This Q&A provides country-specific commentary on Practice note, Structures: international joint ventures, and forms part of our international joint ventures transaction guide.
The three most common structures are:
Limited liability company.
The relatively recent limited liability partnership (LLP) also offers attractions as a vehicle for joint ventures. Although technically a corporate entity, an LLP is considered below in conjunction with limited partnerships (see Question 13).
The two most common forms of corporate entity are:
Limited company (private company).
Public limited company (PLC).
A private company is more commonly used for joint ventures.
A public company must have a minimum share capital of £50,000. At least a quarter of this must be paid up (£12,500).
There are no maximum limits on the share capital of private or public companies.
Shares can be issued for non-cash consideration (including assets and services) subject to the following restrictions for public companies:
A public company cannot issue shares in return for an undertaking to provide services or for other long term non-cash undertakings (more than five years).
A public company can only allot a share if at least a quarter of the nominal value and the whole of any premium on it is paid up on allotment, except for shares allotted in pursuance of an employees' share scheme.
If a public company issues shares for non-cash consideration, the non-cash consideration must be independently valued. (This does not apply to certain share for share exchanges and where shares are issued in consideration for the acquisition of the entire business and undertaking of another company.)
Private companies must have at least one director (who must be an individual). Public companies must have at least two directors (one of whom must be an individual).
Private and public companies both have a unitary management structure with one board of directors.
The restrictions in the Companies Act 1985 on directors over the age of 70 have been removed with effect from 6 April 2007. A new requirement came into force on 1 October 2008, which provides that the minimum age for a director is 16, unless otherwise permitted by the Secretary of State. There are no nationality requirements. An individual may be disqualified by a court from being a director if, for example, s/he has been convicted of certain criminal offences or for persistent breach of companies legislation.
Employees do not have a right to board representation. The appointment of directors must generally be approved by shareholders in general meeting. Minority shareholders do not have an automatic right to appoint or remove directors (although this could be provided in the company's articles of association or a shareholders' agreement).
A partnership is formed whenever two or more persons carry on business in common with a view to profit. A partnership can be created orally. There are no registration or filing requirements.
There is now no restriction on the number of partners that can enter into a partnership. There are no age or identity restrictions.
Each partner is jointly and severally liable for the debts and other liabilities of the partnership.
The main reason for using a partnership rather than a corporate structure is that partnerships are tax transparent (i.e. each partner is taxed on its share of partnership profits and losses). Thus if, for example, a joint venture party is itself exempt from tax, it may prefer a partnership structure. Relief from capital taxes may also be available on the contribution of assets by the partners to the partnership. There are also fewer formalities for the creation and operation of the partnership, and financial details need not be made public.
Contractual arrangements can be categorised as partnerships if they fall within the definition of a partnership (see Question 8). This may be the case even if the parties agree specifically in the contract that they do not intend to create a partnership. The consequence is that the parties become jointly and severally liable for the debts and obligations of the venture to third parties.
There are two forms of limited partnership:
Limited partnerships established under the Limited Partnerships Act 1907 (limited partnerships).
Limited liability partnerships established under the Limited Liability Partnerships Act 2000 (LLPs).
Limited partnerships are similar to standard partnerships except that a partner or partners can have limited liability. But there must be at least one general partner with unlimited liability. A limited partner must not participate in the management of the limited partnership otherwise it will lose the benefit of limited liability.
LLPs are separate legal entities with limited liability for all members. There are no restraints on participation in management. Although an incorporated entity, profits and losses accrue directly to the partners.
Limited partnerships must be registered under the Limited Partnerships Act 1907.
LLPs must be incorporated by registration at the companies registry.
A limited partner must not participate in the management of a limited partnership otherwise it will lose the benefit of limited liability. There are no restrictions on the identity of partners.
LLPs must have at least two formally designated partners that are responsible for administrative matters such as filing accounts and annual returns. There are no restrictions on the identity of partners.
Limited partnerships and LLPs are both tax transparent (see Question 11).
Limited partnerships may be appropriate where a party is simply providing finance for the venture, wants to limit its liability and does not wish to be involved in the management of the venture.
LLPs appear to combine many of the benefits of a corporate vehicle and partnership structure (particularly tax transparency). It has only been possible to incorporate an LLP from 6 April, 2001. It remains to be seen whether they will be commonly used for commercial joint ventures.