Turkish Law Blog

Confusing Concepts: Joint Venture, Consortium and Business Partnership in Turkey

Müge Önal Başer Müge Önal Başer/ Müge Önal Legal Consultancy
29 September, 2019
361

Preamble

Due to technological developments, undertaking projects such as airports, bridges, highways, metro, ports, which require great economic power, technical knowledge, and expertise, requires the collaboration of companies specialized in different fields and with different economic powers[1]. Establishing and managing one of the business corporations stipulated in the Turkish Commercial Code[2] (the “TCC”) for such collaboration will not provide the speed and flexibility that the parties will need to carry out the project since it will bring along many bureaucratic procedures[3]. Therefore, partnerships based on the agreement between the parties are preferred for such collaborations. Joint Ventures[4] and consortia are the most preferred forms of such partnerships. Business partnerships are a special type of Joint Ventures[5].

I. Definition and Types of Joint Venture

A Joint Venture may be defined as “a contract in which two or more persons jointly undertake a specified task or a continuous activity for the purpose of generating income and are jointly liable for the performance of the task”[6].

In legal jurisprudence, Joint Venture type partnerships are mainly classified as the “Contractual Joint Venture” and the “Equity Joint Venture”[7].

This classification may cause confusion in practice. To make clear, such classification is not related to partners’ obligation to bring capital to a partnership. Both Contractual Joint Venture partners and Equity Joint Venture partners should bring capital to the relevant partnerships. The “participation share” (Article 621 of the Turkish Code of Obligations[8] (the “TCO”)) brought by the partners in a Contractual Joint Venture is also capital[9].

The key difference between these two types is whether partners, in addition to the Joint Venture, also establish or join a business corporation in order to achieve the objective of the partnership[10]. In an Equity Joint Venture, such a business corporation is established or be joined to, however, it is not the case for a Contractual Joint Venture; no other business corporation is established or be joined to other than the Joint Venture itself[11].

In an Equity Joint Venture, the subject matter of the Joint Venture agreement is the relationship between the partners and the issues related to the structuring and management of the corporation to be established or be joined to[12]. In this type of Joint Venture, the Joint Venture agreement, in fact, serves as a “shareholders’ agreement”. In a Contractual Joint Venture, however, all matters for achieving the objective of the partnership are set out in the Joint Venture agreement[13].

II. Definition and Types of Consortium

A consortium may be defined as “a contract in which each of two or more persons combine their contributions through the undertaking, independently of the others, the liability of performing part of the work they have undertaken together for the purpose of performing a specified task”[14].

Issuing, loan, voting and construction consortia can be regarded as major types of the consortium[15].

III. Common Aspects of Joint Venture and Consortium

Both Joint Ventures and consortia are formed by agreement[16]. Joint Venture and consortium agreements are deemed to be ordinary partnership agreements in terms of the TCO (Article 620 of the TCO and subsequent articles), the main law governing the agreements, and the provisions regarding the ordinary partnership agreement are applied to Joint Venture and consortium agreements[17].

Under the principle of freedom of contract (Articles 26 and 27 of the TCO), the parties may formulate the provisions of these agreements as they desire[18].  These agreements may be concluded verbally, in writing or formally in line with the principle of freedom of form (Article 12 of the TCO)[19]. However, considering the size of the works undertaken by a Joint Venture or a consortium, in practice, it is preferable to conclude these agreements in writing. This helps to avoid potential problems in managing the partnership or problems related to the burden of proof (Article 200 of the Law of Civil Procedure[20]) that may arise in a prospective dispute.

Both Joint Ventures and consortia can be formed to perform one or more specified tasks[21], for example, the construction of a power plant.

IV. Differences between Joint Venture and Consortium

The most important and distinctive difference between a Joint Venture and a consortium is that the partners in a Joint Venture are jointly and severally liable for all the work undertaken, while in a consortium, each of the partners is personally liable for only a certain part of the work undertaken[22].

A Joint Venture is formed to generate revenue[23], while, there is no such requirement for a consortium; voting consortium could be an example for a non-revenue consortium[24].

