Joint Ventures (JVs)
Joint Ventures are a type of commercial arrangement where two or more parties combine their resources to achieve a common goal. This can take the form of a specific project or also a longer-term collaboration.
You can outline these arrangements in a joint venture agreement. However, what constitutes a JV itself is open to interpretation, as there is no strict legal definition. Despite this, there are generally 3 types of JV:
- Incorporated Joint Ventures
- Unit Trust Joint Ventures
- Unincorporated Joint Ventures
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Unincorporated Joint Ventures
An unincorporated Joint Venture is an association of participants which has not been incorporated.
Although not registered, terms of the arrangement are set out in a legally binding contract. Therefore this means that all parties need to adhere to the terms of the contract. This contract whilst ideally in writing, can also be verbal. There are 2 types of unincorporated JV, which are:
- Those which amount to common law partnerships
- Those which are not partnerships
How it works
Ownership is structured by percentages of the assets being allocated to each party. Along with receiving the profits, each party will be responsible for their share of the debts.
As there is only a contract between the parties, each party is independent when it comes to tax. Similarly, each party is also able to finance its share of the venture separately, although for project financing all parties to the venture often act together. Further, the Joint Venturer’s liability under a unincorporated Joint Venture is separated between the parties.
Benefits
There are numerous benefits to an Unincorporated Joint Venture. Some include:
- A temporary arrangement between the parties
- Parties can access more shared resources
- Ability to complete a project which each party may not have had the resources to complete alone
- The parties share in the risks and also the costs involved
Drawbacks
There are also some drawbacks to an Unincorporated Joint Venture, which include:
- Each party being jointly and severally liable for the other parties debts
- Each party is responsible for the actions of the other parties
- Parties have unlimited liability
- Shared profits
Conclusion
An unincorporated Joint Venture allows two businesses to share their resources and collaborate to achieve a mutual goal. The benefits of this type of arrangement are significant. However, it’s important to ensure this arrangement is set out in a legally binding agreement. If you have further questions about what entering into such an arrangement may have for your business, you should get in touch with a Joint Venture Lawyer.
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