What are the benefits for a shareholder to a joint venture in financing the joint venture company using debt, such as loan note or loans, as opposed to solely equity?

There are two principal advantages in funding a joint venture company by way of debt rather than equity. However, these advantages need to be carefully evaluated in the light of tax issues.

The first advantage is that loans may carry interest, either at fixed or variable rates. Interest may be paid by the joint venture company from any available funds (unlike dividends on shares, which may be paid only from net realised profits). Furthermore, interest payments will usually (subject to the precise circumstances) be deductible in calculating the joint venture company's taxable profits, whereas dividends would never be deductible expenses.

However, this basic position may be affected