In the European Union (EU), at the inception of a joint venture (JV), parent companies must determine whether the newly created structure presents a full-functionality nature, which depends on its degree of autonomy. The answer to this question will determine the legal framework applicable to it.
On the one hand, if the JV is full-function it will fall within the scope of the EU Merger Regulation (Council Regulation (EC) No 139/2004 of 20 January 2004), assuming that the turnover thresholds set out in the Regulation are met. Under these circumstances, the European Commission (EC) will assess the impact of the JV on competition on an ex ante basis.
On the other hand, if the JV is not full-function and takes the form of a partnership formalized by a legal structure to a large extent dependent on its parent companies, the creation of a JV will not have to be notified but the EC may operate a control ex post, in the light of Article 101(1) of the Treaty on the Functioning of the EU which prohibits anticompetitive agreements between undertakings. In such a context, it is up to the parent companies creating a JV to determine whether their JV is compatible with competition law rules.
The ex post control has the advantage of avoiding the notification process that delays the implementation of the JV. However, within that framework, companies may not obtain a clearance decision and the fate of their JV is subject to legal uncertainty. It is thus generally preferable for companies to make sure that their JV will fall within the scope of the Merger Regulation because a clearance decision is irrevocable and unlimited.
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