Joint ventures - lawyer guide

Joint ventures (JVs) are collaborative arrangements between two or more businesses to achieve specific commercial objectives while maintaining their separate legal identities. They offer a flexible approach to business collaboration, enabling parties to share resources, expertise, risk, and reward.

Strategic reasons for Joint Ventures

Several key strategic and commercial factors typically drive businesses to consider joint venture arrangements:

• Risk Mitigation - sharing investment costs and financial exposure, reducing exposure in uncertain or volatile markets, creating financial buffers for complex or long-term projects generally using a separate entity to ring-fence liability.

• Resource Constraints - where there is Insufficient capital for sole investment in a project or market and/or limited internal expertise in critical technical areas and/or limited access to production facilities or infrastructure

• Access to New Capabilities - such as technical expertise or proprietary technology, established distribution channels or customer relationships, leveraging a partner's regulatory relationships or permits

• Speed to Market - faster entry into new markets than organic growth allows and achieving rapid scale through combined resources

• Competitive Positioning - achieving economies of scale more quickly and creating barriers to entry for new market players

• Strategic Flexibility - maintaining strategic flexibility compared to full merger or acquisition and accessing exit options not available through internal development

• Supply Chain Integration - securing supplies of critical components or raw materials and sharing logistics infrastructure and capabilities

• Technology Commercialisation - bringing together technical innovation and commercial expertise

• Regulatory Compliance - sharing compliance costs in heavily regulated sectors and creating industry-wide infrastructure for regulatory reporting

Joint Venture structures

Several legal structures are available for joint ventures in the UK, each with distinct characteristics, advantages, and disadvantages:

Contractual Joint Venture

A contractual JV (sometimes called a "strategic alliance") is based solely on contractual arrangements without creating a separate legal entity.

Key features:

• No separate legal entity formed

• Relationship governed entirely by contract

• Parties retain separate identities and control over their assets

• Limited to the terms expressly agreed in the contract

• Generally easier and less costly to establish and terminate

Best suited for:

• Project-specific collaborations with defined timeframes

• Arrangements where ongoing commitments are limited

• Situations where parties want to avoid shared liabilities

• Testing collaborative potential before establishing a more formal structure

• International arrangements where a common corporate structure is difficult to establish

Tax considerations:

• Each party taxed separately on their share of profits

• No separate tax entity or filing requirements

• VAT treatment depends on the nature of supplies between parties

Corporate Joint Venture (JV Company)

A separate limited company owned by the JV partners in agreed proportions.

Key features:

• Separate legal entity with its own assets and liabilities

• Limited liability protection for shareholders

• Clear ownership structure through shareholdings

• Governed by Articles of Association, Shareholders' Agreement and UK company law

• Board of directors typically includes representatives from each partner

Best suited for:

• Long-term collaborative enterprises

• Ventures requiring significant capital investment

• Projects where a separate brand identity is desirable

• Arrangements where clear governance structure is important

• Ventures that may later be sold or listed

Tax considerations:

• Company pays Corporation Tax on profits

• Distributions to shareholders made via dividends

• Potential for tax-efficient investment through EIS/SEIS for qualifying ventures

• Transfer pricing considerations for transactions between JV and shareholders

Limited Liability Partnership (LLP)

A hybrid structure combining elements of partnerships and companies.

Key features:

• Separate legal entity with limited liability for members

• Tax transparent (profits attributed to members)

• Flexible internal arrangements

• Governed by LLP Agreement and LLP legislation

• Less regulatory burden than a company

Best suited for:

• Professional service ventures

• Arrangements where tax transparency is advantageous

• Situations requiring flexible profit-sharing arrangements

• Ventures between existing partnerships

• Projects requiring less public disclosure than a company

Tax considerations:

• No tax at LLP level - profits taxed in the hands of members

• Members may have different tax statuses (individuals, companies)

• Self-employment status for individual members (National Insurance implications)

• VAT registration required if taxable turnover exceeds threshold

Partnership or Limited Partnership

Traditional partnership or limited partnership structure.

Key features:

• Traditional partnership: no separate legal personality, unlimited liability

• Limited partnership: general partner(s) with unlimited liability and limited partners

• Tax transparent structure

• Governed by Partnership Agreement and Partnership Act 1890/Limited Partnerships Act 1907

Best suited for:

• Investment-focused ventures (especially limited partnerships)

• Arrangements between existing partnerships

• Ventures requiring minimal public disclosure

• Certain regulated sectors with partnership traditions

Tax considerations:

• Tax transparent - partners taxed on their share of profits

• Limited partners in limited partnerships may have advantageous tax treatment

• Capital gains tax considerations on contributions of assets

• No employer National Insurance contributions on partners' drawings

Joint Venture Agreement and other documents needed

Establishing a joint venture typically requires preparation of multiple documents, which will typically include some of the following :-

• Confidentiality/Non-Disclosure Agreement (NDA) - protects information shared during negotiations

• Memorandum of Understanding (MoU) or Letter of Intent (LoI) - outlines key terms and negotiation framework

• Heads of Terms - more detailed preliminary agreement on main commercial terms

• Exclusivity Agreement - prevents parties from negotiating with others during discussion period

• Process Agreement - sets out timetable and responsibilities for establishing the JV

• Joint Venture Agreement - master agreement setting out parties' rights and obligations (contractual JV)

• Shareholders' Agreement - governs relationship between shareholders (corporate JV)

• Articles of Association - constitutional document for corporate JV (filed at Companies House)

• Share Subscription Agreements - terms of equity investment

• Loan Agreements - terms of debt financing provided by partners

• Asset Transfer Agreements - transfer of property, equipment, or other assets into the JV

• Intellectual Property Assignments or Licenses - transfer or licensing of IP rights

• Business Transfer Agreement - transfer of an entire business or division

• Service Level Agreements - services provided by partners to the JV

• Supply Agreements - product or material supply arrangements

• Distribution Agreements - product distribution arrangements

• License Agreements - ongoing IP licensing

• Secondment Agreements - terms for partner employees working in the JV

• Data Protection Impact Assessments - for joint ventures involving personal data processing

• Employment Contracts - for JV employees

• TUPE Consultation Documents - where employees transfer from partners

• Incentive Schemes - share options or bonus plans

Industry specific considerations

Different sectors have particular joint venture considerations. Examples include :-

• Technology and IP-Intensive Industries - background IP protection particularly critical, technology transfer provisions and controls, patent and trademark strategies.

• Financial Services - heightened regulatory requirements (FCA/PRA approvals)

• Real Estate and Construction - land ownership and security interests, planning permission responsibilities, construction risk allocation, environmental liability management, development profit crystallisation and distribution

We can help

Joint ventures offer flexible, strategic options for business collaboration but require careful planning, structuring, and documentation to succeed. The right structure depends on commercial objectives, tax considerations, regulatory context, and partner preferences.

Comprehensive agreements addressing governance, contributions, operations, and exit provisions are essential to manage risk and provide certainty. With proper legal support throughout formation and operation, joint ventures can provide an effective framework for successful business collaboration while protecting the interests of all parties involved.

For specific advice on establishing or operating a joint venture, please contact our Commercial or Corporate team to arrange a consultation.