Where shareholders' agreement terms for the BVI joint venture stands now

A joint venture structured through a British Virgin Islands holding company looks clean on the day it is signed. Two principals, a shared asset base, an offshore vehicle sitting above the operating entities – the structure maps neatly onto a term sheet. The legal question that surfaces two or three years later is rarely about the structure itself. It is about what the shareholders' agreement actually says, which law governs it, and where a dispute can be fought when the relationship breaks down.

The shareholders' agreement governing a BVI joint venture is subject to the BVI Business Companies Act, but the governing-law and forum clauses in the agreement itself largely determine whether a dispute is resolved under BVI law, Hong Kong law, or some other system – and where enforcement can be sought against the defaulting party's assets. Since the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance came into force on 29 January 2024, the enforcement picture across the Hong Kong–Mainland corridor has shifted materially, and the drafting implications are still working through the market.

This analysis covers the commercial stakes, the governing instruments, the comparative read between Hong Kong and the BVI, and our current read on where the risk sits for joint-venture principals using this structure.

What is commercially at stake in a BVI joint-venture shareholders' agreement?

The BVI vehicle is almost never the end point. It is the holding layer above an operating business – typically a Hong Kong operating company, a Mainland wholly foreign-owned enterprise, or a cluster of assets in one or more Asian markets. The shareholders' agreement governs the relationship between the principals at the level of that holding vehicle, and its terms determine what happens to the underlying assets when the principals disagree.

The commercial stakes cluster around four points. First, deadlock provisions (the mechanisms by which a paralysed board or evenly divided shareholder group can break an impasse, often through a compulsory buy-sell process) determine whether the venture can exit cleanly or becomes a value-destroying stalemate. Second, drag-along and tag-along rights set the terms on which a majority can compel a minority to sell, and the minority can compel inclusion in a majority sale. Third, pre-emption rights on transfer – and the carve-outs to those rights for intra-group transfers – determine whether a principal can move shares up, down or sideways within its own corporate group without triggering consent requirements.

Fourth, and often underweighted at the drafting stage, is the information and inspection regime: what each party can demand to see, when, and what the remedy is if the operating entity's management withholds it. For a venture with Mainland Chinese operating assets, this last point is not theoretical. The practical ability of a Hong Kong or offshore minority shareholder to exercise inspection rights against a Mainland-based joint-venture manager turns on a combination of the shareholders' agreement, the articles of association of the operating entity, and Mainland corporate law – three instruments that rarely point in the same direction without deliberate drafting.

In our cross-border practice, the pattern we see most often is a BVI shareholders' agreement that was carefully drafted at the holding-company level but says almost nothing about the mechanism by which a breach at the operating level triggers rights at the holding-company level. That gap is where disputes begin.

How does the governing-law clause actually work in a BVI joint venture?

The BVI Business Companies Act governs the corporate mechanics of a BVI company – the rights attaching to shares, the duties of directors, the procedures for share transfers, and the conduct of general meetings. It does not, however, constrain the parties' choice of governing law for the shareholders' agreement as a contract. The two are distinct instruments with potentially different governing laws.

In practice, BVI shareholders' agreements in cross-border joint ventures tend to choose one of three governing laws: BVI law, Hong Kong law, or English law. The choice is not cosmetic. It determines the implied terms imported into the agreement, the standards against which a breach is measured, and the body of case law that a tribunal will apply to contested provisions.

Hong Kong governing law carries a large, accessible body of commercial precedent. Hong Kong courts sit within the common-law tradition, English is an official working language of the courts, and the Court of Final Appeal provides apex-level authority. For principals whose operating assets or management teams are in Hong Kong, there is a practical coherence to choosing Hong Kong law as the governing law of the holding-vehicle agreement.

English law is chosen where one or both principals have a European nexus, or where the transaction has a financing layer involving London-market lenders who require English-law documentation for security. The practical difficulty is that English law governing a BVI shareholders' agreement, combined with an arbitration clause seated in Singapore or Hong Kong, creates a tri-jurisdictional framework that few principals fully model at the outset.