A Joint Venture, unlike a consortium, can be formed to perform a continuous activity as well[25], for example, the construction and subsequent operation of a port. An Equity Joint Venture is usually formed in such cases[26]. A consortium, on the other side, is temporary in nature and usually terminates with the accomplishment of the partnership objective consisting of one or more specified tasks[27].

V. “Business Partnership”

A business partnership is a type of taxpayer stipulated in the Corporate Tax Law[28] (the “CTL”) and in the General Communiqué on Corporate Tax[29] (the “Communiqué”).

Pursuant to Article 2(7) of the CTL, business partnerships are partnerships, who request being a taxpayer as a business partnership. The right to such a request is granted to partnerships which are “formed by capital companies, cooperatives, state-owned enterprises, business enterprises owned by associations or foundations, through among themselves or with personal partnerships or natural persons, to jointly undertake the collaborative work of a specified task and share the revenue”.

Pursuant to Section 2.5.2 of the Communiqué, the following conditions are among the required elements for a business partnership to be acknowledged as a corporate taxpayer:

- At least one of the partners is a corporate taxpayer;

- The partnership is formed by a written contract with the purpose of accomplishing a specified task;

- It is anticipated that the work to be done collaboratively will be performed within a certain period;

- There is a contractor agreement between the business partnership and the employer;

- The parties are liable toward the employer for the entire task, not for one or more specified parts of the task undertaken jointly;

- The revenue is shared by the parties upon the accomplishment of the task.

The requirement that the partners in a business partnership be jointly liable for the entire task indicates that a business partnership is not a consortium. This is confirmed in Section 2.5.2 of the Communiqué as well, through stating that consortia are excluded from the definition of business partnerships. A business partnership is a special type of Contractual Joint Ventures[30] and therefore, the provisions of the ordinary partnership agreement shall apply to business partnerships as well[31].

In terms of the principle of freedom of contract (Articles 26 and 27 of the TCO), the parties may name a partnership that does not comply with the abovementioned conditions as “business partnership”, though, it should be noted that such a formation may be confused with the business partnerships stated in the CTL and the Communiqué.

Similarly, in practice, Joint Venture or consortium agreements involving provisions that do not comply with the characteristics of the relevant partnership are encountered with. The characteristics and differences of these partnership types should be analyzed cautiously while designing a Joint Venture or a consortium agreement to avoid potential disputes or to ensure that a dispute will be resolved properly when arises.


[1] Şahin, Turan: “Konsorsiyum Sözleşmesi”, Türkiye Barolar Birliği Dergisi 2011, I. 92, p. 451-483, p. 451; Barlas, Nami: Adi Ortaklık Temeline Dayalı Sözleşme İlişkileri, İstanbul 2016, p. 263, 282-283; Çakır Çelebi, Fatma Betül: “Joint Venture’ın Hukuki Niteliği”, Yıldırım Beyazıt Hukuk Dergisi 2017, I. 2, p. 97-126, p. 99.

[2] Law No. 6102, published in the Official Gazette dated 14 February 2011 and numbered 27846.

[3] E.g., in terms of joint stock companies, see Articles 329 to 562 of the TCC.

[4] Barlas, p. 283.

[5] Barlas, p. 300.

[6] Black’s Law Dictionary, St. Paul, MN 2004, p. 856; Şahin, p. 458-459; Kaplan, İbrahim: İnşaat Sektöründe Müşterek İş Ortaklığı - Joint Venture - Ankara 2013, p. 23-24; Barlas, p. 284; Çakır Çelebi, p. 102.

[7] Şahin, p. 460; Kaplan, p. 21-22; Barlas, p. 290; Çakır Çelebi, p. 102-103. For further information on Equity Joint Ventures, see Altay, Sıtkı Anlam: Anonim Ortaklıklar Hukukunda Sermayeye Katılmalı Ortak Girişimler [Equity Joint Ventures], İstanbul 2009. A distinction like the “fully functional Joint Venture-partially functional Joint Venture” used in competition law may help to understand the difference more clearly, instead of the “Corporate Joint Venture-Equity Joint Venture” distinction that may lead to confusion terminologically. See Part 5 of the Guidelines on Cases Considered as a Merger or an Acquisition and the Concept of Control, 05 April 2018, https://www.rekabet.gov.tr/ (Accessed 21 September 2019).

