'Nothing ventured, nothing gained' – a bold statement perhaps in the context of the current economic climate. However, companies that strive to develop their business or undertake a review of their strategic business models may find themselves considering the merits of a joint venture. Competitors of today may prove to be the co-operators of tomorrow, as companies look to establish a more cost-efficient means of expanding the scope of their business activities. With the objective of expanding or diversifying a business accompanied by a reluctance to share the associated risks and costs of undertaking such a project, or for the purpose of facilitating a union of differing experience and expertise, a joint venture arrangement may be 'on the table'.
Whatever the rationale, a joint venture arrangement will most likely result in a loss of control and autonomy for the existing shareholders, thus underlining the importance of choosing the correct joint venture partner, identifying the most appropriate joint venture structure and giving full consideration to a number of related questions that may arise.
This paper provides a brief overview of the main issues that will generally need to be considered when establishing a joint venture in Ireland, with a particular emphasis on the most common joint venture structure adopted; the corporate joint venture. Additional considerations may need to be addressed depending on the context of a particular joint venture proposal, particularly where the joint venture parties are located or operating under different legal and tax regimes in different jurisdictions.
Where do you start?
A confidentiality or non-disclosure agreement should be entered into between the parties during preliminary discussions. Public announcement requirements and stock exchange obligations will need to be considered and satisfied if either of the parties is a publicly quoted company. Other material authorisations, consents, licences, terms of existing third party agreements and other conditions precedent may also have a bearing on the setting-up of a joint venture.
An appropriate legal structure (typically influenced by tax considerations), methods of funding, terms of commercial operations and an appropriate exit strategy will need to be determined.
The basic options to consider when structuring a joint venture are as follows:
Limited liability company The most common joint venture structure in Ireland is a corporate joint venture which involves the incorporation of a limited liability company to carry out the joint venture business. The use of a limited liability company structure ensures that liabilities of the joint venture remain separate from the joint venture parties. However, the company members may need to provide guarantees or other forms of assurance to third parties, unless the entity is creditworthy in its own right, in order to carry out the activities of the joint venture.
Each joint venture party will normally obtain a shareholding in such a limited liability company that corresponds to the level of the party's interest in the joint venture.
A limited liability company is typically subject to corporation tax and income tax on dividends paid to its members.
Partnership (the Partnership Act...