The critical question is whether the governing-law choice and the dispute-resolution clause are consistent with each other. A shareholders' agreement governed by Hong Kong law, with disputes to be referred to arbitration at the Hong Kong International Arbitration Centre under the HKIAC Administered Arbitration Rules, is a coherent and well-tested combination. The Arbitration Ordinance (Cap. 609), which models Hong Kong's arbitration law on the UNCITRAL Model Law, provides a well-understood framework for interim relief and award enforcement.

What we see causing difficulty is the combination of a governing-law clause pointing one direction and a forum clause pointing another – or a forum clause that is ambiguous about whether disputes are to be arbitrated or litigated, which is a separate and serious drafting failure.

Does the BVI corporate law layer ever override the shareholders' agreement?

This is the question that foreign counsel most often answer incorrectly at the term-sheet stage: yes, in certain respects, BVI corporate law will override or limit what a shareholders' agreement can achieve, regardless of the governing law of the contract.

The BVI Business Companies Act regulates the rights and duties attaching to the corporate vehicle as a matter of BVI law. Certain provisions are non-derogable – they cannot be excluded by contractual agreement. The rights of a registered shareholder in relation to the register of members, the procedures required for a valid transfer of shares, and the conditions for a validly constituted shareholder resolution all sit within the province of BVI corporate law, not the governing law of the shareholders' agreement.

This matters in practice when a principal attempts to exercise a remedy under the shareholders' agreement – say, an automatic transfer of shares triggered by a deadlock mechanism – but the transfer is not completed by the formal steps required under BVI corporate law and the constitutional documents. In that scenario, the contractual right exists and may be enforceable as a damages claim under the shareholders' agreement, but the shares themselves have not moved until the BVI-law steps are completed.

The interaction with the BVI's economic-substance requirements adds a further consideration. BVI companies holding equity interests in operating entities are subject to substance rules that require certain activities to be conducted in or directed from the BVI. In most holding-only structures the substance test is satisfied at a low threshold, but the shareholders' agreement should, at a minimum, be consistent with the intended governance structure that satisfies those requirements. An agreement that vests all governance decision-making in a Mainland-based principal, with no meaningful role for the BVI-level directors, creates a potential conflict with the substance position. Parties should verify the current requirements directly.

What does the Hong Kong–Mainland enforcement shift mean for BVI joint-venture drafting?

The Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) came into force on 29 January 2024. It applies to judgments made on or after that date, covers both monetary and non-monetary judgments, and removes the old exclusive-jurisdiction requirement that had made the previous 2008 regime of limited practical use.

The direct effect on BVI joint ventures is this: if a shareholders' agreement chooses Hong Kong courts as the forum for disputes, a Hong Kong court judgment obtained by one principal against the other can now be registered and enforced in the Mainland under Cap. 645 – including, potentially, against the Mainland-based principal's personal assets or its interests in the Mainland operating entity.

That is a significant change in the enforcement calculus. Before 29 January 2024, a principal with a Hong Kong judgment against a Mainland-based counterparty largely had to pursue fresh proceedings in the Mainland. Now, registration with the Court of First Instance and the corresponding enforcement mechanism under Cap. 645 makes the Hong Kong judgment directly usable on the Mainland side of the boundary.

For joint ventures structured through BVI vehicles, the drafting implication is that the choice between arbitration and litigation as the dispute-resolution mechanism now turns on a more nuanced enforcement analysis. Arbitral awards between Mainland and Hong Kong parties continue to run through the 1999 Arrangement and the 2020 Supplemental Arrangement, which permit simultaneous enforcement applications since the 2021 amendment. Court judgments now run through Cap. 645. The two tracks are not identical in scope or exclusions – the Cap. 645 exclusion list covers insolvency, certain IP and patent matters, certain arbitration-related matters, succession, and matrimonial disputes – so the choice of mechanism matters.

A BVI joint venture with one Mainland principal and one Hong Kong or international principal should now have a specific conversation at the drafting stage about which track is preferable given the asset locations, and the shareholders' agreement should reflect that choice deliberately.

