Update: shareholders' agreement terms for the BVI joint venture

A recurring pressure point in cross-border joint ventures is reaching the point where the shareholders' agreement no longer reflects the commercial relationship it was drafted to govern. For ventures structured through a BVI company (a company incorporated under the BVI Business Companies Act in the British Virgin Islands, a common offshore holding centre), that gap creates real risk – and it surfaces most often when a dispute, an exit, or a change of control tests the drafting for the first time.

The central terms to review in any Hong Kong-connected BVI joint venture shareholders' agreement are the governing-law clause, the dispute-resolution forum, and the day-two operating mechanics – deadlock, exit, and drag-along rights. Where Hong Kong law is chosen and the BVI company holds Mainland-connected assets or counterparties, the enforcement route for any judgment or award will depend on how those clauses are drawn. Parties should verify the current position before relying on older drafts.

This briefing covers the three pressure points, who they affect, and the immediate action.

What the Recurring Trigger Is

Shareholders' agreements for BVI joint ventures are frequently signed at deal close and then left unchanged as the business evolves. The BVI Business Companies Act governs the company itself. The shareholders' agreement, however, typically elects its own governing law – often Hong Kong law or English law – and its own forum, usually arbitration or the Hong Kong courts.

That election matters enormously. A well-drawn Hong Kong-law arbitration clause in a BVI joint-venture shareholders' agreement gives the parties access to the HKIAC Administered Arbitration Rules (2024 edition, effective 1 June 2024) and, where assets sit on the Mainland, the ability to seek interim measures before Mainland courts under the arrangement that has been in force since 1 October 2019. An ill-drawn clause – one that names a forum the parties cannot effectively use, or that is ambiguous on seat – forfeits that access entirely.

Day-two mechanics create a separate set of problems. Deadlock provisions, drag-along and tag-along rights, and pre-emption mechanics that were negotiated in one commercial context can become weapons in the hands of a hostile party once the relationship has deteriorated. In our cross-border practice, we regularly see agreements where the exit mechanics were drafted for a clean, consensual separation and are functionally useless in a contested scenario.

Who Is Affected and What to Do Now

This trigger affects any principal operating a BVI-incorporated joint venture with a Hong Kong or Mainland-connected co-venturer. The risk is highest where: the agreement is more than two years old; the commercial terms of the relationship have changed; or a new enforcement route has become available – and the agreement does not reflect it.

Since the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) came into force on 29 January 2024, the enforcement landscape for Hong Kong judgments and Mainland judgments has changed materially. An agreement drafted on the assumption that only arbitral awards could cross the Hong Kong–Mainland boundary now sits in a different enforcement environment. Whether that changes the optimal forum clause depends on the specific structure and asset location – but the question needs to be asked.

The sequence above describes the standard position. Your matter turns on the 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 and the enforcement route across the Hong Kong and Mainland corridor, write to us at info@lockhartyip.com.

The immediate actions are straightforward. First, locate the governing-law and forum clause and test whether the named forum is still the optimal one given where assets and counterparties now sit. Second, review the deadlock and exit mechanics against the current state of the relationship – not the relationship at deal close. Third, consider whether the agreement needs to be updated to capture any reserved-powers position under the BVI Business Companies Act, particularly where the board composition or decision thresholds have shifted in practice.

For context on the broader corporate restructuring considerations that frequently sit alongside a shareholders' agreement review, see our analysis on corporate restructuring across the Hong Kong–Mainland corridor. Where the agreement review uncovers a relationship that may be heading toward termination or exit, our briefing on terminating or exiting a cross-border commercial relationship sets out the options and the sequence.

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