💡Key Insight
- Choosing a structure for a joint venture (JV) means determining how the partnership will operate legally and financially, with common options including contractual (unincorporated) arrangements or forming a new company to house the venture.
- A joint venture itself is an agreement between parties collaborating on a specific project or goal, not a defined legal entity, so selecting a structure affects liability, tax obligations, and governance.
- Incorporated structures, such as a company for a joint venture, create a separate legal entity that can own assets, incur debts, and be taxed separately, offering limited liability and clearer governance compared with unincorporated JVs.
- Other structures like partnerships or contractual JVs can work when parties retain separate legal identities, sharing profits and responsibilities under agreed terms without creating a new business entity.
When you decide to start a business, one of your first steps should be to decide what structure your business will be. This also applies to joint ventures, where two established businesses combine to achieve a mutual goal. In this article, we’ll explain the different business structures available for a Joint Venture (JV).
What is a Joint Venture?
It’s important to note first off that a joint venture is not itself a type of business structure. Indeed, it is an arrangement which can be structured in different ways, i.e. incorporated or not incorporated.
A Joint Venture (JV) combines the resources, talents and skills of two or more businesses to achieve a larger goal. The goal in this sense has to benefit both parties, with the proceeds usually shared between them. A famous example is the joint venture between Google and NASA to develop Google Earth. To develop Google Earth, NASA and Google shared their technology and data and did so under a contractual arrangement.
What’s the law relating to Joint Ventures?
Joint ventures are not a business structure, and are not legislated. If a Joint Venture is not itself registered as a new company or a partnership, the arrangement is usually set out in a contract. In this sense, it’s important for businesses to consult with a lawyer to ensure all the terms are fair and enforceable before anything is signed.
If we go back to the example of Google and NASA pooling their resources to develop Google Earth, we can see that their arrangement was set out in a Memorandum of Understanding (MOI). This means that each party understood what their responsibilities and aims were in developing the technology. Further, having a contract in place means that there are legal avenues available if one party breaches the terms set out.
Benefits
Stronger together
Joint Ventures are an example where two is better than one in- the business world. Each business brings their resources, funds and talent. Further, both parties can still exercise a degree of control in the arrangement by staying within their realm of expertise.
Shared liability
Members of a joint venture share liability. This diversifies responsibility and means that one business will not be solely liable. In the same way, taxes will attributed to each business individually (unless the JV is a company).
Flexibility
No two joint ventures are the same. In this sense, a joint venture arrangement can take many forms, the most important being whether it is registered as a company or not. If it isn’t, then both businesses can enjoy a greater degree of privacy as they won’t be beholden to the same reporting requirements. Conversely, a registered joint venture will open up the opportunity for investors and the general public to provide capital.
Drawbacks
Ambiguities
Joint Venture agreements have a tendency to be complex, as there is no legal framework for them. Further, there are instances where a JV may be instead considered a partnership. In this sense, a JV agreement needs to be clear in outlining what the mutual goal is.
Conclusion
Joint ventures, whether incorporated or not, are a useful vehicle for achieving a goal that you share with another business. In any case, it’s important that each party understand their role and what the overall aim is. If you have further questions about JV arrangements, it may be worth contacting a business lawyer.
