Joint Venture Checklist #2 – Choosing the Vehicle

April 30, 2016

Choosing the joint venture vehicle

As explained in our earlier post ( http://gluu.asia/joint-venture-checklist-1/  ), parties wishing to enter into a joint venture have a number of choices of structure available to them.

The choice of structure depends on the circumstances of the parties. The most common structures used are:

  • corporate joint venture: establishing a separate limited company of which each party is a shareholder
  • joint venture partnership: establishing a new partnership, or
  • contractual or commercial joint venture: setting out all the details of their joint venture relationship in a contract

 

We will deal with the features of a corporate joint venture in this post.

Key features of a limited company

The key features of a limited company are:

  • statutory framework
  • separate legal personality
  • limited liability
  • flexibility, and
  • publicity

 

Statutory framework

There is a heavy statutory and regulatory framework imposed on all companies in Singapore under the Companies Act (Cap 50). To some extent therefore, how you manage, operate and grow your joint venture company will be governed by the Companies Act.

Separate legal personality is usually viewed as one of the key advantages of a limited company. It allows:

  • assets to be owned by the joint venture company rather than any of the parties
  • a separation between ownership and management, and
  • the joint venture company to conduct business and enter into contracts in its own name

There are some tax disadvantages of separate legal personality, including being charged tax on transfers of assets into and out of the joint venture and, depending on the relative proportions of the parties’ interests in the joint venture, restrictions on setting off joint venture losses against profits of the joint venture parties.

The advantage of a joint venture company is that its separate legal personality will make it easier for the parties to transfer their interests in the joint venture to other parties.  The parties will need to make clear provision for the realisation of their joint venture interests in the event that the joint venture terminates.

Limited liability

Another key advantage of limited companies is that the liability of the shareholders is limited. The shareholders will therefore only be liable for the company’s debts (over and above their equity investments) to the extent that they provide guarantees or are responsible for the company trading while insolvent.

 

Flexibility

The separate legal personality of the company provides flexibility in raising finance, allowing the joint venture company to enter into loans in its own name and to provide security over its own assets. Separate legal personality may also allow flexibility in tax planning, eg by allowing the parties to decide when distribution of profits to them will be most tax-effective.

There is also inherent flexibility in a company structure, allowing different classes and types of shares to be issued to parties who contribute different resources to the joint venture.

Publicity

Companies are required to file constitutional documents, annual accounts and annual returns with Accounting and Corporate Regulatory Authority (ACRA), which will then become publicly available. Joint venture parties should consider whether such limited publicity is likely to be a disadvantage in choosing a corporate structure.

Should you have any queries or comments on the above note, kindly contact gluu@gluu.asia.

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Important Notice: The contents of this note are owned by its author and subject to copyright protection in Singapore and, through international treaties, other countries. No part of this note may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed, broadcast (including storage in any medium by electronic means) without the prior written permission of Gluu.

 

While the information in this note is correct to the best of the author’s knowledge and belief at the time of writing, it is only intended to provide a general guide to the subject matter and should not be treated as legal advice or a substitute for specific professional advice for any particular course of action. Should you intend to rely on the contents of this note, please seek legal advice applicable to your specific situation.

 

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