Choosing the Right Vehicle: Determining the Right Business Structure for your Joint Venture Need
Call +1 (876) 906-1333
Joint venture arrangements are becoming an increasingly popular way for existing commercial actors to collaborate in working on new business enterprises.
These collaborations often involve the formation of new entities or relationships through which the new business or project is conducted. Business partners are allowed great flexibility in determining the structure of these new entities. Each option has its unique advantages and disadvantages. Therefore, it is important for the parties involved to select the most suitable legal framework to achieve the commercial aims of the joint venture.
Factors to be Considered
In choosing the right business vehicle, it is critical for the parties involved to have a clear understanding of the nature of the business which the joint venture will be carrying out. This includes understanding:
• The intended market for the venture (including competition in the market);
• The regulatory framework governing the various business vehicles (including tax provisions);
• The funding required by the venture;
• The desired management structure of the venture;
• The relationship and the desired level of integration between the parties;
• The long term goals of the parties; and
• The scope of the project etc.
Having considered these factors, parties are better able to come to an informed decision about the structure the joint venture should take on and can enable a competent commercial Attorney to tailor the instrument based on the needs of the clients.
Common Business Vehicles
Depending on the desires of the parties, the new entity may take on any of the following structures:
Limited Liability Company
Parties may choose to incorporate a new company to carry on the business ventures. The main advantage of this vehicle is that it has separate legal personality and thus shields the existing entities from liability for losses incurred by the new entity. This vehicle:
o Is suited to projects that are more long term and complex in nature.
o Allows for greater opportunities to generate independent revenue through the sale of shares and hold property in its own name.
o Allow investors to be involved in the decision making process of the company without being saddled with responsibility for its day to day running.
Parties would need however to bear in mind that limited companies may:
o Involve more tedious formation and closure procedure;
o Require strict adherence to the Companies Act of Jamaica; and
o Not always be the most tax efficient vehicles as they would have to pay the taxes on profits earned and also on dividends paid out to shareholders.
General Partnership
Partnership arrangements are largely contractual and therefore allow parties the liberty to stipulate issues relating to the general operations of the business. Partnerships:
o Are more suited to simpler arrangements that are largely dependent on resource sharing
o Allow the venture to operate largely as an extension of the existing businesses.
o Not taxed and existing parties are only required to pay additional taxes on the profits received directly.
o Require parties to manage the day to day operation of the new venture.
The greatest downside to this type of arrangement is that existing entities are individually liable for the losses incurred in the conduct of the new venture.
Contractual Relationships
In this arrangement, parties delimit the specific parameters of their relationship in the contract. This is most common in ventures where the collaboration involves supply agreements, tenancy and other forms of resource sharing. In this arrangement parties are:
o very lightly integrated;
o are not subject to extra taxation;
o Liable for losses incurred,
o the only real source of capital investment and
o maintain oversight and management of the new venture.
Acquisition/Merger
This relationship does not involve the creation of a new entity but rather a fusion of the existing entities. It is suited to long term projects and fosters greater managerial integration. The greatest advantage is the increased resource base for the new venture.
It is noteworthy that this vehicle strips the composite parties of their independence and they are now viewed as a single contiguous entity.
Conclusion
While not an exhaustive list, the preceding options represent some of the more commonly used business vehicles in joint venture arrangements. The particular circumstances of each arrangement will determine what vehicle is best suited to take you along your commercial journey and it is always advised to seek the legal advice of an experienced commercial Attorney before embarking on your journey.
ABOUT THE AUTHOR: Yualande Christopher-Walker
Yualande Christopher-Walker is the founder of Yualande Christopher & Associates and can be contacted at 1.876.906.1333;
Monroe Wisdom is an intern at Yualande Christopher & Associates.
Copyright Yualande Christopher & Associates
More information about Yualande Christopher & Associates
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
Factors to be Considered
In choosing the right business vehicle, it is critical for the parties involved to have a clear understanding of the nature of the business which the joint venture will be carrying out. This includes understanding:
• The intended market for the venture (including competition in the market);
• The regulatory framework governing the various business vehicles (including tax provisions);
• The funding required by the venture;
• The desired management structure of the venture;
• The relationship and the desired level of integration between the parties;
• The long term goals of the parties; and
• The scope of the project etc.
Having considered these factors, parties are better able to come to an informed decision about the structure the joint venture should take on and can enable a competent commercial Attorney to tailor the instrument based on the needs of the clients.
Common Business Vehicles
Depending on the desires of the parties, the new entity may take on any of the following structures:
Limited Liability Company
Parties may choose to incorporate a new company to carry on the business ventures. The main advantage of this vehicle is that it has separate legal personality and thus shields the existing entities from liability for losses incurred by the new entity. This vehicle:
o Is suited to projects that are more long term and complex in nature.
o Allows for greater opportunities to generate independent revenue through the sale of shares and hold property in its own name.
o Allow investors to be involved in the decision making process of the company without being saddled with responsibility for its day to day running.
Parties would need however to bear in mind that limited companies may:
o Involve more tedious formation and closure procedure;
o Require strict adherence to the Companies Act of Jamaica; and
o Not always be the most tax efficient vehicles as they would have to pay the taxes on profits earned and also on dividends paid out to shareholders.
General Partnership
Partnership arrangements are largely contractual and therefore allow parties the liberty to stipulate issues relating to the general operations of the business. Partnerships:
o Are more suited to simpler arrangements that are largely dependent on resource sharing
o Allow the venture to operate largely as an extension of the existing businesses.
o Not taxed and existing parties are only required to pay additional taxes on the profits received directly.
o Require parties to manage the day to day operation of the new venture.
The greatest downside to this type of arrangement is that existing entities are individually liable for the losses incurred in the conduct of the new venture.
Contractual Relationships
In this arrangement, parties delimit the specific parameters of their relationship in the contract. This is most common in ventures where the collaboration involves supply agreements, tenancy and other forms of resource sharing. In this arrangement parties are:
o very lightly integrated;
o are not subject to extra taxation;
o Liable for losses incurred,
o the only real source of capital investment and
o maintain oversight and management of the new venture.
Acquisition/Merger
This relationship does not involve the creation of a new entity but rather a fusion of the existing entities. It is suited to long term projects and fosters greater managerial integration. The greatest advantage is the increased resource base for the new venture.
It is noteworthy that this vehicle strips the composite parties of their independence and they are now viewed as a single contiguous entity.
Conclusion
While not an exhaustive list, the preceding options represent some of the more commonly used business vehicles in joint venture arrangements. The particular circumstances of each arrangement will determine what vehicle is best suited to take you along your commercial journey and it is always advised to seek the legal advice of an experienced commercial Attorney before embarking on your journey.
ABOUT THE AUTHOR: Yualande Christopher-Walker
Yualande Christopher-Walker is the founder of Yualande Christopher & Associates and can be contacted at 1.876.906.1333;
Monroe Wisdom is an intern at Yualande Christopher & Associates.
Copyright Yualande Christopher & Associates
More information about Yualande Christopher & Associates
View all articles published by Yualande Christopher & Associates
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
