A joint venture is where businesses, investors or individuals enter into an agreement to exploit a business opportunity with the aim of profit. Even though parties enter into a joint venture together, the individual parties bring their own assets and finances. There are some key considerations a participant should factor in before entering a joint venture.
It is important to note that joint venture members are not partners in the legal sense. It is often viewed as a partnership. However, the term ‘joint venture’ is appropriate to refer to a joint undertaking or activity carried out through a medium other than a partnership such as a company, trust, an agency or joint ownership. This article takes you through the legal considerations for a joint venture.
Benefits of a Joint Venture
There are some key advantages to establishing a joint venture, including sharing of resources and risk (including financial, market and product liability). Joint venture formation also allows foreign investment. There is a legislative and regulatory requirement that participation in a venture is prohibited unless the venture is joint for foreign investment. The Foreign Acquisitions and Takeovers Act 1975 (Cth), administered by the Foreign Investment Review Board (“FIRB”), is the principal source of such a requirement.
Features of a Joint Venture
Each joint venture is different. There are, however, some common characteristics, which include the following:
- joint ventures are usually one-off enterprise projects;
- the parties to a joint venture manage their own finances and can gain tax advantages;
- joint venture parties remain separate legal entities; and
- Joint ventures are not a separate legal entity, although parties can create a company vehicle to manage the joint venture.
Joint Venture Vehicles
There is no particular legal meaning to a joint venture in Australia. It is an association of persons for a particular commercial endeavour. As such, a joint venture can take many forms, and the legal considerations for a joint venture will depend on the joint venture vehicle used to establish the undertaking or endeavour.
At its simplest level, a joint venture will require you to establish a separate legal entity. Participants hold investments in the entity, and the entity owns its own assets and can sue and be sued in its own name. Most commonly, a joint venture can either be:
- entities (such as companies); and
- relationships between participants (such as trusts, partnerships or other forms of association).
For a company, the assets of the joint venture are owned by the company. A company constitution and a shareholders agreement may also set out the rights of the participants. For a trust, one entity holds the assets of the joint venture on behalf of the participants and the participants are entitled to share in the profits of the venture proportionate to their respective holdings.
LegalVision can assist you with any questions you may have about the legal considerations for a joint venture. LegalVision has a team of excellent business structuring lawyers who can assist you in drafting and reviewing joint venture agreements. Please call our office on 1300 544 755 and our Client Care team will happily provide you with an obligation-free consultation and a fixed-fee quote.