Starting a new business project is exciting, but it is essential that you get off to the right start by structuring your joint venture correctly. The ‘right way’ to structure your business venture will depend a lot on the project, the circumstances of the parties involved, as well as the purpose of your joint venture. In this article, we set out the different options for how to structure your joint venture and the benefits and drawbacks of each.
In many cases, you may want to get started right away. Both parties trust each other and have a common purpose while embarking on the project together. However, it is important to remember that, further down the line, each party may have different needs, wants and desired outcomes. Without a proper structure and clear guidelines for the running of the venture, you may run into disputes which can derail the project.
A straightforward way to structure a joint venture is to create a collaboration agreement or joint venture contract. Both of these documents are legally binding commercial agreements entered into voluntarily by the parties involved in the venture. Typically such an agreement will set out:
One of the key benefits of using this type of structure is that it does not require the parties to set up a separate entity and formally combine resources. Typically, each party to the venture will retain control of its own assets which are to be used in the collaboration.
Many of those embarking on a joint venture choose to set up a separate legal entity to house the joint venture. A limited company is a popular vehicle as it provides the protection of limited liability. If the venture doesn’t work out, the shareholders in the company are only liable for any amount unpaid on shares. There are also certain benefits in terms of running and management that come with using a limited company.
A partnership is not a separate legal entity, but must comply with the Partnership Act 1890. Usually, a partnership will be governed by a Partnership Agreement which will set out the relationships and obligations between partners. When you enter into a partnership agreement, there are some legal obligations you must abide by. However, the benefit of entering into a partnership is that you have more freedom than when setting up a limited company.
A limited liability partnership (LLP) is a separate legal entity from the members of the partnership, and must comply with the Limited Liability Partnerships Act 2000. An LLP can enter into contracts, hold property and is very useful where there are multiple individuals involved in a joint venture. You will benefit from having the tax regime of a regular partnership, but also the protection of limited liability.
Choosing the right structure is vital for the success of the project, to protect your interests and to give you the best chance of success. However, the one which is right for you will depend on a number of factors including how risky the project is, the amount that will need to be invested, the relative resources of the parties involved, how long the project might take and what success looks like to you when it comes to this project. Our solicitors can discuss all of these variables with you, and explain your options clearly. Contact us today.
Our commercial lawyers have vast experience in helping start-up businesses to put their affairs in order and over the years have supported hundreds of joint ventures and collaborative projects which have gone on to become hugely successful. To find out more, please contact Marcin Durlak on 0330 107 0107 or email business@imd.co.uk.
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.
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