Joint ventures – choosing the right structure and whether to incorporate

As a business owner preparing for a joint venture, you and your potential partner will need to decide how best to structure the business arrangement, so that it provides the best platform for your mutual objectives.

‘Several factors will influence your choice of legal structure, including the scope of the project, its likely duration, the level of risk, taxation and funding’ says Tom Bodkin, a Partner at Borneo Martell Turner Coulston. ‘The decision whether or not to incorporate should be made very carefully.’

Key options

The key choice will be whether or not to set up a new limited company as the vehicle for your joint venture. If you decide against a new company, the two main non-incorporated options are either a legal partnership or a more straightforward contractual arrangement.

The final option would perhaps be a limited liability partnership (LLP), which is akin to a hybrid between a partnership and a company, but this is rarer and most suited to scenarios where multiple individuals are actively involved as opposed to companies.

The pros and cons of incorporation

The biggest advantage of setting up a new company is that the liability in the joint venture will be restricted to the capital and assets of that new company. This means that your respective businesses, as joint venture partners, will be broadly shielded from the majority of the liability arising from the joint venture.

On the other hand, the limited company route is more burdensome from an administrative perspective, particularly if the joint venture is not going to be a long-term arrangement or is only to carry out a specific project.

A simple contractual arrangement also does not provide  protection from liability, but it can be a very effective and efficient way of structuring a short-term or project-based venture. Also, a contractual arrangement is the fastest way to get a new joint venture off the ground, so this is likely to appeal if time is of the essence.

Finally, while an LLP does have the benefit of limited liability, it is not suited to a joint venture between companies owing to the lack of transferable shareholding and because individuals must act as agents of the LLP.

How we can help

If you are looking for legal assistance in connection with your joint venture, our lawyers will guide you at each step of the way from planning, negotiating, creating the structure and then drafting and agreeing the required documents.

For an informal discussion, please contact Tom Bodkin on 01604 622101 on 01604 622101 or email [email protected]

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.