If you are thinking about conducting business activities or undertaking a new project with a business partner, it is important to ensure that the way you conduct the business and the business structure it is based on is the most appropriate for you and your business’ interests.
What is a Joint Venture?
Joint ventures have no been defined under the Australian common law however, they do exhibit certain characteristics which enables us to identify whether a business structure is a joint venture and what type of joint venture it is.
Joint ventures can either be incorporated or unincorporated. The one that you select will depend on a variety of factors.
What is an incorporated joint venture?
An incorporated joint venture is characteristically evident whereby a separate legal entity has been established and incorporated for the sole purpose of undertaking the specific project or business activity. The main advantage in choosing an incorporated joint venture is that it will be able to hold and sell its own assets, sue and be sued, and contractually bind itself. Furthermore, being a separate legal entity means that it separates the new business from any of your other businesses which may be advantageous depending on your circumstances.
An incorporated joint venture will be required to fulfil additional duties such as financial reporting and administration which may become onerous depending on the size of the project or business activities that you are undertaking.
What is an unincorporated joint venture?
An unincorporated joint venture is usually created by members of the joint venture agreeing to cooperate in relation to a business activity or project undertaking in accordance with a contract. An unincorporated joint venture will not create a separate legal entity. It is important that the contract is drafted carefully as some unincorporated joint ventures can be interpreted as partnerships.
What is a partnership?
A partnership is defined as a relationship between two or more individuals or companies who carry on a common business with the view to profit. A partnership will be formed and governed by the partnership agreement and the Partnership Act 1891 (Qld). There is also a great deal of common law that discusses partnerships and how the different sources of law interact when interpreting partnership matters.
A partnership comes with many legal and fiduciary obligations for the partners, so it is important that your partnership agreement has been drafted carefully and that you have received independent legal advice upon this partnership agreement in relation to your own interests.
What is the difference between a partnership and an unincorporated joint venture?
One of the main differences between a partnership and an unincorporated joint venture is that members of a joint venture will hold their interests, liabilities, and entitlements in the joint venture separately. In a partnership, the interests, liabilities, and entitlements are held jointly by the partners.
Furthermore, another difference between these business structures is often the purpose for the creation of them. A partnership comes with many legal and fiduciary obligations so it is often the case that people choosing to form a joint venture are choosing this on the basis to avoid the creation of a partnership.
Unit Trust Joint Venture
A unique method to establish a joint venture is by using a private unit trust as the foundation for the joint venture arrangement. It is important that the unit trust is private as this will avoid any public trust obligations under the Corporations Act 2001.
A unit trust joint venture can be used as the framework for a joint venture because the beneficiaries’ interests are divided into units. Therefore, the joint venture members will be able to hold units in proportion to their interest in the joint venture.
Using a unit trust as the framework for a joint venture is often a complex task which will require legal advice to ensure that it is done properly.
If you are thinking about establishing a joint venture or a partnership and you are not certain which business structure is the most appropriate for your business venture, we highly recommend contacting our office where one of our expert lawyers will be able to guide you through the different structures and highlight the benefits that these business structures can offer to you.