Co-Investment Agreement

SHORT ANSWER TO THE MAIN QUESTION

A Joint Investment Agreement is not one universal named contract type with predefined content under the Czech Civil Code.

In a particular case, it may operate as an innominate agreement, with the parties creating their own contractual framework.

Depending on how the relationship actually works, however, it may also involve:

• a society or partnership-type arrangement under the Czech Civil Code,
• co-ownership,
• a loan provided by one investor,
• a silent partnership,
• an investment through a Czech limited liability company or another corporate vehicle,
• or a combination of several legal relationships.

If several persons agree to join together for a common purpose, the relationship may fall within the Czech Civil Code rules on a society.

Simply calling the document a “Joint Investment Agreement” does not necessarily prevent another legal classification from applying.

The first question is therefore how the investment is actually supposed to work. Only then can the appropriate contractual structure be chosen.

YOU MAY BE THINKING…

“Is it enough to write that we each contribute 50%?”

“If we each pay 50%, do we automatically own 50%?”

“Who can decide to sell the investment?”

“Do we both have to contribute more money if the project exceeds the budget?”

“What if one investor works on the project while the other only provides funding?”

“How is profit divided?”

“Who bears the loss?”

“Can one investor leave?”

“Can they transfer their participation to someone else?”

“What if we cannot agree on what to do next?”

“And do we really need a detailed agreement if we trust each other?”

Trust is often exactly why joint investment agreements are underestimated at the beginning.

And exactly why a later dispute can become much more painful.

THE REAL PROBLEM IN PRACTICE: MONEY DOES NOT DETERMINE THE LEGAL STRUCTURE

Imagine two people.

Each contributes CZK 2,000,000.

A property is purchased for CZK 4,000,000.

Economically, it looks like a 50/50 investment.

But consider the possibilities.

Option A

Both individuals are registered as co-owners, each owning a one-half share.

Option B

Only the first person acquires the property.

The second person provides CZK 2,000,000 and is contractually entitled to 50% of the future return.

Option C

The property is purchased by a jointly owned limited liability company, and both investors hold a 50% share in that company.

Option D

One person carries on the business and the other contributes capital in return for participation in the business results.

Option E

Both persons contractually associate for a common investment purpose without creating a separate legal entity.

Economically, all five structures may sound similar:

“We each put in half and want half of the profit.”

Legally, however, they are very different.

They differ in:

• ownership,
• management of the investment,
• liability,
• position towards third parties,
• decision-making,
• transferability of participation,
• exit options,
• settlement mechanisms.

One of the most expensive mistakes in a joint investment is assuming that an economic 50/50 arrangement automatically creates a legal 50/50 relationship in every other respect.

It does not.

BIGGEST RISKS AND COMMON MISTAKES

The same problems repeatedly appear in joint investment arrangements:

• the investment project is not defined precisely,
• it is unclear who owns the acquired asset,
• money is transferred to one investor without a clear legal basis,
• it is not clear whether the money is an investment, loan or another form of financing,
• the contribution of each investor is not properly defined,
• the work performed by one investor is not valued,
• additional financing is not addressed,
• there is no mechanism for budget overruns,
• decision-making powers are unclear,
• there are no rules for major decisions,
• conflicts of interest are not addressed,
• funds can be used outside the project,
• accounting and document-access rights are missing,
• “profit” is not defined,
• project costs are not clearly deducted before profit distribution,
• losses are not allocated,
• there is no clear rule on when profit may be distributed,
• one investor may effectively control the investment despite equal funding,
• exit is not addressed,
• there is no valuation mechanism for settlement,
• there is no deadlock mechanism,
• transfers to third parties are not regulated,
• no pre-emption or similar priority right exists,
• death of an investor or change of control in an investor company is ignored,
• the contract assumes success and does not properly address failure.

A typical clause?

“The investors shall finance the project equally and share the profit 50/50.”

That is useful information.

But it is not yet a functioning investment mechanism.

HOW TO APPROACH IT: REALITY, NOT THEORY

With a Joint Investment Agreement, I would not begin with the word “investor”.

I would begin with this structure:

Who → contributes what → who owns the asset → who decides → who bears the costs → who receives the return → who bears the loss → how can each investor exit.

1. Define the investment project precisely

The investment may involve:

• acquisition of real estate,
• renovation and resale,
• product development,
• software,
• manufacturing technology,
• a business project,
• a joint venture,
• acquisition of shares,
• financing of a specific transaction,
• equipment,
• intellectual property rights.

It is not enough to write:

“The parties will jointly invest in Project X.”

The agreement should make clear what the project includes and where its scope ends.

2. Define what each investor actually contributes

One investor may contribute CZK 1,000,000.

