Joint ventures and business partnerships

There are different types of joint ventures. How you set up a joint venture depends on what your business is trying to achieve.

Common types of partnership structure in a joint venture

Joint ventures can be:

• incorporated – eg a company or a limited liability partnership (LLP)
• unincorporated – eg a partnership, a cooperation agreement or strategic alliance

Typically, joint ventures are established through either limited co-operation, a separate joint venture business, or a business partnership.

Limited co-operation

This is when you agree to collaborate with another business in a limited and specific way. For example, a small business with an exciting new product might want to sell it through a larger company's distribution network. The two partners agree a contract setting out the terms and conditions of how this would work.

Separate joint venture business

This is when you set up a separate joint venture business, possibly a new company, to handle a particular contract. A joint venture company like this can be a very flexible option. The partners each own shares in the company and agree on how they should manage it.

Business partnerships

In some cases, a limited company may not be the right choice. Instead, you could form a business partnership or a limited liability partnership. You could even merge the two businesses.

Choosing the right type of joint venture

When deciding what form of joint venture is best for you, you should consider if you want to be involved in managing it. Think through what might happen if the venture goes wrong and how much risk you want to accept. You should carry out due diligence when choosing the right joint venture partner.

Protecting your business in a joint venture

You will need to create a joint venture agreement that clearly sets out how the joint venture will work and how you will share any income.

It is a good idea to get legal advice. How you set up the joint venture will affect how it operates, how profits are shared and taxed, and your level of risk if things go wrong.

Typically, each party will sign a confidentiality or a non-disclosure agreement. You may also choose to sign a memorandum of understanding early on. This sets out the main terms and shows a shared commitment to the deal.

Changing your business model into a joint venture, or changing into a different type of venture, can be a challenging process. It is important to fully consider all of the joint venture advantages and disadvantages.