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Can two individuals have a joint venture?

Client is proposing a trial association with a friend, to see if it works. Cheap option sought.

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Can two individuals enter into a joint venture agreement? They do not want the expense of a limited company or a partnership as both have compliance costs. At present, both individuals file their own SA returns and I act for only one of them. I have not come across a JV between individuals, but perhaps someone has?

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By johngroganjga
28th Jul 2019 12:03

What are the compliance costs of a partnership against those of an unincorporated association of some other kind?

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By Accountant A
28th Jul 2019 12:25

What level of "compliance costs" are they baulking at? There will be certain compliance costs however they propose to carry on their business. Presumably the parties understand the tax and commercial issues of operating as a partnership vs company? Is this a one-off project or an enduring business?

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By paul.benny
29th Jul 2019 08:38

As I understand it, 'joint venture' is a colloquial term which has little meaning in law. If two or more parties are in business together, that is likely to be de facto a partnership, whether or not there is a formal agreement.

However they choose to work together, I strongly recommend they consider how to resolve disagreements, how to make decisions when they do not agree and how end the arrangement. Giving thought to those things will ensure that they can remain friends even if being in business together does not work.

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By LostinSuspense
29th Jul 2019 11:26

I agree with Paul Benny on this. Before you enter into any venture, any sensible person would have some exit plan in place and have thought about the negatives.

Plan for failure from the start, though counter-intuitive saves a lot of stress and pain in the longer term.

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Replying to paul.benny:
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By sammerchant
29th Jul 2019 12:34

Thanks. There is some guidance in Ch 10 of Bloomsbury's Partnership Taxation 2018/2019 which I have tried to assimilate.

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By sammerchant
29th Jul 2019 12:31

I agree with all the posts.
Wouldn't the partnership have to file a SA800? And then each partner report their share on a set of supplementary pages.
The whole project is based more on hope than knowledge. The 'business' may make a very few sales but even that is uncertain.
I'm not sure they wish to go down the route of registering a partnership and then close it down within the first accounting period.
Bearing in mind the post from LostInSuspense I too am aware that the majority of businesses fail within the first couple of years.

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By paul.benny
29th Jul 2019 14:56

Sounds like the parties have essentially agreed to work together on a market trial, feasibility study, proof of concept or something - but not a partnership as such

Each should bear their own costs - with an agreed basis for recharges if appropriate.

If the trial works and is going to continue, that's the time to work out the appropriate legal form.

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By LostinSuspense
29th Jul 2019 16:22

Yes, but even if informally, they should write down and agree some plan to start with for the trial (however basic). A little extra thought now at the start can mean far less headache in the future.

A way to think about it is, if 1 is hit by a bus on their way home tonight, with nothing written down, their beneficiaries could argue x,y,z in the future causing heartache for all including the other party in this interest. something as simple as 'lets agree to sell 10 units at £500 each, we agree they will cost overall, £300 each, so we both will get £100. Party 1 will receive £200 of the cost of the project as they spend 2x as much as party 2 on the total production costs'

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Replying to paul.benny:
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By WhichTyler
31st Jul 2019 06:07

YOu might want to think about legal form by the point you start trading (ie selling) otherwise who is the customer dealing with? Who is liable for delivery/quality/failure of the product or service?

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By 356B
29th Jul 2019 18:09

There are differences between a partnership and a joint venture in the course of trade, as a JV is time/result limited. For practical and tax purposes however, they're treated the same.

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By sammerchant
30th Jul 2019 11:40

Are you suggesting that a Partnership Tax Return be submitted? The venture, which is what it really is, has been going for a few months albeit on a shoestring, but without any income.

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By 356B
30th Jul 2019 12:29

Yes of course. It's still a partnership, albeit with restrictions of time/place/purpose.

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By Tax Dragon
30th Jul 2019 13:38

There's no mad rush, is there? By the time registration had become mandatory, you'd probably have a fair idea as to whether there was going to be anything to report. If there wasn't, you might decide that pragmatism could be allowed to rule. OK?

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By pridgway
31st Jul 2019 09:29

A partnership is a business carried on in common with a view to profit; Consequently, it will make either a profit or a loss. In a joint venture (which I agree doesn't legally exist) it would be possible for one party to make a loss and the other a profit.

If the local authority asked for someone to tender for the construction of a playground it would be possible for two people to tender on the basis that one does the tarmac and one does the climbing frame. They tender for a single fee and split it 2/3rds 1/3rd. If the tarmac overruns on costs they make a loss and the climbing frame makes a profit. There is a contractual joint venture but no partnership. Each accounts separately.

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By paul.benny
31st Jul 2019 09:22

Exactly. And that's the sort of arrangement I was trying to describe.

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By KH
31st Jul 2019 09:54

No problem with joint venture, both parties dealing with their own incomes/expenses separately, but working together on a joint project which is a one-off or a trial ... longer term situation would be a partnership, but a one-off can be a simple joint venture with no knock-on effects on extra tax returns or accounts.

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By towat
31st Jul 2019 10:14

In the dental profession I have seen "Expense sharing principals"

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