What are the main types of joint venture agreements?

25th March 2022

Building a business is such an adventure. Not to mention building new partnerships and making the most of new opportunities.

If you’re looking at combining your resources and expertise with another entity, then you might consider setting up a joint venture, or ‘JV.’

A JV is two or more people, companies or organisations who work together for specific purpose or project – in contrast to an ongoing business.

You may decide to enter into a JV agreement for short and long-term projects, with the following initiatives in mind:

  • research and development
  • creating a new product
  • providing a new service
  • expanding into new markets.

Each of the participants in a JV is responsible for profits, losses, and costs so you might say risk is shared equally.

Adding to that, a venture is its own entity, separate from the participants’ other business interests. That makes a JV a good option to reduce your risk exposure on a new project.

What are the benefits of a joint venture?

The main benefits include:

  • businesses of any size can enter into a joint venture agreement
  • it is a temporary arrangement
  • they can help you grow your business
  • they offer an opportunity to collaborate and combine resources or expertise
  • you can share costs with another party.

What are the main types of joint venture in Australia

These are the main types of JV allowed in Australia with a summary of each type:

Contractual Joint Ventures

A contractual JV is also known as an unincorporated JV. It’s a JV based on a contract of co-operation known as the ‘JV agreement.’

This type of JV might be good for short-term, single purpose ventures or longer ventures established for cost-sharing purposes. They’re a good option if the participants wish to retain flexibility on tax treatment of expenditures too.

In an unincorporated JV, participants are bound by a contract. They’re used a lot in the minerals, and oil and gas sector.

Corporate Joint Ventures

An incorporated JV in Australia can be registered as limited liability company (LLC). The entity can hold the merged or jointly owned business interests as a part of an Australian company, incorporated under the Corporations Act 2001 (Cth) (Corporations Act).

In an incorporated JV, participants become shareholders of the JV company, typically bound by a shareholder agreement, in addition to a company constitution. You get all the benefits here of a JV in addition to limited liability.

Other types of JV

A variety of hybrid contractual and corporate JVs can be set up as well. It all depends on your commercial, legal and taxation requirements.

Here’s a short summary of each:

  • Minority equity investment – think of this as an informal arrangement that’s strengthened by equity investment in one party by the other or by cross-investment.
  • Parallel JVs – preferable for the establishment of a different joint vehicle for different jurisdictions (such as different countries) as opposed to a single company.
  • Dual-headed structures – a dual-headed structure can be formed where the corporate groups of the participants remain separate but are connected by contractual relationships to operate as a single economic entity. Rio Tinto is a good example in Australia.
  • Limited liability partnerships – while strictly a partnership, these allow limited partners to limit their liability for losses of a venture provided they do not intrude with the day to day operations of the business.

Need help setting up a joint venture in Australia?

There is so much more to JVs, so it helps to seek professional legal advice.

At Lakis & Knight, we specialise in helping small to medium-sized businesses grow. Part of that growth might be setting up a JV.

Our personalised approach and fixed-fee service offering ensure you have complete transparency when it comes to setting up a JV.

We’ll spend time to make sure you know what to expect and where you stand when entering in a JV agreement with another party.  To get started, contact us to book your free, no-obligation discovery session with us today.