Joint Venture best trading structure
You are thinking of developing and selling a new product with a partner but you’re unsure which is the best trading structure for a joint venture.
So what options are available to you?
Joint Business Venture Structure Option 1: Personally owned separate company trading
You and your business partner could each own 50% of the shares in a new company.
Some of the tax implications of this structure would be as follows:
- All trading losses sustained in the new company would only be available for offset against future profits from the same company
- If the business ultimately fails, both of you may be able to make a negligible value claim for either capital gains tax or income tax relief if your shareholdings become worthless.
- If you have both loaned the company money and the company becomes insolvent you may be able to claim a capital loss for any investment made (see here)
- If one or both of you already trade through your own existing limited companies, HMRC may regard the new jointly owned company as associated with your existing companies. Whilst this would have been more of effect in previous tax years, in general terms this has less of an impact now as both the small companies and main companies corporation tax rates are currently 19% (see here)
Joint Venture Business Structure Option 2: Company owned jointly by your companies
If both of you already trade through your own existing limited companies, then rather than own the new company personally, the new company could be owned by each of your existing companies instead.
Some of the tax considerations in this case would be as follows:
- Any trading losses made by the new company could potentially be relieved against your own and your business partner’s company’s profits (commonly referred to as consortium relief).
- If both your companies have loaned monies to the new company and the company is wound up, you should be aware of the rules concerning loans to connected companies. If your own and your partner’s companies are deemed to be connected, then this may prevent relief being claimed on any loans that have to be written off.
- It should be possible for your own separate companies to withdraw any income from the new company - for example by levying a management charge.
Joint Venture Business Structure Option 3: Limited Liability Partnership (LLP)
Again, this trading structure can be owned by you both individually or via your separate companies.
Some tax aspects to consider are as follows:
- You may find this trading structure provides greater flexibility for relieving trading losses - particularly if you are individual (rather than a corporate) member of the LLP (refer to our earlier blog).
- If you do decide to form an LLP using your companies as corporate members, you should be aware of the potential tax downside of any loans made to the LLP by your companies (see here).
- If you decide to introduce new partners to the business venture, from an administration perspective it may be easier to allocate a percentage share in the LLP, rather than issue a different class of shares in a company. You can refer to our previous blog on this topic.
Tax is just one factor to consider when starting a joint business venture and the above should be regard as an overview not definitive guidance. We don’t suggest you adopt a ‘one size fits all’ approach to tax planning as each individual’s circumstances are different.
Our eBooks cover this and many other topics. Check them out here.
And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].