1. Introduction
When businesses seek external growth, they often turn to various strategies such as joint ventures, technology partnerships, strategic alliances, or mergers and acquisitions to expand their market presence. Among these options, the joint venture ("JV") stands out due to its deeper level of collaboration, where participants not only invest capital but also jointly manage and make decisions, sharing both risks and rewards. JVs are typically formalized through corporate charters, equity arrangements, or contractual agreements, with a focus on ensuring the stability of the rights and obligations between shareholders.
In Taiwan, neither the Taiwanese Civil Code nor other commercial laws explicitly define or regulate joint ventures. However, both the collaborations between local enterprises and multinational enterprises seeking local partners in Taiwan have a high demand for JV business models. Specifically, the multinational enterprises which enter Taiwanese market for the first time would rely upon the assistance of local partners, in order to remedy their lack of local experiences and networking. Under such circumstances, joint venture based on contracts become the primary tool to govern the relationship between the parties.
2. Legal Nature of Joint Venture Contracts
As mentioned earlier, Taiwan's Civil Code does not explicitly define joint venture contracts, nor are there specific provisions to apply to them. However, the Civil Code does contain provisions for "partnership contracts," which are often applied by analogy to joint ventures in practice.
In essence, joint ventures and partnership contracts share similarities in that all participants must contribute capital, and profits are distributed proportionally. While the two differ in that partnerships are specifically aimed at the collective management of a business (pursuant to Article 667 of the Taiwanese Civil Code, which defines a partnership as a contract where two or more persons agree to put contributions in common for a collective enterprise), a joint venture may focus only on collective capital contributions without requiring collective management. In the event that there is no conflict, courts often apply the relevant provisions of partnership law by analogy. For example, in 2016, the Taiwanese Supreme Court indicated that when joint venture parties agree to contribute capital and distribute profits proportionally, their legal relationship is akin to that of a partnership, and the rules on partnership dissolution and withdrawal (Articles 686 and 692 of the Taiwanese Civil Code) can be applied to settle assets and distribute profits. See Supreme Court Judgment 105 Taishang 214 (2016).

3. Key Clauses in Joint Venture Contracts

• Capital and Share Arrangements
  When forming a joint venture, the contract must clearly stipulate the company's capital structure, future capital increase plans, investment schedules, and the types of shares to be issued. Recent amendments to the Taiwanese Company Act allow joint ventures to issue no-par-value shares, providing greater flexibility in the company's capital structure. These no-par-value shares can be issued at a lower price initially, enabling joint venture partners to acquire shares at a lower cost while later issuing higher-priced shares to external investors, thereby raising capital without diluting existing shareholders' equity.
• Shareholding Proportion and Decision-Making Power
  The contract should also clearly specify the shareholding ratios of each partner, which affects decisions such as board elections, voting rights, profit distribution, and the allocation of remaining company assets. In Taiwan, shareholders holding more than 50% of shares can convene a shareholders' meeting. To maintain decision-making balance, joint venture agreements can include special share classes with enhanced voting rights or veto powers. Moreover, the contract should establish a mechanism to resolve deadlocks, ensuring the company's operations can continue even when shareholders with similar shareholdings have conflicting opinions.
• Restrictions on Share Transfers and Pledges
  Under the Taiwanese Company Act, shareholders can freely transfer their shares in general. However, joint venture contracts may include provisions that grant other shareholders preemptive rights or tag-along rights when a shareholder wishes to transfer shares to a third party. This is particularly important when the transaction relies on the specific expertise, network, or market presence of a local partner, as a sudden change in ownership could negatively impact the joint venture's success. It should be noted, however, that joint venture contracts do not bind third parties or the shareholders who do not sign the contract. Here, the "Close Company" structure under Article 356-1 of Company Act might offer stronger protections in such cases.
• Allocation of Responsibilities in the Joint Venture
  A common cause of joint venture failures is the lack of clear provisions on which party is responsible for specific aspects of the business. For example, in some cases, one party may only provide capital and refrain from managing operations, while the other party not only invests capital but also contributes time and effort to manage the business. This imbalance can lead to disputes if not properly addressed in the contract.
• Profit and Loss Distribution
  Since business performance can fluctuate, joint venture contracts must carefully address how profits and losses will be calculated and distributed annually. This may be done according to the partners' capital contributions or based on other agreed terms. Additionally, the contract should specify whether partners are required to provide additional capital or other financial support in the event of a loss.
• Non-Compete and Confidentiality Obligations
  The involvement of joint venture partners goes beyond capital contributions, often extending into management and decision-making, which can lead to conflicts of interest, such as engaging in competing businesses, employee poaching, or leaking trade secrets. Therefore, the contract should include clear non-compete and confidentiality clauses, as well as penalties for breach. Partners should also be granted investigatory rights, and the other party must cooperate, enabling quick investigations should any future disputes arise.
• Termination of the Joint Venture and Partner's Withdrawal
  Although the Supreme Court ruled that joint ventures resemble partnerships, and thus partnership dissolution rules can be applied by analogy, the procedures for withdrawal or liquidation under Civil Code is less straightforward and always time-consuming then expected. Even worse, the courts often take a long time to resolve such disputes. It is therefore recommended that joint venture contracts include clear exit mechanisms, detailing the conditions for termination, the process for appointing liquidators, and the method of distributing remaining assets.
• Duration and Termination of Ancillary Agreements
  Joint ventures often involve ancillary agreements (e.g., supply contracts, distribution agreements, information services, or technology cooperation). The validity of these agreements is typically tied to the duration of the joint venture contract. If the joint venture contract expires or is terminated, ancillary agreements may either terminate simultaneously or be handled separately. If the goal is for the joint venture to operate independently in the future, parties should negotiate terms for extending ancillary agreements.

Conclusion
In Taiwan, the complexity of joint venture contracts stems from the lack of clear legal guidelines. Investors planning to enter into joint ventures in Taiwan must fully understand the critical clauses and design flexible contract structures to ensure clear legal protection during the operation and exit stages. Professional legal, financial, and tax advice is essential when drafting joint venture contracts, particularly when considering the company's structure, investor qualifications, and industry-specific factors, as early planning can help mitigate risks.