Joint Ventures and Partnerships
What are Joint Ventures and Partnerships?
Joint ventures and partnerships sound similar, but in fact each has a very different legal structure.
The goal is often the same, two (or more) parties come together to agree terms on how they will work together. They may call their relationship a ‘partnership’, but in fact it may not be a true ‘partnership’ at all.
In fact, in many cases its better that the legal structure created is not a partnership. Partners, generally speaking, share all profits and losses. The assets they bring into the partnership become partnership property and partnership law will imply all sorts of unexpected terms.
Often, a more correct structure for the ‘partnership arrangements’ would be to form a company, and to give each of the partners a share in the company. In that case, the parties would need to create a ‘Shareholder Agreement’ which would then set out their respective rights and obligations.
Alternatively, if a single-company structure is not appropriate, the two partners can remain independent, and create a ‘Joint Venture Agreement’ which can carefully document the terms agreed between the parties, without the agreement being considered a ‘legal partnership’ (with all the associated problems that can bring – see above).
Which structure is right for me?
One size does not fit all, so its important to discuss with your solicitor the purpose and aims of the partnership so that the best business structure can be chosen.
Often company structures are likely to be beneficial due to the limited liability protection given by a company and due to the ease in creating bank accounts, third party contracts and shareholdings which are readily understood and recognised by all those third parties who you’ll be dealing with.
For example, if you want to attract investors to invest in your project, a company structure is almost certainly going to be required. Also, if you want to be able to issue shares in your new business to employees, then again a company is the obvious and sometimes only choice.
When is a partnership structure useful?
Partnership structures can be beneficial from a tax perspective, depending on the nature of the underlying business. Although, even then, a limited liability partnership (or ‘LLP’) may prove more effective and provide greater protection to the partners, rather than a simple individual partnership structure.
What about Joint Ventures?
A joint venture may remain a valid business structure where the two parties have their own existing corporate structures and wish to remain somewhat ‘separate’ from each other. A joint venture agreement can avoid the need to create a new jointly owned company, and to deal with the ownership and control issues that will arise in such a structure.
A joint venture can also be easier to terminate or unwind, with both parties simply going their separate ways, rather than having to address what happens to the assets and potential liabilities contained within a jointly owned company.
Sectors we work with
We provide services for a number of different sectors including start-ups, property developments, small businesses and more.
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