New Regulations on Forms of Business Cooperation - International Law Office

Background
Definitions
Key Characteristics
Internal Control
Other Cooperation Contracts
Comment

Law 19/2003 sets out the rules applicable to three typical business cooperation agreements between companies: the partnership, the consortium and the corporate group.

This new statute also sets forth the main principles for entering into other types of business cooperation contracts which are not expressly covered by law.

Background

Prior to the adoption of this new law, the only rules on forms of business cooperation between companies were the provisions on unincorporated partnerships set forth in Articles 224 to 229 of the Commercial Code. However, these provisions were clearly insufficient, as the legal regime they established left several questions unanswered. This legal uncertainty was probably the main reason why foreign investors avoided unincorporated business structures when investing in Angola.

Definitions

The new law defines the three agreements as follows:

• A 'partnership' is a form of cooperation whereby an entity becomes associated with the economic activities carried out by another entity, and shares in the profits or profits and losses;
  
  
• A 'consortium' is a form of cooperation whereby two or more entities agree jointly and temporarily to undertake a specific activity, or to make a given contribution with certain well-defined goals in mind. The law distinguishes between internal and external consortiums. An internal consortium occurs where (i) the services or goods are supplied to one member of the consortium and only this member interacts with third parties, or (ii) the services or goods are supplied directly to third parties by each member of the consortium, without express mention of its status as a member of a consortium. In an external consortium, the services and goods are supplied directly to third parties by each member of the consortium, with express reference to its status as a member of a consortium.
  
  
• A 'corporate group' is a form of association whereby two or more entities incorporate a new legal entity with a view to improving the conditions or results of their economic activities.

Key Characteristics

A complete description of the characteristics of each agreement is beyond the scope of this update. However, a few key features provide a better idea of the regime applicable to each form of cooperation.

New legal entity
Partnerships and consortium agreements do not establish an entity with autonomous legal standing from its members. However, a corporate group is an entity with autonomous legal standing and a share capital of its own.

Scope
Both the partnership and the consortium may be profit-oriented.

The main purpose of a corporate group cannot be to pursue and share profits. This can only be a subsidiary objective and only if the respective deed of incorporation expressly allows it.

Non-competition clauses
The new law forbids parties to all three agreements from engaging in activities that compete with the activities of the new association. However, it also expressly allows the parties to provide otherwise in the respective contracts.

Contract participation
As a result of entering into a partnership, the associating party will share in the profits and may also agree to bear the losses. In the latter case the associating party may be relieved from making an initial contribution. Unless the contract states otherwise, the associating party's participation in the profits and losses will be proportional to its contribution. The participation in the losses cannot exceed the value of the contribution.

In a consortium, it is assumed that the parties' contributions consist of their own added value. Nevertheless, the parties may agree on specific contributions in order to carry out the objectives of the association. Such contributions can only be made in cash if all members of the consortium are bound to make the same type of contribution.

The members of a corporate group will participate in proportion to their percentage interest in the share capital of the group. The members are jointly and severally liable for the debts of the group.

Internal Control

The new law specifies different types of internal control for each contract:

• In a partnership, the associating party may exert some control, such as calling for an audit of the accounts of the associated party. Further, the associated party must provide the associating party with all information justified by the nature and object of the agreement, and must also account for the activities of the partnership.
  
  
• An external consortium agreement may provide for the creation of an orientation and monitoring council. This council must comprise representatives of all members of the consortium, and its duties and competences must be set forth in the agreement.
  
  
• A corporate group is monitored by one or more individuals appointed by the General Assembly, whose duties are to monitor the group's management and issue an opinion on the financial accounts.

Other Cooperation Contracts

The new law also sets out guidelines governing other types of cooperation agreement, such as those in the areas of distribution, manufacturing, natural resources exploration, investigation, technology and technical assistance, and general management.

These rules stress that the parties must assume equal positions in the contract and that no legal entity will result from the respective contracts.

Comment

Until recently, private investors wishing to combine their efforts had to cope with all the legal work, time constraints and costs associated with the formation of a new company, or else simply executed contracts that were not regulated by law.

Law 19/2003 resolves some of the problems deriving from the absence of legislation, making a strong contribution towards achieving more legal certainty. This will create new incentives for investors to get involved in the Angolan economy and to favour associations between foreign capital and companies already established in Angola.

For further information on this topic please contact Alberto Galhardo Simões at Miranda Correia, Amendoeira & Associados' Lisbon office by telephone (+351 21 781 4800) or by fax (+351 21 781 4802) or by email (Alberto.GalhardoSimoes@mirandalawfirm.com).