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A Note on Joint Ventures From Greenaway Scott

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This article was submitted by Greenaway Scott

What is a Joint Venture?

A Joint Venture (JV) is the forming of a commercial relationship between two or more parties (usually companies) in order to allow each party to bring something to that relationship which, when combined together, allows the JV to be successful. The JV arrangement may be for a one off project or may be formed in respect of a longer term arrangement between the parties. A typical example where parties may find it beneficial to enter into a JV is property development. A recent high profile example is the JV entered into between companies Marks & Spencer’s and Ocado which will allow Marks & Spencer’s to deliver their products through Ocado.

What are the different types?

If you are considering entering into a JV, one of the key characteristics and benefits of a JV is the flexibility of different structures that can be adopted. A key consideration is whether or not the parties to the JV wish to set up a new company as a vehicle to run the JV. The most common types of structure are the following:

  • Limited Company
  • Partnership
  • Contractual

What are the differences in practice between the structures?

The suitability of the above structures for you and your business entering into any JV will depend on the degree of independence you wish to maintain from the other party to the JV.

Limited Company (JVC)

If the parties are to run the JV through setting up a Joint Venture Company (JVC), this method represents the greatest degree of integration between the parties. This method involves incorporating a new company and the JV parties nominating directors to act on its behalf. This method will likely mean a pooling of assets which will be transferred to the JVC which brings with it legal formalities that must be attended to. The reason for the popularity of the JVC as a method is the limited liability offered by the company. This means that should the JVC be sued, the JV parties who are the shareholders are only liable to the extent of their shareholding and cannot be pursued for any further amounts owed to creditors (provided no personal guarantees have been given), as the JVC itself is responsible for its debts as a separate legal person.

Partnership or Contractual Arrangement

If the JV is to be run as a partnership or through a contractual arrangement, then a company will not need to be set up. However, the parties should be aware that unless expressly excluded by a written agreement the arrangement may be subject to implied terms from the Partnership Act 1890. These could include provisions that the parties did not intend and for this reason a no partnership clause is commonly included in the respective written agreement.

If you want to discuss how best to setup a joint venture which have not been detailed in the above article, please feel free to get in touch with someone from our corporate team who would be happy to assist you. Please contact us at [email protected] or call us on 029 2009 5500 to speak to one of our team.

The information contained in this article is for information purposes only and is not intended to constitute legal advice.