In brief
A joint venture with a local partner abroad takes one of two forms: a contractual joint venture, in which each party keeps its own entity and commits under a cooperation agreement, or a joint company in the target country, in which the relationship is governed by the articles of association and a shareholders' agreement. The agreement should settle in advance reserved matters, a deadlock mechanism, pre-emption rights, drag-along and tag-along, valuation of in-kind contributions, signing authority and exit. Before signing, check the partner in the country's companies register and beneficial ownership register.
Key takeaways
- 1A contractual joint venture suits a defined, short project; a joint company suits an ongoing business with assets, employees and a bank.
- 2A shareholders' agreement that is not reflected in the articles of association may not bind the company or third parties; align the two.
- 3A list of reserved matters and a deadlock mechanism are the main protection of a minority partner, and both are set before any dispute arises.
- 4An in-kind contribution (land, equipment, connections, licences) requires an agreed valuation and sometimes an expert opinion under local law.
- 5Since the European Court of Justice judgment of November 2022, access to beneficial ownership registers is not always open to the public, and checks are carried out under each country's rules.
An Israeli company entering a foreign market with a local partner usually gains something hard to obtain alone: connections, licences, land, familiarity with the authorities or manpower. In return it brings technology, financing or know-how. The combination can save years, but most problems in such ventures do not stem from the business itself but from what was not settled in the agreement: who decides, who signs, what happens when the parties disagree and how they exit. This guide deals with a general business venture; for a venture with a landowner in a real estate project see Combination deals and joint ventures with a landowner.
Contractual joint venture or joint company: which is better?
A contractual joint venture suits a project defined in time and scope; a joint company suits an ongoing business, shared assets or a need for a bank and employees. In a contractual joint venture each party continues to operate through its own entity, and the agreement sets the division of work, expenses and profits. In a joint company an entity is formed in the target country, and both parties hold its shares.
| Issue | Contractual joint venture | Joint company |
|---|---|---|
| Legal entity | No new entity | A new local company |
| Liability to third parties | Each party is liable for its share, and sometimes jointly and severally under the law and the agreement | Limited to the capital invested, subject to personal guarantees |
| Ownership of assets | Remains with each party; a licence of use is needed | The assets are transferred or contributed to the company |
| Tenders, licences, bank | Sometimes a consortium agreement or an incorporated body is required | The company applies and signs in its own name |
| Taxation | Each party is taxed on its share; check whether a permanent establishment is created | The company is taxed locally; profit distributions follow the dividend rules and the treaty |
| Exit | Termination of the agreement and unwinding of obligations | Sale of shares, buy-out by the partner or liquidation of the company |
In many countries a local partner prefers a joint company because it gives it the status of a shareholder rather than a subcontractor. On the other hand, an Israeli company contributing technology can keep it outside the joint company and grant it a licence of use only, so that on exit the intellectual property stays with it. A comparison between countries on corporate tax and dividends to Israel: Opening a company abroad: comparison of 8 countries.
What must a shareholders' agreement in a joint venture contain?
A good shareholders' agreement answers five questions in advance: who manages, what requires the consent of both parties, who funds, what happens in deadlock and how to exit. The main clauses:
- Capital and funding: how much each party invests, in cash or in kind, a schedule for capital calls, and what happens to a party that does not pay its share (dilution, an interest-bearing loan, loss of rights).
- Composition of the board and management: each party's right of appointment, the chair, a casting vote (if any), who is CEO and who is CFO.
- Reserved matters: a list of decisions requiring the consent of both parties or a special majority, such as approving the budget, taking loans above an amount, selling assets, related-party transactions, bringing in a new partner, distributing dividends and changing the scope of business.
- Pre-emption right: a party wishing to sell shares first offers them to the partner; the same applies to issuing new shares.
- Tag-along right: if the majority holder sells, the minority may sell on the same terms.
- Drag-along right: a majority holder that receives an offer for the whole company may require the minority to sell together with it, usually subject to a minimum price threshold.
- Non-compete and confidentiality: what each party may do in parallel in the market, during the venture and after it, subject to local competition law.
- Intellectual property: what is contributed to the company as ownership and what under licence, and who owns new developments.
- Dividend and information policy: when profits are distributed, financial statements, rights of inspection and audit.
In many countries a shareholders' agreement is a contract between the parties only, whereas the registered articles of association bind the company and are published in the register. A pre-emption right or special majority appearing only in the agreement may not actually stop a share transfer. So the important provisions are also anchored in the articles, to the extent local law allows.
