Contractual joint ventures

The following Commercial practice note provides comprehensive and up to date legal information covering:

  • Contractual joint ventures
  • Advantages of a contractual joint venture
  • Disadvantages of a contractual joint venture
  • Common types of contractual joint venture

Contractual joint ventures

Advantages of a contractual joint venture

The three main advantages of a contractual joint venture are:

  1. independence—as a contractual joint venture does not involve any structural changes:

    1. the parties remain as entirely independent contractors, with less likelihood of a participant being liable to a third party because of the act or omission of a co-participant—compare with partnership joint ventures, where the statutory agency rules apply (each partner is an agent for the partnership—section 3–5 of the Partnership Act 1890)

    2. the arrangement is tax transparent—each participant is liable to pay tax on its own profit from revenue share and gets the direct benefit of any tax reliefs, unlike corporate joint ventures (see sections 34–201 of the Corporation Taxes Act 2009 (CTA 2009)) or partnership joint ventures (see sections 848 and 850 of the Income Tax (Trading and Other Income) Act 2005 and CTA 2009, ss 1258, 1262)

  2. cheapness—for the same reasons as above, together with there being no formalities; this may be vital when little money is available at the start-up of an enterprise

  3. simplicity—a contractual joint venture is very simple because it does not usually involve any transfer of assets at the start of a project, nor on a project's termination; there are at least two advantages to this:

    1. exit from the venture may be a less controversial issue

    2. the tax position on

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