The other may contribute:

• CZK 500,000,
• know-how,
• work,
• business contacts,
• technology,
• a licence,
• real estate,
• another asset.

At that point, profit sharing is no longer necessarily a simple mathematical exercise.

If one investor provides not only capital but also manages the project for several years, the agreement should determine whether:

• this work forms part of that investor’s contribution,
• it is paid separately,
• or it justifies a larger share of the return.

3. Determine ownership

This is critical.

Who will legally own what is acquired with the invested funds?

If the investors jointly acquire an asset, co-ownership may arise.

But if only one person receives the funds and acquires the asset in their own name, the second investor does not automatically become an owner merely because they provided half of the purchase price.

The agreement should therefore determine:

• who acquires title,
• in what proportions,
• whether ownership is held directly by the investors,
• whether the asset is held by a joint company,
• or whether one investor receives only a contractual right to a return.

4. Regulate control of the money

Who has access to the invested funds?

Can they be used only for defined project costs?

Do larger expenses require prior approval?

Is there a separate project account?

Who provides accounting records?

How often does the other investor receive reports?

A right to a share of profit is much less valuable if the investor cannot determine:

how much the project actually earned and which costs were deducted.

5. Set the decision-making rules

Day-to-day management may be handled by one investor.

But what about:

• additional financing,
• incurring debt,
• changing the project,
• selling the main asset,
• admitting another investor,
• entering into a major contract,
• changing the budget,
• terminating the project?

For key decisions, unanimous consent or a qualified majority may be appropriate.

And if there are two investors with a 50/50 vote, the agreement also needs to answer:

What happens if we simply cannot agree?

6. Plan for additional funding

The project was supposed to cost CZK 5 million.

It now requires CZK 7 million.

What happens next?

Are the investors required to contribute more?

In the same proportions?

Can one investor cover the other investor’s shortfall?

Will that amount be treated as:

• additional equity-like investment,
• a loan to the project,
• a reason to adjust participation percentages,
• another contractual claim?

This is one of the most practically important parts of the agreement.

7. Define profit

“We split profit 50/50.”

Fine.

But what is profit?

Sale proceeds minus acquisition cost?

Minus renovation?

Minus financing costs?

Minus tax and legal expenses?

Minus remuneration for the investor managing the project?

Minus reserves?

Minus interest on loans?

Disputes about profit are often not disputes about the percentage.

They are disputes about the base from which the percentage is calculated.

8. Address losses

An investment may make money.

It may also break even.

Or make a loss.

The agreement should address:

• who bears the loss,
• in what proportion,
• whether an investor’s exposure is limited to the funds already contributed,
• whether further funding can become mandatory,
• who bears liabilities towards third parties.

9. Design the exit

Investors often plan the entry.

They rarely plan the exit with the same care.

The agreement should answer:

• can an investor withdraw,
• when,
• under what conditions,
• can participation be transferred,
• does the other investor have a priority right,
• how is the price determined,
• who performs the valuation,
• what happens after a material breach,
• what happens after prolonged deadlock,
• what happens on death,
• what happens in insolvency,
• what happens if control of an investor company changes.

A Joint Investment Agreement without an exit mechanism tends to work perfectly until someone actually wants to leave.

PRACTICAL EXAMPLES

👉 Joint purchase of an apartment

Two investors each contribute CZK 3 million.

For administrative reasons, however, only one of them acquires the apartment.

The second investor assumes:

“It is obviously our joint investment.”

Several years later, the relationship deteriorates.

Only one person is registered as owner.

The other has bank transfers and a short agreement stating that they “participate in the investment”.

The dispute is suddenly not only about profit.

It is about a much more basic question:

What legal right to the property did the second investor actually acquire?

👉 One provides the money, the other the work

Investor A contributes CZK 5 million.

Investor B contributes almost no capital but develops the entire project, finds suppliers, arranges permits and manages the project for three years.

They agree to split profit equally.

Two years later, Investor A says:

“I funded the entire project.”

Investor B responds:

“Without me, there would be no project.”

Both arguments may make commercial sense.

A good agreement should have determined from the beginning how capital and work are valued.

👉 The project needs more money

Each investor was supposed to contribute CZK 2 million.

The project requires another CZK 1 million.

Investor A wants to continue.

Investor B has no more capital.

What happens?

Does A contribute the entire additional amount and receive a larger share?

Does A make a loan to the project?

Is B in breach?

Or was B never under an obligation to provide additional capital?

If the agreement has no answer, the parties start negotiating the rules of the investment at exactly the moment when their interests have become different.

WHY YOU SHOULD BE CAREFUL WITH “I’LL DO IT MYSELF”

A Joint Investment Agreement is one of those documents where a generic template may fail at the very first question:

What does “investment” legally mean in your specific case?