Where do the common drafting failures sit?

Counsel on our desk regularly review shareholders' agreements for BVI joint ventures that were drafted five to ten years ago and are now being stress-tested by a deteriorating commercial relationship. The failures cluster predictably.

The first is the waterfall problem: the shareholders' agreement specifies a sequence of steps for exercise of a remedy – notice, cure period, valuation, transfer – but does not specify what law governs each step, how the valuation is to be conducted if the parties disagree, or what the remedy is if a step is not completed. A well-drafted agreement specifies the mechanism at each stage, names the fallback (an independent expert, a HKIAC-administered process, or a court-appointed mechanism), and cross-refers to the BVI-law steps required to give effect to the result.

The second failure is the double-trigger gap: the agreement identifies events of default that trigger the buy-sell mechanism but leaves open whether a breach of the operating joint-venture agreement at the subsidiary level also triggers the buy-sell at the BVI holding-company level. Where the principal commercial relationship is actually governed by a separate joint-venture agreement for the Mainland or Hong Kong operating entity, the two agreements need to be explicitly cross-referenced, with clear language on which breach at which level triggers which remedy at which level.

The third failure is the anti-dilution gap in the capital structure. Where one principal is also the operating manager of the Mainland entity and controls the decisions to make further capital calls, a shareholder agreement without a robust anti-dilution mechanism allows the managing principal to dilute the passive investor by engineering a capital requirement that the passive investor cannot or will not meet. The remedy is not just a clause; it is a clause that specifies the valuation basis for additional shares issued in the dilutive event, and a dispute-resolution mechanism for that valuation.

A fourth failure, more recent in our experience, is the absence of a sanctions-neutrality clause. Hong Kong implements United Nations sanctions and does not give domestic effect to unilateral measures of other states. Where one principal or its group is subject to unilateral sanctions imposed by a non-UN jurisdiction, the shareholders' agreement should be clear about what constitutes a triggering event for a forced transfer, which sanctions regimes are contractually relevant, and what the governing mechanism is. Absent that drafting, a dispute about whether a sanctions-related event has triggered a forced-transfer right becomes an overlapping contractual and regulatory question that is expensive to resolve.

The comparative read: Hong Kong courts versus BVI arbitration or litigation

A BVI joint venture can, in principle, choose any competent forum for its dispute-resolution clause. The practical choice for Greater China cross-border ventures is typically between HKIAC arbitration with Hong Kong as seat, BVI litigation or BVI-seated arbitration, or a combination (for instance, expert determination for valuation disputes and HKIAC arbitration for legal disputes).

HKIAC arbitration has well-understood strengths in this context. The HKIAC Administered Arbitration Rules (in their 2024 form, effective 1 June 2024) provide a mature framework for complex commercial disputes. Emergency arbitrator proceedings are ordinarily completed within 14 days of file transmission, which is material when a principal needs interim relief to preserve the status quo at the BVI vehicle level – for instance, to prevent a share transfer or a change of directors pending resolution of a deadlock dispute. The Arbitration Ordinance (Cap. 609) provides the statutory underpinning, and the Hong Kong courts have a consistent record of supporting the arbitral process.

The enforcement advantage of Hong Kong-seated arbitration for cross-border enforcement is specific: interim measures in aid of Hong Kong-seated arbitrations can be sought from Mainland courts under the Interim-Measures Arrangement that came into effect on 1 October 2019. That means a joint-venture party with assets in the Mainland can apply to a Mainland court for an asset-preservation order in support of a Hong Kong-seated HKIAC arbitration. That tool is not available for BVI-seated arbitrations.

BVI litigation has its own strengths: the BVI Commercial Court handles sophisticated joint-venture disputes, and the BVI courts have jurisdiction over the corporate entity as a matter of course. The practical difficulty for cross-border principals is that enforcement of a BVI judgment in the Mainland requires fresh proceedings, and interim relief against Mainland assets is not accessible through the same inter-jurisdictional mechanism.

