The shareholders will therefore only be liable for the company’s debts (over and above their equity investments) to the extent that they provide guarantees or are responsible for the company trading while insolvent.įlexibility - The separate legal personality of the company provides flexibility in raising finance, allowing the JVC to enter into loans in its own name and to provide security over its own assets. Limited liability – Another key advantage of limited companies is that the liability of the shareholders is limited to the amount unpaid, if any, on the shares held by them. There are some potential tax disadvantages of separate legal personality, including being charged tax on transfers of assets into and out of the joint venture and, depending on the relative proportions of the parties’ interests in the joint venture, restrictions on setting off losses of the JVC against profits of the parties. Tax – As a JVC has separate legal personality from its owners, it is in general terms not tax transparent.
It allows, for example, (a) assets to be owned by the JVC rather than any of the parties, (b) a separation between ownership and management, (c) the JVC to conduct business and enter into contracts in its own name, and (d) the parties to transfer their interests in the joint venture to other existing joint venture parties or third parties. Separate legal personality – This is usually viewed as one of the key advantages of a limited company.
SAMPLE OF JOINT VENTURE AGREEMENT SERIES
It is likely that there will be a series of ancillary agreements and documents. In particular, the parties will not be able to place any obligations on the joint venture company (“JVC”) itself, which could be viewed as fettering its statutory powers.Īgreement mechanism – The shareholders in a JVC will usually set out the primary terms of their arrangements in a formal shareholders agreement. It contains a number of mandatory provisions, which the parties will not be able to override in contractual documentation. Statutory framework – The Companies Act 2006 is the primary piece of legislation in relation to limited companies. The key features of a limited company are that it has a statutory framework, separate legal personality from the joint venture parties, limited liability, flexibility in relation to its structure, financing and tax planning, and greater publicity. If you would like more details in relation to any of the joint venture structures or would like to discuss a potential or existing joint venture, please contact us by telephone or by email at Alternative 1 - Corporate joint venture In this article, we provide an overview of each of the 3 most common joint venture structures.
SAMPLE OF JOINT VENTURE AGREEMENT PROFESSIONAL
Therefore, it is important to be clear as to the reasons for the transaction, identify potential risks and contact your professional advisers at an early stage. Equally, clear and well thought-out joint venture agreements can help make a joint venture run smoothly from start to finish. It is important to bear in mind that significant legal or practical changes to a joint venture or requests for the same, after it has commenced, can unsettle and lead to distrust between the parties and even result in the collapse of a transaction. The choice of structure depends on the circumstances and bargaining power of the respective parties.ĭuring each phase of the joint venture, it is important for the parties to keep focussed on their key reasons for entering into the joint venture and to continually re-assess the merits of and opportunities for the joint venture in terms of the proposed deal that has been struck. However, the 3 most common structures used are a corporate joint venture, a joint venture partnership and a contractual joint venture. The parties wishing to enter into a joint venture have a number of choices of structure available to them.
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