This type of structure is useful when several people are involved in the project. This legal structure is often used by individuals in professional services such as accounting and justice, as it provides for the tax system of a traditional partnership while limiting the liability of its members. But one factor to consider is that in a partnership, profits go directly to partners, while in a company, parties can receive dividends – this distinction can have tax consequences for a party, and that is one of the reasons why it is important to be taxed before choosing a legal structure. When the joint venture is incorporated as a separate entity, it is required to establish annual accounts and file applications with the Registrar of Companies, so it is best to ensure that all accounts and related returns are established and recorded in a timely manner. The contribution of each party (both financial and non-financial) must be defined in the agreement. It should clearly state how individual investments will be assessed and what their rights and obligations will be. This will allow both parties to avoid the possibility of conflict at a later stage of the project. The author of a joint venture agreement must examine how the joint venture is managed. For example, is control entrusted to a joint venture or is a board of directors formed? If this is the case, the provisions must take into account how the director or directors are appointed and how they can be removed. One of the main considerations in deciding the structure is tax.
Specific structures require different tax obligations. For example, if you structure your joint venture into LLP, each partner will be taxed individually. However, if you form a limited liability company, the company and shareholders are required to tax all profits and dividends. The first question that the parties must ask themselves before the development of a joint enterprise agreement is: „How do we want the joint venture to be structured?“ What is less clear to these companies is how to meet the many challenges associated with the implementation of joint ventures and alliances. In 1991, we evaluated the performance of 49 joint ventures and alliances, and found that only 51% of us were successful, i.e. each partner had returns above the cost of capital.