For a joint venture with a Mainland operating entity and assets on the Mainland side of the boundary, the practical answer is that Hong Kong-seated HKIAC arbitration – with a governing law of Hong Kong or English law and a carefully drafted interim-measures clause – gives the most complete tool kit for enforcement across both sides of the boundary.

An Asian industrial group with a BVI holding vehicle over a Mainland manufacturing entity came to our desk in late 2025. The shareholders' agreement provided for BVI litigation but the non-managing shareholder's claims related to a failure to distribute profits that were sitting in the Mainland operating entity. We advised on a restructuring of the dispute-resolution clause in the revised agreement to provide for HKIAC arbitration with Hong Kong seat, a cross-reference to the interim-measures arrangement, and an explicit mechanism for enforcement of the award at both the BVI and Mainland levels. The revised structure reduced the enforcement risk materially.

Where the risk sits now: our analytical read

The risk in BVI joint-venture shareholders' agreements has not become more complex because the law has changed dramatically. The risk has become more acute because the enforcement environment has caught up with the structures, and principals are now discovering that agreements signed five or more years ago did not anticipate the tools now available.

The Cap. 645 regime, in force since 29 January 2024, means that a Hong Kong judgment is now directly usable in the Mainland. The 2024 HKIAC Rules mean that the arbitral process, including emergency proceedings and the closure-to-award timeline, is better calibrated to commercial urgency than the older generation of rules. The interim-measures arrangement, in force since 1 October 2019, means that Mainland asset preservation in support of a Hong Kong arbitration is a practical tool, not a theoretical one.

Against that backdrop, a shareholders' agreement for a BVI joint venture that was drafted under the older enforcement environment carries three specific residual risks. First, the forum clause may not point to the mechanism that best uses the current enforcement tools. Second, the governing-law clause may be inconsistent with the forum clause in ways that were not previously visible but become visible when enforcement is sought. Third, the agreement may lack the specific cross-references and trigger mechanisms that connect a breach at the operating level to a remedy at the holding-company level.

A European private equity sponsor with a BVI holding vehicle over a Hong Kong operating entity reviewed its joint-venture documentation with us in early 2026. The shareholders' agreement chose English governing law and HKIAC arbitration, which was coherent, but the agreement was silent on the enforcement pathway for a non-monetary remedy – specifically, a compulsory share transfer following a deadlock. We mapped the BVI-law steps required to give effect to a transfer ordered by an arbitral tribunal, cross-referenced the HKIAC Rules mechanism for interim relief, and identified that the agreement needed an explicit clause authorising the arbitral tribunal to make an award in the form of a direction to the register of members. The gap was not unique to this client; it is one we see regularly.

The practical read is this: agreements drafted before 2023 should be reviewed against the current enforcement environment. The review need not be a full renegotiation; in many cases, a side letter or a protocol agreed between the principals can address the gaps without reopening the commercial terms. Where a renegotiation is in prospect in any case – for instance, because the venture is approaching a capital-call or exit trigger – the opportunity to update the dispute-resolution and enforcement architecture should not be missed.

The sequence above describes the standard position. Your matter turns on the specific documents, the jurisdictions actually engaged, and the order of steps – which is where the route is won or lost.

For a structured review of your BVI joint-venture shareholders' agreement against the current cross-border enforcement position, write to us at info@lockhartyip.com.

What foreign counsel most commonly get wrong

The structural analysis above would be incomplete without a direct account of the errors we see most frequently when reviewing BVI joint-venture documentation prepared by counsel who do not specialise in the Hong Kong–Mainland–offshore corridor.

The first and most common error is treating the BVI vehicle as a legal nullity for dispute-resolution purposes – a pass-through that can be ignored when thinking about enforcement. It cannot. The BVI company is the registered holder of the equity in the operating entity, and any forced transfer of shares at the BVI level requires compliance with BVI corporate law regardless of what a Hong Kong or English court or tribunal orders. The gap between an order and the completion of that order in the BVI register of members is a real gap with real consequences.

