Joint Ventures


05 Jul
05Jul

What is a joint venture (JV)?

At its core a JV is a business arrangement between two or more parties when they agree to pool or combine some or all of their resources to undertake a specific task or to achieve a particular outcome or to develop a project together.

JVs can therefore be used for a very wide variety of commercial (and non-commercial) purposes.

At Contracts-Direct.com, we believe that JVs are going to be one of the key foundation stones for achieving economic recovery across a wide range of businesses. 

We can help set up strategic long-term and single-purpose JVs (Covid-19 driven or otherwise) and we have a range of documents and services to support our commercial drafting services

Here are some guidelines to JVs, how they are formed and what is involved.

What types of JV are there?

UK JVs commonly take one of the following forms

  1. An unincorporated, contractual arrangement
  2. A corporation- usually a private limited liability company incorporated under the Companies Act 2006
  3. An unlimited liability partnership- under the Partnership Act 1890 (yes 1890!)
  4. A limited liability partnership (LLP)- under the Limited Liability Partnerships Act 2000
  5. A limited partnership (LP)- under the Limited Partnership Act 1907 (as amended)

Unincorporated (contractual) JVs

These JVs can take various forms including for achieving a single purpose or objective e.g. the development of some software, the development of a property.

Incorporated JVs

JVs structured as limited liability companies or LLPs form distinct legal entities that are able to hold assets and incur liabilities, sue and be sued, enter into contracts in their own right.

General Partnerships

Partnerships subsist between two or more persons or entities carrying on business in common with a view to profit. Partnerships are governed in the UK by the Partnership Act 1890. A partnership is not a separate legal entity. Partners generally have unlimited liability and can be self-employed and/or limited companies and/or limited liability partnerships. Partners are fully liable for the debts of the partnership as a whole. Profits of a partnership are shared among its partners in accordance with their partnership (JV) agreement.

LLPs

A limited liability partnership is a separate legal entity from its members (partners), who are only liable for the amount of money they invest, plus any personal guarantees. The partnership is incorporated at Companies House and can only be used by profit-making businesses.

Partners have to provide a registered address for the business and maintain a register of members. There’s no restriction on the maximum number of partners allowed but there must be at least two members on incorporation, either individuals or limited companies.

 LLPs differ from ‘traditional’ business partnerships, and also from the limited company structure, and are regulated by various pieces of legislation including the Limited Liability Partnership Regulations, 2001.

LPs

A partnership registered in accordance with the Limited Partnerships Act 1907 must be formed between two or more persons and must carry on a business in common with a view of profit. Unlike a general partnership (see above), a limited partnership has two categories of partner: one or more general partners who agrees to manage the business of the partnership and one or more limited partners who do not participate in the management of the partnership and who have limited liability.

A key point to note is that there are no laws expressly restricting the structuring of a joint venture. However, depending on what type of JV is formed, there are the rules to be followed. As a general rule, it is not necessary for both parties to be UK incorporated or resident, although UK tax and accounting advice should be taken into consideration at an early stage.

There may also be competition considerations when forming a JV and JVs need to follow the Competition & Markets Authority (CMA) Guidance.

The Pros and some of the Cons of JVs

Pros: 

  • Pooling risks and costs of a project
  • Sharing technological research and solutions
  • Combining complementary resources and brain-power
  • Limited liability for the shareholders in a corporate JV
  • 1 + 1 = 3 outcomes under the JV structure

Cons:

  • Managing the relationship between the JV parties
  • Disagreements over objectives, finances and management
  • Executing on the components of the JV
  • Alignment of JV parties’ employee terms

 How does Competition Law affect JVs?

A joint venture must not compromise market competition within a specific sector.

Cooperation between businesses firms that operate in the same market sector are therefore normally compete with each other can result in market stagnation, lack of innovation and price fixing, which ultimately damage consumers.

It’s important that a JV adheres to the CMA’s guidance. Large fines can be applied to businesses breaking competition law. It is therefore advisable to seek legal advice to draft a joint venture agreement.

What goes into JV Documentation?

A fairly typical unincorporated JV document includes a wide range of provisions including:

  • Definitions of common terms
  • Purpose and scope of the JV
  • Capital and further finance for the JV
  • Management Provisions
  • Contributions of the parties to the JV
  • Matters for mutual consent
  • Confidentiality and intellectual property rights
  • Restrictions on the Parties
  • Term of JV
  • Split of profits and losses between the parties
  • Allocation of costs of forming the JV
  • Conditions precedent to commence the JV
  • Marketing strategy
  • Deadlock and dispute resolution provisions
  • Schedules containing relevant JV input data

A fairly typical incorporated JV will contain much the same as the above but will set out details of the JV company and its shareholding and management structure.

For some further reading on JVs see: 


By the publications team at: Contracts-Direct.com

Legal Notice:

Publisher: Atkins-Shield Ltd: Company No. 11638521
Registered Office: 71-75, Shelton Street, Covent Garden, London, WC2H 9JQ

Note: This publication does not necessarily deal with every important topic nor cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. The information contained in this document is intended to be for informational purposes and general interest only.

E&OE

Atkins-Shield Ltd © 2020


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