[8] Law No. 6098, published in the Official Gazette dated 04 February 2011 and numbered 27836.

[9] Pulaşlı, Hasan: Şirketler Hukuku Genel Esaslar, Ankara 2017, p. 19-21; Bozkurt, Tamer: Şirketler Hukuku, Ankara 2019, p. 75-76.

[10] Kaplan, p. 22; Barlas, p. 290-291, 293.

[11] Şahin, p. 460; Barlas, p. 290-291, 293; Çakır Çelebi, p. 103-104.

[12] Barlas, p. 296; Çakır Çelebi, p. 106-107.

[13] Çakır Çelebi, p. 104.

[14] Şahin, p. 452; Barlas, p. 263; Çakır Çelebi, p. 108-109.

[15] Şahin, p. 456-457; Barlas, p. 271-277; Çakır Çelebi, p. 109. Another type of consortium is the brokerage consortium regulated in the capital markets law. See Article 56 to 58 of the Communiqué No. III-37.1 on Principles regarding Investment Services and Activities and Ancillary Services, published in the Official Gazette dated 11 July 2013 and numbered 28704; Kara, Mustafa Sencer: “Aracılık Konsorsiyumu”, Selçuk Üniversitesi Hukuk Fakültesi Dergisi 2015, V. 23, I. 1, p. 313-349.

[16] Şahin, p. 454; Barlas, p. 266, 285; Çakır Çelebi, p. 101.

[17] Şahin, p. 457-458; Barlas, p. 278-279, 304-307; Çakır Çelebi, p. 109, 113-114. E.g., 3rd Civil Chamber, 28 June 2012, E. 2012/11789 K. 2012/16355; 12th Civil Chamber, 03 October 2013, E. 2013/21231 K. 2013/31151; 12th Civil Chamber, 27 May 2014, E. 2014/12436 K. 2014/15031; 12th Civil Chamber, 26 March 2015, E. 2014/32410 K. 2015/7441; 15th Civil Chamber, 22 May 2015, E. 2015/2104 K. 2015/2761; 12th Civil Chamber, 24 December 2015, E. 2015/21533 K. 2015/32830; 12th Civil Chamber, 04 April 2016, E. 2015/32298 K. 2016/9747; 12th Civil Chamber, 14 June 2016, E. 2016/3124 K. 2016/16804; 12th Civil Chamber, 05 June 2018, E. 2017/2568 K. 2018/5815; 12th Civil Chamber, 12 September 2018, E. 2018/11022 K. 2018/7910, https://www.lexpera.com.tr/ (Accessed 21 September 2019). For discussions on different opinions in terms of Equity Joint Ventures, see Barlas, p. 294-295; Çakır Çelebi, p. 115-121.

[18] Eren, Fikret: Borçlar Hukuku Özel Hükümler, Ankara 2018, p. 845-846.

[19] Şahin, p. 454; Barlas, p. 266, 285; Çakır Çelebi, p. 101; Eren, p. 837-838.

[20] Law No. 6100, published in the Official Gazette dated 04 February 2011 and numbered 27836.

[21] Şahin, p. 452; Barlas, p. 263, 267, 284; Çakır Çelebi, p. 102.

[22] Şahin, p. 453, 460, 463; Barlas, p. 265, 287; Çakır Çelebi, p. 101, 109-110.

[23] Şahin, p. 460; Barlas, p. 284; Çakır Çelebi, p. 102.

[24] Şahin, p. 454; Barlas, p. 266; Çakır Çelebi, p. 109.

[25] Barlas, p. 286.

[26] Şahin, p. 460; Barlas, p. 265, 286; Çakır Çelebi, p. 104.

[27] Şahin, p. 454; Barlas, p. 265, 267, 271.

[28] Law No. 5520, published in the Official Gazette dated 21 June 2006 and numbered 26205.

[29] Communiqué Serial No. 1, published in the Official Gazette dated 03 April 2007 and numbered 26482.

[30] Şahin, p. 459-460; Barlas, p. 300; Çakır Çelebi, p. 100.

[31] Barlas, p. 307.

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