How do you resolve deadlock in a 50/50 joint venture?
Set a tiered mechanism: escalation to senior management, mediation, and only at the end a forced exit mechanism. In a venture where each party has half the votes, a dispute over the budget or the CEO may paralyse the company. Common mechanisms:
- Escalation: referring the dispute to the CEOs of the parent companies for a fixed period.
- Mediation or expert: binding mediation within a set time, or expert determination on technical or accounting questions.
- Put or call option: one party may require the other to buy or sell at a price set by formula or by valuation.
- "Russian roulette" (shotgun) mechanism: one party names a price per share, and the other chooses whether to buy or sell at that price. The mechanism is simple, but favours the financially stronger party.
- Liquidation: a last resort, when there is no other option.
The choice of mechanism depends on the balance of power. An Israeli partner with more cash may prefer a shotgun; a local partner with assets and less liquidity may be harmed by it. Similar ideas appear in the founders' agreement for a group developing a project abroad, which also includes a sample decision matrix.
How do you value the local partner's in-kind contribution?
Agree on a value in the agreement, rely on an independent valuation, and check what local law requires. A local partner often contributes land, equipment, a licence or "connections" and asks for shares in return. Under the European directive on company law (2017/1132), Article 49 requires, for public limited companies, a report by an independent expert on any consideration other than cash. For private companies the requirements vary from country to country.
- Land or a building: a title extract, encumbrances, permits and zoning, before the asset passes to the company.
- Licences and permits: whether they can be transferred to a new company, or are personal to the partner.
- Connections and "market access": these are not an asset that can be registered as capital; they are usually rewarded through a services agreement or shares that vest according to targets.
- Value adjustment: a correction mechanism if a defect is discovered in the contributed asset, for example issuing additional shares to the other party.
Who signs on behalf of the joint company?
Signing authority must be recorded in the register and not only written in the agreement. In many countries a third party may rely on whoever is registered as director or authorized signatory. If the local partner is registered as sole director, it can bind the company even in breach of the shareholders' agreement, and the remedy will be a claim against it, not cancellation of the transaction.
- Joint signature by a representative of each party above a defined amount, and registration of the restriction in the register to the extent the law allows.
- Dual bank mandates: two authorized signatories for every transfer above a threshold.
- Access for both parties to the bank account, the accounting software and the reporting systems to the authorities.
- A power of attorney limited in time and subject matter, not a general power of attorney.
- Monitoring changes in the register: most registers allow the extract to be checked at any time, and it is worth doing so regularly.
How do you vet the local partner before entering the venture?
Check the company in the companies register, its controlling persons in the beneficial ownership register, and its legal and financial history. EU Member States are required to maintain a central register of beneficial owners. However, on November 22, 2022 the European Court of Justice ruled (joined cases C-37/20 and C-601/20) that the requirement to open the information to any member of the public was invalid, so access now depends on each country's rules and sometimes requires showing a legitimate interest. The EU e-Justice portal links to the national registers.
| What to check | Where | Why |
|---|---|---|
| The company's existence, capital, directors and authorized signatories | The country's companies register (in the EU also via the e-Justice portal) | To confirm whom you are signing with and who is authorized |
| Real controlling persons | The beneficial ownership register, under local access rules | To identify hidden owners, conflicts of interest or restricted parties |
| Financial statements | The companies register or the tax authority, depending on the country | Ability to provide the capital it promised |
| Legal proceedings and insolvency | Court portals and the insolvency register | Claims, attachments and liquidation proceedings |
| Encumbrances | The pledges and land registers | Whether the assets it contributes are encumbered |
| Sanctions | The sanctions lists of the EU, the UN and Israel | Prohibition on transactions with restricted parties |
| Reputation | Media searches and inquiries with customers and suppliers | Corruption and conduct risks |
Whatever cannot be checked in the register goes into the agreement as a representation: that the partner has no pending proceedings, that the assets it contributes are clean, that it has no connection to a sanctioned party, and that there are no improper payments. A false representation allows exit from the venture and compensation.
How do you exit a joint venture abroad?
The exit should be planned in the agreement from day one: when sale is permitted, to whom, and at what price. Common exit clauses: a lock-up period during which sale is prohibited, a pre-emption right, put and call options on defined events (breach, change of control of one of the parties, prolonged deadlock, failure to meet targets), and an agreed valuation formula. It is also worth setting out what happens to contracts, employees, intellectual property and the trade name the day after.
