Funding a corporate joint venture
Funding a corporate joint venture

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

  • Funding a corporate joint venture
  • Funding options
  • Initial funding by the parties
  • Initial funding from third parties
  • Future funding requirements
  • Tax considerations

Funding options

When setting up a joint venture (JV), the parties will need to consider how the JV is to be funded, both initially and throughout the course of the joint venture. Although this note highlights the main funding issues faced by corporate JVs, the general principles apply across all JV structures.

The choice of funding methods may depend on:

  1. the commercial objectives of the parties

  2. the relative resources of the parties

  3. whether the parties wish to and are able to fund the JV themselves or whether external funding will be required, and

  4. tax considerations

The joint venture agreement (JVA) should set out details of how the initial and future funding requirements of the JV will be met.

Initial funding by the parties

The parties themselves will usually provide a significant proportion of the initial funding for a joint venture company (JVC) through a combination of:

  1. equity—cash or non-cash assets provided in return for shares in the JVC, and

  2. debt—loans to the joint venture company

Where the JVC is equity funded, distribution of profits will usually be by way of dividends paid by the JVC to its shareholders. The JVC may only distribute value to the shareholders where it has sufficient profits available for distribution and not capital. When recommending or declaring the payment of a dividend by the JVC, the JVC directors must have regard to their common law

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