General information, not legal or tax advicebusiness.gov.au’s joint venture page is the place to start, and it says it is important to seek legal advice before you enter into a joint venture agreement.
A separate piece that joins two boards
A loose tenon is its own small piece of timber, let into both boards it connects. A joint venture works in a similar way. business.gov.au says every participant carries its part of the venture’s profits, losses and costs, yet the venture itself stands apart as a separate entity, distinct from whatever else each participant does in business.
It gives these as examples of what businesses enter joint ventures for, short or long term: research and development, creating a new product, providing a new service and expanding markets. Among the benefits it lists: businesses of any size can enter one, it is a temporary arrangement, and it is a chance to combine resources or expertise.
Joint venture or partnership?
The two can look alike from the outside. The ATO’s GST ruling GSTR 2004/2 sets out how it tells them apart, and stresses that it is decided case by case, on the true character of the relationship and all the facts.
| Feature | Joint venture | Partnership |
|---|---|---|
| What it’s for | Usually a single project rather than a continuing business, in the legal dictionary definition the ruling quotes. | An association of persons carrying on business as partners. |
| What is shared | For GST purposes, product or output rather than profits or sale proceeds. | There will usually be an entitlement to a share of net profits. |
| How the parties stand | Participants are entitled to their contractual shares of the product severally (each on their own), not jointly. | Usually mutual trust and confidence, so partners must act in the interests of the partners as a whole, with joint and several liability. |
| Tax return | The ruling deals with GST; it says partnerships can’t be GST joint ventures under the GST Act. | Has its own TFN and ABN and lodges an annual partnership return. |
The ruling quotes a High Court judge on the practical difference: an association “for profit” on one side, and on the other an association of those who join “in order to generate a product to be shared among the participants”. It also warns that evidence of an intention to act as partners, mutual trust and confidence, and joint and several liability may lead a court to find that a so-called joint venture is a partnership. If that happened, the partnership rules in the tax guide would be the ones that apply.
How a joint venture can be built
“Joint venture” isn’t a technical legal term with a settled meaning. The ruling quotes a legal dictionary’s definition, under which the vehicle for a joint venture can be a partnership, a company, a trust, an agency, joint ownership or some other arrangement. For GST purposes the ATO reads the term more narrowly: it does not include incorporated joint ventures, partnerships or trusts, which the GST law treats as separate entities.
So the same project could be run through a new company, through a contract between the participants, or in some other way, and each choice brings its own tax and legal consequences. That is a question for the advice business.gov.au recommends.
What the agreement covers
In business.gov.au’s description, the joint venture agreement is legally binding, and it is what governs how the people or companies involved deal with one another. Among the things it lists for inclusion:
- how the venture is structured and governed, and what each party is obliged to do
- what each party puts in financially
- how profits and losses are divided
- who owns the intellectual property
- how disagreements and disputes get resolved
- how a party leaves, or the agreement is brought to an end.
Because a joint venture is built for one project, the last item is worth as much care as the first. When the project ends, the agreement is what says who keeps what. For intellectual property, business.gov.au points businesses collaborating on research to IP Australia’s checklist and its templates for a contract, a confidentiality agreement and a term sheet.
Lighter ways to work together
Not every collaboration needs a venture. business.gov.au gives examples of collaboration: research done with a university or another organisation, partnerships with other companies, and getting access, licences, technology or knowledge from another organisation. It also says collaboration doesn’t need to be complicated. It also suggests looking beyond businesses like your own: businesses in different fields, at a different stage, or in networks across industries.
If the other business is a competitor
A joint venture agreement doesn’t switch off competition law. The ACCC says contracts, arrangements or understandings between businesses are illegal if they substantially lessen competition, and it calls an agreement between businesses to cooperate rather than compete a cartel. Where your venture partner also competes with you, read the guide to working beside a competitor and take legal advice on where the line sits for your project.