walslaw, Amsterdam boutique law firm
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Funding and financing structures

How a joint venture is funded, and what happens when further funding is needed, is one of the most consequential parts of the legal design. Capital decisions taken at formation determine who pays, who controls and who carries the loss if the venture underperforms and who shares in the upside if it outperforms expectations. We structure JV funding for Dutch and cross-border ventures, working alongside corporate finance, banking and tax counsel. Our focus is on an architecture that holds up through the second and third capital rounds rather than only at launch.

When clients call us

  • A new JV is being capitalised and the contribution structure must be designed
  • A funding round, debt restructuring or rescue financing is needed
  • Anti-dilution and follow-on mechanics need to be drafted
  • Security and intercreditor arrangements are being negotiated
  • A partner is unable or unwilling to follow on and dilution is on the table

Key legal & commercial issues

I.

Initial contributions and capital structure

  • Cash equity with or without share premium
  • Contribution of assets, IP, business or going-concern units
  • Shareholder loans (interest, subordination, conversion, security)
  • Third-party bank financing and intercreditor arrangements
  • Tax-aligned treatment of equity, debt and hybrid instruments
II.

Further funding rounds

Anti-dilution, pre-emption, follow-on commitments and the consequences of not following on (cram-down, ratchet, conversion of loans, dilution) need explicit treatment. Vague language is a frequent source of dispute when one partner cannot or will not follow on. We draft the consequences as a sequence: invitation to follow on, alternative funding mechanisms, dilution mechanics, board consequences.

III.

Distress and rescue funding

Many JV agreements do not address what happens when the venture needs rescue funding and one partner declines to provide it. We design those mechanics deliberately, covering bridge loans, equity calls, conversion of shareholder loans into equity and a change of governance triggered by distress, so that the terms are settled before the venture has to negotiate them in the middle of a crisis.

What we advise on

What we advise on

  • Initial capital architecture for new JVs
  • Shareholder loan terms, subordination and convertibility
  • Anti-dilution and pre-emption mechanics
  • Follow-on funding rules and dilution consequences
  • Bridge and rescue funding architecture
  • Bank facilities and intercreditor agreements at JV level
  • Security packages and parent guarantees
  • Tax-aligned design with tax counsel

Typical documents and deliverables

Typical documents and deliverables

  • Capital contribution and subscription agreements
  • Shareholder loan agreement with subordination terms
  • Funding round documentation (term sheet, SPA, articles update)
  • Intercreditor agreement and security documents
  • Parent company guarantees and comfort letters
  • Notarial deeds for share issuances and capital changes

How we support the process

How we support the process

  1. 1

    A capital model built with the partners and their tax and finance advisors

  2. 2

    Drafting of the contribution, subscription and funding documents that give it effect

  3. 3

    Coordination of banks, sponsors and the civil-law notary across the funding timetable

  4. 4

    Implementation and documentation of each funding round and the resulting capital changes

  5. 5

    Continuing support on later rounds, refinancings and distress scenarios as they arise

Questions clients ask before instructing us

Questions clients ask before instructing us

Equity or shareholder loan: which is better at formation?
Equity and shareholder loans are often combined at formation. A shareholder loan is repaid as debt, whereas a distribution to shareholders requires a distribution resolution and management board approval under article 2:216 Dutch Civil Code. In an insolvency or liquidation, an unsubordinated shareholder loan generally ranks ahead of equity, but its contractual ranking and any security granted to other lenders are decisive. Equity provides a more substantial loss-absorbing buffer and may be required by third-party lenders. The appropriate balance depends on the commercial, financing and tax position and should be tested with the relevant finance and tax advisors before the term sheet fixes the split.
What if a partner cannot follow on in a later round?
This can be a significant source of joint venture conflict and should be addressed in the documents at formation. The main options are dilution on a pre-agreed formula, sometimes with a deterrent effect; a loan from the funding partner to the non-funding partner, secured on its shares and convertible into equity if unpaid; issuing a new class of preferred shares to the funding partner with a priority return; or a call option over the non-funding partner's shares at a discount. Each has different fairness and enforceability considerations, and a mechanism that is disproportionate to its funding purpose may be vulnerable under the standard of reasonableness and fairness in article 2:8 Dutch Civil Code. We advise clients to select one deliberately and to set out the valuation method in full.
Can shareholder loans be subordinated to bank debt?
Yes. Lenders financing a Dutch joint venture commonly require shareholder loans to be subordinated to their debt. Subordination is documented in an intercreditor agreement or a separate deed and typically covers payment blocks on interest and principal while senior debt is outstanding, turnover obligations for anything received in breach, restrictions on acceleration and enforcement, and standstill periods. Contractual subordination can also govern the parties' ranking in insolvency, which is why lenders rely on it. The points that matter commercially are whether interest can be paid current or must accrue, whether permitted payments resume on covenant compliance, and how the shareholder loan is treated on an exit or a refinancing.
How do parent guarantees work in a JV?
A parent guarantee is the mechanism by which a counterparty obtains access to a partner's balance sheet rather than the JV's, and in early-stage joint ventures it can make third-party financing or a major customer contract possible. The design questions are scope, whether the guarantee covers funding commitments, performance obligations or both, whether liability is joint and several or several in proportion to shareholding, and whether there is a cap and an end date. Several liability in proportion to shareholding will often be the appropriate starting point. We advise including a contribution agreement between the partners, so that a guarantor who pays has a clear recourse route, and we check whether the guarantee itself is a reserved matter.
Do share issuances in a Dutch BV require a notarial deed?
The issue of shares in a BV does require a notarial deed executed before a Dutch civil-law notary, as does any amendment to the articles needed to create a new class. Contribution in cash is straightforward, whereas contribution in kind requires a description of the assets by the management board under article 2:204b Dutch Civil Code. Pre-emption rights apply by default unless the articles provide otherwise, and the general meeting decides on an issue and its terms unless the articles allocate that power to another corporate body. We build the notarial step into funding round timetables, particularly where foreign shareholders need legalised powers of attorney, and we check whether the issue triggers a reserved matter or an anti-dilution adjustment before the deed is scheduled.
What is a 'cram-down' clause and when is it used?
A cram-down, sometimes called a pay-to-play provision, allows a funding round to proceed and dilute a non-participating partner heavily, often by converting its shares into a lower-ranking class or by issuing new shares at a low subscription price. It is used where the joint venture needs capital urgently and one partner will not or cannot contribute, particularly in distress. It is effective precisely because it is harsh, which is also its risk: a mechanism whose real purpose is to expropriate rather than to fund can be attacked under the standard of reasonableness and fairness in article 2:8 Dutch Civil Code, and is a familiar subject of Enterprise Chamber enquiry proceedings. We therefore draft it as a genuine funding mechanism with an objective valuation.

Related areas

Back to Joint ventures & strategic alliances

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