The concept of joint ventures is a particularly frequent topic of discussion for many business owners. For companies that are determined to develop innovative products, expand into new markets, or strike a balance between longevity and sustainability, this setup is worth considering.
At this point, you may have come across a few opportunities to merge with another business so you can establish a partnership with mutual benefit. But how do you make sure the entire process is seamless?
What Is a Joint Venture? (And How Does It Work?)
To best understand whether a joint venture is something you should consider in the near future, it’s important to go over what it entails. A joint venture is a working agreement that describes a formalised relationship between two or more parties working to accomplish a specific task or project. Those involved in such a setup stand to reap many benefits such as flexibility, financial gains, and better market control.
The one factor that makes these structures so special is that they aren’t governed by onerous regulations, making them completely different from corporation and partnership agreements. As a form of external regulation, Australian business laws require parties entering into such agreements to establish a joint venture agreement that:
- Establishes the rights of entering parties
- Sets out the obligations of businesses involved
- Acts as a key reference point during major stages such as profit distribution, conflicts, and separation
How Do Joint Ventures Differ From Partnerships?
The concept of a joint venture is often confused with a partnership because of how similar they seem. But the reality is that they are entirely different. Here’s a quick rundown of how the two differ from one another so that you can assess your options carefully and take the right steps moving forward:
One of the most distinct differences between joint ventures and partnerships is best demonstrated in the way they are regulated.
Joint ventures are only regulated by a joint venture agreement that contains pertinent details and points of reference. For partnerships, regulations come in the form of the state and territory-based partnership act that allows regulating parties to monitor parties involved.
For joint ventures, participants can specify whether parties will share liabilities or handle them separately. It’s worth noting that the actions of parties in a joint venture don’t bind other participants involved without their consent, leading to a more flexible agreement.
When it comes to partnerships, liabilities are handled equally as each partner is personally liable for the business’s debts. Through this setup, partners are bound through their actions to ensure compliance and cooperation while owing fiduciary duties simultaneously.
When managing a joint venture, participants are allowed to manage their taxes by individually making and claiming their own tax deductions. In contrast, partnership agreements require partners to pay tax on their share of the partnership profit at their individual tax rates.
If you’re looking to learn more about joint ventures in further detail and set up your own agreement, it’s best to consult with an expert like GLG Legal’s corporate lawyers.
The opportunity to set up a joint venture with other players can lead to valuable opportunities. With this guide, you can take the proper steps moving forward and weigh your options.
GLG Legal is a law firm in Milton specialising in servicing commercial law, brand protection, and corporate law needs of Australian businesses and entities. Get in touch with us today to learn more about how we can help!