1  Commercial Background for Establishing a Joint Venture

Joint ventures have become more and more important, especially in the cross-bor- der activities of business organizations. The increasing internationalization of commerce and the trend towards globalization in many industries have contributed to this increasing popularity of joint venture agreements between business organiza-

102  See Secs. 6 para. 1, 7 MgVG. 103  See Sec. 22 MgVG.

104  See Secs. 23 et seq. MgVG.

105  ECJ, case C-411/03 SEVIC ECR [2005] I-10805.

106  For a comprehensive analysis of the SEVIC judgement see Siems 2007, pp. 307 et seq.

tions from different jurisdictions. The term ‘joint venture’ is a commercial, rather than a legal, term and usually means a business project or venture undertaken between two commercial entities. As transactions and projects constantly increase in size and urgency, the resources of individual companies may quickly become exhausted, particularly where a number of foreign jurisdictions are involved. Thus, it makes more sense to enter into a joint venture with another company or companies. Ajoint venture can take many different legal forms, for example it can take the form of a partnership, a joint-venture company (also known as a ‘JVC’) or may simply be in the form of a contractual agreement between two companies wishing to work together on a common project (e.g. a large-scale building project). The name ‘joint venture’implies a degree of equality in the relationship of the parties involved, i.e. each company may contribute different things—be it capital, know-how, personnel, local knowledge, contacts, brand name etc. However, whatever the advantages of a joint venture for the individual parties, there is also always an element of sacrifice involved in such a joint venture, for example a sacrifice of the control and flexibility which a company might otherwise have enjoyed if it had continued its business project on its own. So why form or undertake a joint venture?

Apart from the reasons already mentioned above (i.e. contribution of various resources etc.), a joint venture can be a very flexible and cost-effective way for companies to gain the benefit of each other’s strengths, in particular where foreign jurisdictions are concerned.An example may be two companies, one established in a developed country (for example US or Europe) and another company established in a less-developed country (for example Africa or India). The US/European company can, for example, offer expertise, personnel, capital and goods or services, whereas the less-developed company may not be able to contribute much capital, but can instead provide critical knowledge of the market, contacts and knowledge of the regulatory environment. In such a case, a joint venture could be very successful. There are, of course, also other commercial reasons why parties wish to enter into joint ventures. Here are some of the most important reasons:

•Cost Savings can be achieved by sharing the costs of research and development or of large capital investments with a joint venture partner (particularly in many industries such as electronics, defense, pharmaceuticals, telecommunications etc. where such investment and research costs are phenomenal).

•Risk Sharing. As with cost sharing, it makes sense to share the burden of risk, particularly where significant financial risks are involved, with another party. For example, some projects of considerable size, such as power stations or infrastructure projects are often undertaken in the form of joint ventures.

•Technology. As technology is another rapidly changing medium for exchange of skills and information, technical skills and resources can be ‘shared’more effectively between joint venture partners.

•Expanding the Customer Base. International joint ventures provide the most effective route for a joint venture partner to expand its customer base, simply by using a joint venture partner’s strengths and already existent knowledge of a certain geographic market etc., or buying into an existing distribution or sales network through another joint venture partner.

•Gaining Access to Emerging Markets. In some cases, joint ventures may be the only realistic route for gaining entry to new emerging markets (for example in some eastern European and Asian countries) where access to local knowledge etc. is often a necessity.

•NewTechnicalMarkets.Insometechnologicalareaswhereconstantrapidchange itself produces new markets, effective entry into such markets can be facilitated by entering into a joint venture partnership with a company that already has existing knowledge and expertise in that area.

•Surviving Global Competition. Particularly on an international scale, the merger of similar businesses between several parties may be desirable in order to establish economies of scale and other advantages to meet international competition.

•Better Financing Through Joint Venture. By forming a joint venture with a financial partner, an acquisition may be more easily financed than would otherwise have been possible on a go-it-alone basis.

•Stepping Stone for Acquisitions.Ajoint venture may be a first step in an eventual disposal or acquisition of a business.

•Catalyst for Change. Sometimes there is a less obvious reason for setting up a joint venture other than the above-mentioned. Examples may be a wish to create change or to stimulate activity in a particular area of a company’s business.

5.5.2  Outline of Key Issues for Establishing a Joint Venture

Now we will present a brief outline which focuses on the key issues to be taken into consideration when establishing a joint venture. Joint ventures are typically formed on the basis of ongoing business relationships and with the aim of governing a jointly owned business. Not surprisingly, no standard joint venture exists, but rather the legal framework will depend, inter alia, on the business objectives of the parties, their location and legal background and, finally, on the nature and the size of the business.

Since most jurisdictions do not provide for specific legal rules on joint ventures, the legal design of joint ventures will usually be left to the parties and their lawyers. The joint venture agreement often provides for the establishment of a specific legal entity, serving as the business vehicle. Here, finding the right balance between the law governing the agreement between the parties to the joint venture and the law applicable to the vehicle often poses a challenge.

A business lawyer advising on the structure of a joint venture would, in particular, ask the following questions:

•What type of joint venture vehicle should be established (usually a corporation such as a GmbH, but sometimes a partnership may be preferable e.g. for tax purposes)?

•Where should the joint venture company be located?

•What kind of human resources and assets (people, services, technology etc.) will have to be contributed by each party?