A joint venture is when two or more businesses come together to work on a shared project or venture, while each continuing to trade independently outside of it. It sits apart from a merger, where two businesses combine into one, and from a straightforward business sale, where one party exits entirely. This guide covers the main joint venture structures used in the UK, what a JV agreement needs to cover, and the liability, tax and cost questions that come with setting one up.
What Is a Joint Venture?
A joint venture, sometimes described using the broader term business combination, is an arrangement where two or more parties pool resources, expertise or capital toward a shared commercial purpose, without either party’s own business being absorbed into the other. This is the key distinction from a merger: in a merger, two businesses combine into a single entity, while in a joint venture, both parties continue trading independently, with the JV existing alongside their ordinary business. There is no single legal form a joint venture must take, which is why the right structure depends heavily on what the parties want from it.
Joint Venture Structures Compared
Four structures are commonly used for UK joint ventures, each with a different balance of control, liability and administrative burden:
- Company limited by shares: a new separate company is formed, jointly owned by the venture partners. Offers limited liability and a clean legal structure, but comes with company law compliance and a formal shareholders’ agreement.
- Contractual joint venture: no new legal entity is created; the parties simply agree contractually to collaborate on a defined project. Lower cost and faster to set up, but liability is typically unlimited and structured through the contract itself rather than a separate corporate shield.
- Limited liability partnership: partners have limited liability similar to a company, with more flexibility over internal management than a limited company, governed by an LLP agreement.
- General or limited partnership: a more traditional partnership structure, less commonly used for larger commercial JVs today given the liability exposure in a general partnership.
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What a Joint Venture Agreement Needs to Cover
Whatever structure is chosen, the underlying agreement needs to address the same core questions: what each party is contributing (cash, assets, expertise, customers), how profits and losses are shared, how key decisions are made and by whom, what happens if one party wants to exit, and how a deadlock between the parties is resolved if they disagree on a major decision. Skipping any of these at the outset tends to surface as a dispute later, often at the point where the venture is either succeeding enough to argue over or struggling enough that one party wants out. We can help draft a joint venture agreement that addresses each of these points from the outset.
It is also worth setting out, in writing, what happens to any intellectual property created during the venture, and what each party can and cannot do with the venture’s customers, contacts or know-how if the relationship ends. These points are easy to leave until later while the relationship is still good, and correspondingly hard to agree once it has broken down. Parties often protect this early stage of discussion with a non-disclosure agreement, before terms are finalised.
Liability in a Joint Venture
Liability depends entirely on the structure chosen. In a company limited by shares or an LLP, liability is generally limited to what each party has invested. In a contractual joint venture with no separate entity, liability sits with the contracting parties directly, and can extend further where the venture’s actions create obligations to third parties, customers, suppliers or lenders, who assumed they were dealing with a single business. This is one of the clearest reasons the choice of structure matters beyond administrative convenience.
Tax Implications of a Joint Venture
Tax treatment follows the structure. A jointly owned company is taxed as a company in its own right, with each shareholder taxed separately on dividends or gains from their stake. A contractual joint venture with no separate entity is generally taxed as if each party were conducting its share of the activity directly, which can be more straightforward but shifts more of the tax planning back onto each party individually. Structuring decisions are worth making with both legal and tax advice together, since the two are closely linked.
Cost of Setting Up a Joint Venture
Legal costs scale with the structure chosen and how much negotiation the underlying agreement requires. A straightforward contractual JV between two parties who already trust each other and agree on the main terms costs considerably less to document than a new jointly owned company with a full shareholders’ agreement, articles of association and detailed deadlock provisions. Ask for a fixed fee quote once the intended structure and the number of parties involved is known.
Joint Venture Due Diligence Checklist
Before committing to a joint venture, it is worth reviewing a handful of things about the other party or parties involved:
- Financial standing and any existing debts or contingent liabilities.
- Any conflicting contracts or exclusivity arrangements with third parties.
- Intellectual property being contributed, and who owns it.
- Regulatory or licensing requirements relevant to the venture’s activity.
- Reputation and track record on previous collaborations or joint ventures.
What Happens When a Joint Venture Dispute Arises
Disputes typically arise over one of three things: a disagreement on a major decision where the agreement did not set out a clear deadlock process, one party feeling the other is not contributing what was agreed, or a disagreement about how to value an exiting party’s stake. A well drafted JV agreement will set out a structured decision-making and exit process in advance. Where a dispute cannot be resolved between the parties directly, mediation or another form of alternative dispute resolution is usually the first step, before considering more formal routes. Litigation between joint venture partners is generally the least attractive outcome for both sides, since it is slow, expensive, and tends to damage the underlying commercial relationship beyond repair, which is precisely why a clear deadlock and exit mechanism agreed at the outset is worth the time it takes to negotiate properly.
How MAR Legal Can Help
If you are setting up a joint venture, or reviewing terms proposed by a prospective partner, MAR Legal can advise on the right structure for your situation and draft or review the underlying agreement, Contact us now.