Joint Ventures 

Grange Associates Ltd - 26 July 2013

A joint venture is an arrangement by two or more parties combining capital or resources usually for a particular project.

A joint venture structure allows the parties to the joint venture to pool their resources and experience while still limiting their liability to each other.  Assets and resources would generally continue to be owned separately, while joint venture parties will usually only be liable to third parties for their proportion of any liabilities incurred by the joint venture.

Joint ventures can either be incorporated as a company or an unincorporated joint venture operating under a contractual agreement between the parties.

Unincorporated Joint Ventures

No specific rules govern the establishment of an unincorporated joint venture.  It will usually be formed by contractual agreement setting out the resources each party will provide and what the objective of the joint venture will be.  Joint ventures based on contractual agreement will be governed by traditional contract principles.

Unincorporated joint ventures are not required to file a tax return.  Instead, the joint venture parties include their share of the joint venture’s profit or loss in their individual tax returns.

An unincorporated joint venture allows the arrangement to be kept private between the parties as it is simply underpinned by a contractual agreement.

In an unincorporated joint venture, parties will have personal liability, however liability can be limited between the joint venture parties by contractual arrangement.

Although not required to file a tax return, an unincorporated joint venture can still register for GST as a separate entity.

Incorporated Joint Ventures

Instead of only pooling resources under a contractual agreement, the parties also form a company to undertake the joint venture’s business activity.  Any assets of the joint venture will belong to the company, not the shareholders.

In terms of risk, the liability of shareholders within an incorporated joint venture is limited to their equity investment shares of the company.  Creditors can generally only claim against the joint venture company itself and not against the shareholders.

Being an incorporated company, incorporated joint ventures are required to file a tax return.

The shareholders can invoice the joint venture company for their share of the net proceeds and include the income or loss in their tax return.  The joint venture company can also pay dividends to the shareholders of any remaining income not already paid out to the shareholders.

In contrast to an unincorporated joint venture, details of an incorporated joint venture will be available from the Companies Office.

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All information is correct at the date of article publication. Please note we provide the information as a service only. Accordingly, the contents are not intended as a substitute for specific professional advice and should not be relied upon for that purpose.   

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