What is a joint venture?
A joint venture is a business arrangement where the parties agree to develop – for a prescribed time – a new entity and new assets by contributing equity. They exercise control over the enterprise – and consequently share revenues, expenses and assets.
Possible forms for a joint venture
The four forms reflect varying degrees of integration of the interests of the parties in the JV.
- A limited liability company.
- A limited liability partnership (LLP).
- A partnership (or limited partnership).
- A purely contractual co-operation agreement
Legal Considerations
No Specific Laws
In England, there is no law relating specifically to joint ventures. The relationships between the parties involved will be subject, depending on the structure chosen, to an amalgam of the general common law rules, the substantive provisions of company and partnership law as well as tax law and competition law amongst others.
Limited Liability
The most significant advantage of a company is perceived to be the ability of participants to limit their liability in respect of liabilities and losses of the joint venture business.
However, unless the joint venture is creditworthy in its own right it is unlikely that the shareholders will be able to avoid having to support the joint venture through the provision of guarantees or other assurances to third parties.
Directors’ duties
Directors of a JVC are generally nominated by the participants. Therefore, a director may find himself in situations where he faces a conflict between the interests of the joint venture and those of the particular participant who nominated him.