The second error is assuming that a well-drafted governing-law clause resolves the question of which court has supervisory jurisdiction over the arbitral process. It does not. The supervisory jurisdiction is determined by the seat of arbitration, not the governing law. An agreement governed by English law, with a seat in Hong Kong, is supervised by the Hong Kong courts under the Arbitration Ordinance (Cap. 609). If that is the intended position, the agreement should say so explicitly.

The third error is conflating the enforcement of an arbitral award with the enforcement of a court judgment. The two tracks run through different instruments, subject to different exclusions, and with different procedural requirements. An award creditor with a Hong Kong-seated HKIAC award against a Mainland-based principal uses the 1999 Arrangement and the 2020 Supplemental Arrangement; a party with a Hong Kong court judgment uses Cap. 645. The choice of dispute-resolution mechanism should be made with the enforcement track in mind from the outset.

The fourth error, which we see specifically in agreements drafted by counsel based outside Asia, is the absence of any provision addressing the interaction between the BVI shareholders' agreement and the constitutional documents of the Mainland operating entity. Where the Mainland entity's articles of association or joint-venture contract (in the case of an equity joint venture) impose transfer restrictions or approval requirements at the operating level, a remedy exercised at the BVI holding-company level may be blocked or delayed by the operating-entity-level documents. The two instruments must be consistent, and where they are not, the conflict must be resolved by a deliberate choice about which level takes precedence.

If an earlier filing, structure or enforcement attempt produced an adverse or stalled result, a second read can identify the strategic error and the routes still open.

To discuss how the current enforcement architecture applies to your cross-border joint-venture position, contact info@lockhartyip.com.

Decision matrix: structure, forum, and enforcement route

The choice of governing law, forum, and enforcement mechanism for a BVI joint venture is not a single decision. It is a matrix of connected choices, and the optimal answer depends on three variables: where the operating assets sit, where the principals are based, and what kind of remedy the non-defaulting party is most likely to need.

Where the operating assets are in the Mainland and one principal is Mainland-based, the combination that provides the broadest enforcement tool kit is: Hong Kong governing law or English governing law; HKIAC arbitration with Hong Kong as seat; and an explicit clause preserving the right to seek interim measures in the Mainland courts under the Interim-Measures Arrangement. That combination gives the non-defaulting party access to Mainland asset preservation during the arbitral process, an enforceable award under the 1999 Arrangement and the 2020 Supplemental Arrangement at the conclusion, and a well-supervised arbitral process under the Arbitration Ordinance (Cap. 609).

Where the operating assets are primarily in Hong Kong and neither principal is Mainland-based, the enforcement pressure is lower. The combination of Hong Kong governing law and Hong Kong court jurisdiction (rather than arbitration) may be preferable because the Cap. 645 registration mechanism is available for any Mainland-side asset enforcement that becomes necessary, and the Hong Kong courts provide supervisory jurisdiction over the corporate entity through ordinary commercial proceedings.

Where one principal is in the Middle East, Europe, or another offshore jurisdiction with no direct asset footprint in the Mainland, the enforcement pressure is different again. In that scenario, BVI-seated arbitration or a recognised international arbitral centre with broad New York Convention coverage may be more important than the specific Hong Kong–Mainland enforcement tools, and the governing law choice should be driven by the principal's own familiarity and the availability of qualified counsel at short notice.

The overarching principle is that the forum and enforcement choices should be made together, with the asset map in front of the drafters, not separately as boilerplate insertions at the end of negotiation.

For our read on how the available structures apply to a specific joint-venture configuration, the detail of the operating asset base, and the principals' jurisdictional positions, the starting point is a structured review of the existing documentation. To arrange that, email info@lockhartyip.com.

Related practices

• Disputes & Arbitration – cross-border enforcement, HKIAC arbitration, and interim-measures strategy across Hong Kong and the Mainland
• Holding Structures – BVI, Cayman and Hong Kong holding structures for cross-border groups and joint ventures

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This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.