A template does not know:

• whether you are buying real estate,
• whether you are financing a business,
• whether you are creating a joint venture,
• whether co-ownership should arise,
• whether one investor only provides funding,
• whether another contributes work,
• whether the relationship should operate as a society under the Czech Civil Code,
• whether a limited liability company would be more appropriate,
• whether the arrangement resembles a silent partnership,
• whether part of the funding is actually a loan,
• who should own the assets,
• who should manage them,
• who contracts with customers and suppliers,
• who controls accounting,
• who may borrow against the project,
• who must provide additional capital,
• how profit is calculated,
• who bears losses,
• how the investors separate.

This is exactly where legal classification matters.

For example, under Czech law, where several persons agree to associate as participants for a common purpose involving an activity or asset, their relationship may fall within the statutory rules on a society.

That society is not itself a separate legal entity, but it creates contractual and, in some cases, property relationships between its participants.

A silent partnership, by contrast, typically involves a silent partner contributing capital to an entrepreneur and participating in the results of that entrepreneur’s business.

Calling the document a “Joint Investment Agreement” does not allow the parties to ignore the legal regime that follows from what they are actually doing.

LAWYER’S RECOMMENDATION + CHECKLIST

For every joint investment, I would ask one simple question:

If the project stopped making money tomorrow and the investors fell out, could I determine from the agreement who owns what, who can decide what, who owes what to whom and how the relationship ends?

If not, the agreement is not finished.

Quick checklist

• The investment project is precisely defined.

• Each investor’s contribution is identified.

• Contribution deadlines are stated.

• It is clear whether the contribution consists of money, assets, work or know-how.

• Ownership of the acquired assets is determined.

• Ownership proportions are determined.

• The legal basis for money transfers is clear.

• Use of invested funds is regulated.

• Investor control rights are defined.

• Access to accounting and documents is regulated.

• Project management responsibility is allocated.

• Decisions requiring joint approval are identified.

• A deadlock mechanism exists.

• Budget overruns are addressed.

• Additional funding obligations are defined.

• It is clear what happens if only one investor provides additional funds.

• Profit is precisely defined.

• Costs deducted before profit distribution are defined.

• Distribution of returns is determined.

• Allocation of losses is determined.

• Third-party financing is addressed.

• Liability towards third parties is considered.

• Conflicts of interest are regulated.

• Transfer of participation is addressed.

• Priority rights of other investors are considered.

• Exit is regulated.

• A valuation mechanism for settlement exists.

• Death, insolvency or another major change affecting an investor is addressed.

• It has been considered whether the relationship should instead be structured through co-ownership, a society, silent partnership, loan or company.

FAQ

What is a Joint Investment Agreement?

It is a general term for an agreement under which several persons arrange the joint financing of a particular project or asset.

The Czech Civil Code does not contain one universal named contract type called a “Joint Investment Agreement”.

The applicable legal framework therefore depends on the actual substance of the arrangement.

Can a Joint Investment Agreement be an innominate agreement?

Yes.

The parties may use contractual freedom to design their own investment mechanism.

However, if the actual content of the arrangement corresponds to a statutory contract type or another regulated legal relationship, the title “Joint Investment Agreement” or “innominate agreement” will not necessarily determine the legal classification.

Does a 50/50 investment automatically mean 50/50 ownership?

No.

The amount of money contributed does not by itself determine who becomes the owner of the acquired asset.

Ownership must be structured according to what is being acquired and through which legal mechanism.

Is a Joint Investment Agreement the same as a society under Czech law?

Not automatically.

However, where several persons agree to join together for a common purpose involving an activity or asset, their relationship may fall within the statutory rules on a society under the Czech Civil Code.

The actual substance of the investment relationship must therefore be examined, not merely the document title.

Is a joint investment the same as co-ownership?

No.

Co-ownership concerns the ownership rights of several persons in the same asset.

A joint investment may result in co-ownership, but it does not have to.

For example, the investment may be made through a company, or the asset may be owned by only one investor while the other has only a contractual right to a return.

How should profit be divided?

According to the agreement between the investors and the chosen legal structure.

But defining only the percentage is not enough.

The agreement should also determine what counts as revenue, which costs are deducted before distribution and when the right to payment arises.

What happens if more money is needed?

The agreement should answer this in advance.

It may create an obligation to provide additional funding, set a funding cap, or allow only one investor to provide the extra capital while specifying how this affects the parties’ rights.

Do we need to establish a limited liability company for a joint investment?

Not always.

For some investments, a contractual structure may be sufficient.

For longer-term, higher-risk or substantial projects, a separate company may provide a clearer ownership, governance and exit framework.

The appropriate structure depends on the project, the investors, the risk, the financing model and the intended exit.