If you decide not to form a separate business entity for your joint venture, you still need to make sure you set up some legal protections for members of the venture. It can also distribute ownership units to its members more flexibly than a corporation can distribute shares. The benefit of an LLC is that it can file taxes as either a corporation or a partnership. Your share in the LLC is expressed either as a partnership percentage, or in ownership units (similar to corporate stocks). Like a corporation, an LLC reduces your liability. The downside is that corporations can be complicated-and pricey-to set up. The benefit of a corporation is that it reduces your personal liability. If you form a corporation, you’ll each get equal shares in the company, and an equal number of representatives on the board of directors. A partnership also gives you less liability protection than a corporation.įorm a corporation for your joint venture The drawback is that you may need a lawyer to draw up your partnership agreement-depending on how complicated it is. The benefit of this approach is that it’s easier and cheaper to form a partnership than a corporation. How the money is handled-who gets what, who makes what kinds of contributions, and how one member buy the other out in case they wish to leave-will be outlined in a partnership agreement. If you form a partnership, you’ll each be partners in the company. An LLC will file taxes as either a corporation or partnership.įorming a partnership for your joint venture To form a business entity, you need to choose between either a corporation, partnership, or a limited liability company (LLC). You only need to fill out one tax return. The benefit of this approach is that it makes filing taxes relatively easy. The members of the joint venture share control of the business entity, as well as profits. Many joint ventures take the form of a separate business. Here, you have two options: form a separate business entity, or draw up and sign a joint venture agreement. But for the sake of avoiding misunderstandings between you and your partner down the road, you’re better off with a more robust approach. Technically, all you need to form a joint venture is a handshake. By forming a joint venture for the holidays, you can rent the space and reap the rewards. You both think there’s a lot of potential to make money with a holiday pop-up shop, but you can’t individually afford to rent the space. Two or more businesses can save money by forming a joint venture to make a purchase.įor instance, you might sell custom tote bags online, and your friend sells custom shot glasses. But neither of you can afford to open a second location-so you team up, and open one together, splitting the profits. You both realize that the neighboring town, Shelbyville, doesn’t have any gelato shops at all. Let’s say you run a gelato shop, and you’re on good terms with the gelato shop on the other side of town. You may have the right idea, expertise, or business structure for a new market-but you need more resources. And without your floristry, they couldn’t sell flowers. Without your friend’s bike courier business, you couldn’t take your bouquets on the road. There are three (sometimes overlapping reasons) businesses form joint ventures.
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