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What Business Structure Should My Joint Venture Be?

What Business Structure Should My Joint Venture Be?

Interested in how business structures such as joint ventures work? Want to know whether your business will suit a joint venture? keep reading for more.

18th October 2019

Starting a business is both an exciting and difficult time. It is imperative you sit down and consider what business structure to choose, as this is what can make or break your business. Here we’ve put together a rundown of the benefits and disadvantages of a joint venture, which will help you decide whether the business structure is best suited for you.

What is a Joint Venture

This is a business structure that is commonly used in high-risk activities. Usually, this type of structure’s implemented to allow different skills or assets into a business for a finite period of time – with a common goal in mind. Joint venturers are both the principal and agent to the other joint venturers and must act within the scope of the agreement.

The law around Joint Venture

As there is no governing law for joint ventures, there tends to be a lot of confusion within this area. Without the need for registration, joint ventures are bound in contract and the principles of general law will apply. It is a good idea to have a solicitor draft your joint venture agreement before you partake in the activity to help limit the confusion or debates that can arise. Should you have any further questions, or are interested in drafting a venture agreement, it’s best to contact a business lawyer.

Advantages of a joint venture

Control

Each party brings their own set of skills and working capital to the project. Indicatively, all exercised control will be limited upon each person’s area of expertise.

Liability

Members of a joint venture share liability amongst each other. This diversifies responsibility and means you will not be completely liable. However, joint venturers may agree to share liability and can be collectively liable should the law be breached.

Capital

A joint venture allows for participants to pool physical, financial and human capital between them. This is beneficial as each participant is able to feed off each other’s funds.

Privacy

Most joint ventures, such as those whom are unincorporated, can legally keep their finances confidential. However, being an incorporated joint venture means you will have to disclose your financial statements publicly.

Disadvantages of a joint venture

Ease of Establishment

A joint venture is an association of natural or corporate persons, by which they agree to engage in some common activity by combing their respective resources without forming a partnership. This agreement can be quite complex, as it requires understanding the commercial objectives and the role each person is to play.

Potential partnership

Notwithstanding the advantages, the Courts have on occasion deemed a joint venture to be a partnership. This is because the activities of the parties were leaning more towards a partnership. Ultimately, as the ascertainment of a partnership and joint venture can be difficult, we recommend reading ASIC’s business structure.

Conclusion

In deciding whether a joint venture’s structure suits your business, you should consider the advantages and disadvantages. As previously mentioned in the advantageous section, joint ventures usually consist of combined joint capitals, shared liability, shared control, and protected privacy. Ultimately, we advise you consult a professional to guide you through the legalities when structuring.

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Author
Alex Vella

Alex currently works in the content team as a Legal Tech Intern for Lawpath. He has finished his Bachelor of Commerce (Professional Accounting) and is currently undertaking his last year of Bachelor of Laws at Macquarie University. His passion resides with commercial, corporate and tax law.