Which dispute resolution mechanism suits a venture with a foreign partner?
Usually international arbitration at a recognized institution, in a neutral seat, with the option of interim relief from a local court. An arbitral award is enforceable in most countries of the world under the New York Convention, whereas an Israeli judgment must go through an enforcement procedure in the partner's country. It is advisable to set the language of the proceedings, the number of arbitrators, the governing law, and preliminary steps (escalation and mediation) with short timetables. On arbitration and courts in specific countries: Romania, Cyprus, USA.
What must be reported in Israel about holding a joint company abroad?
An Israeli resident, individual or company, holding a foreign company attaches Form 150 to the annual return, and transactions with related parties are reported on Form 1385. Shareholder loans, management fees and royalties from the joint company to the Israeli company must be on market terms, and profits distributed as dividends are taxed under the tax treaty. Details: Tax for an Israeli investor in a foreign project company and Israel's tax treaties.
What to check before signing and how we accompany it
Before signing, choose between a contractual joint venture and a joint company according to the duration of the activity and the assets, check the partner in the registers, set a list of reserved matters and a deadlock mechanism, value every in-kind contribution, register the signing restrictions and plan the exit. We accompany Israeli companies and developers in drafting the joint venture agreement and in coordination with a local lawyer who anchors the provisions in the articles and the register, and review the holding and reporting structure together with the tax adviser in Israel.
This guide is general information as of November 2026 and is not legal advice. Company law, register access rules and the validity of exit mechanisms differ between countries, and every venture is examined on its own merits against local law.
More on doing business abroad: Acquiring a company abroad and due diligence · Founders' agreement for a project abroad · All guides for companies and businesses
Frequently asked questions
What is the difference between a contractual joint venture and a joint company?
In a contractual joint venture each party operates through its own entity under a cooperation agreement, without a new company. In a joint company an entity is formed in the target country and both parties are its shareholders. A contractual joint venture suits a defined project; a joint company suits an ongoing business with assets and employees.
What are reserved matters in a shareholders' agreement?
A list of decisions that cannot be made without the consent of both parties or a special majority, such as the budget, large loans, selling assets, related-party transactions and bringing in a new partner. This is the main protection of a minority partner.
What do you do when there is deadlock in a 50/50 joint venture?
Set a tiered mechanism in advance: escalation to the managements of the parent companies, mediation or expert determination, and finally an exit mechanism such as a put or call option or a shotgun. Without such a mechanism, the only route may be liquidation through the court.
What are drag-along and tag-along?
Tag-along allows a minority shareholder to join a sale by the majority holder on the same terms. Drag-along allows the majority holder to require the minority to sell together with it when there is an offer for the whole company, usually subject to a minimum price threshold.
How do you check who really owns a foreign partner?
Through the country's beneficial ownership register, alongside the companies register. In the EU public access was restricted after the judgment of November 2022, and sometimes a legitimate interest must be shown. Whatever cannot be checked goes into the agreement as a representation.
Does a shareholders' agreement also bind the company?
Not always. In many countries it is a contract between the shareholders only, whereas the registered articles of association bind the company and third parties. So key provisions such as a pre-emption right and a special majority are also anchored in the articles.
Can a local partner sign alone on behalf of the joint company?
If it is registered as sole director with signing authority, a third party can usually rely on its signature even in breach of the agreement. So joint signature and authority restrictions are registered in the register and with the bank, to the extent the law allows.
What is reported in Israel about holding a joint company abroad?
An Israeli resident holding a foreign company attaches Form 150 to the annual return, and transactions with related parties abroad are reported on Form 1385. Loans and management fees must be on market terms.
Read next · 10 min readPermanent Establishment and a Remote Employee Abroad: When an Israeli Company Is Taxable in the Employee's Country, and What About Payroll and Social SecurityAn employee working from home abroad may create a permanent establishment for an Israeli company. Fixed place, dependent agent, building site, OECD 2025 home office update, payroll.Read the guideSources
- e-Justice Portal - Beneficial Ownership Registers Interconnection System (BORIS)
- eucrim - CJEU: No unrestricted access to data of beneficial owners (C-37/20, C-601/20)
- Directive (EU) 2017/1132 relating to certain aspects of company law - Article 49 (legislation.gov.uk)
- Israel Tax Authority - Form 150: Declaration of holding in a non-resident body of persons
- Israel Tax Authority - Form 1385: Declaration of international transactions
