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I own a successful commercial business and another party who

Customer Question

I own a successful commercial business and another party who also owns a successful similar type of business wishes to join that business but we do not wish to have a partnership as we have both had bad experiences in said type.
Is there a way to accommodate our wishes without entering into a partnership ?
Submitted: 3 years ago.
Category: Law
Expert:  Vincent2013 replied 3 years ago.

Hi, thanks for your question. My name's XXXXX XXXXX I'm going to help you with it.

 

Yes, there are certainly alternatives to a partnership deed. The two main candidates are a joint venture vehicle, or a contractual joint venture (often called a 'co-operation agreement'). The choice will depend on what you want to achieve.

 

1. A joint venture vehicle involves setting up a company (the vehicle) and contributing the assets of the two businesses to that new company in exchange for shares. The effect of this will be the creation of one business entity with one legal identity, which files one set of accounts and provides the business partners with limited liability in relation to the operations carried out by the joint venture vehicle. The JV agreement itself will deal with the relationship between the parties and their rights and obligations (and does not need to be filed with Companies House).

 

2. A contractual joint venture may be used where the parties do not want to set up a new company but also do not want a partnership. Instead, the two parties enter into an agreement setting out how they intend to operate together. There are a number of reasons why parties to a joint venture might prefer a purely contractual arrangement. For instance, the parties may prefer to retain control over their own assets, business and employees, rather than transferring them to a joint venture vehicle. Further, there will be fewer administrative and filing requirements when establishing a purely contractual arrangement. Finally, a contractual joint venture avoids the relative formality and permanence of a corporate structure and will be easier to terminate. You might also want to consider that a contractual joint venture has no effect on the direct taxation of the joint venture parties as there is no transfer of their respective businesses to a separate legal entity.

 

A contractual joint venture agreement will need to be drafted with care, otherwise the law will simply deem it a partnership. It is therefore common practice to incorporate in the agreement an express declaration of an intention not to create a partnership. However, even a statement such as this will not be conclusive in the eyes of law and will not prevent the problem of shared liability if, on a proper analysis, a legal partnership exists. Therefore it is also usual to explicitly state that each party acts for his own account as principal and, except where specifically provided in the agreement, has no authority to bind the others.

 

It would certainly be adviseable to speak to a solictor with regard to which of these options is more suitable as there can be issues to address regarding employees and tax, if appropriate, and it is important to get this sort of structuring correct right off the bat, so difficulties can be avoided later down the line.

 

A useful table showing the different structures available can be found here: http://www.nabarro.com/downloads/joint_venture_overview.pdf

 

Also, please find a link to a form of contractual joint venture agreement here (payment is required to download the form) : http://simply-docs.co.uk/Partnership_Agreements_LLP_Documents_and_Joint_Venture_Agreement_Templates/Contractual_Joint_Venture_Agreement

 

I hope that's useful. Please don't hesitate to let me know if you require and further clarification and, if I've been helpful, please remember to rate my answer so that I can receive credit from JustAnswer.

Expert:  Nicola-mod replied 3 years ago.
Hello,

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Thank you,
Nicola

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