The use of Joint ventures holds several advantages for entrepreneurs.
Joint Ventures are not formally regulated in terms of South African Law. They can subsequently be operated in several ownership structures, including registered companies.
Joint Ventures (often called JVs) are generally categorized as either Unincorporated JVs or Incorporated JVs, depending on the ownership structure used to operate it.
Let’s look at the different types of JVs and their characteristics.
Unincorporated Joint Ventures
Unincorporated Joint Ventures are considered as a partnership. It may expose their participants to all the inherent risks associated with partnerships, even as a limited partnership.
The formation and operation of an Unincorporated Joint Venture will be regulated by a Joint Venture Agreement between the respective parties.
Unincorporated Joint Ventures are not required to be registered. An unlimted number of members may participate in Unincorporated Joint Ventures.
JVs of this nature are terminated:
- in accordance with the contractual provisions contained in the Joint Venture Agreement;
- by the death of any natural member;
- the liquidation or sequestration of a member;
- cancelation by mutual consent, liquidation of the joint venture itself; or
- by the repudiation of the agreement by a member.
Disputes amongst members usually end in litigation as most Joint Venture Agreements do not provide an adequate mechanism to resolve such disputes.
Incorporated Joint Ventures
Incorporated Joint Ventures will usually be operated in a company, which will be registered with CIPC.
The formation and operation of an incorporated joint venture will accordingly be regulated by the provisions of the Companies Act, the company’s Memorandum of Incorporation and the Joint Venture Agreement which will, under these circumstances, be referred to as a Shareholder’s Agreement.
Incorporated Joint Ventures are terminated by deregistration of the company or by the liquidation of the company itself.
General compliance for Joint Ventures
Both Incorporated and Unincorporated Joint Ventures are subject to compliance with:
- Taxation Laws
- General compliance laws eg POPIA
- Sector Specific compliance obligations eg Registration with PSIRA in the Private Security Industry.
The right choice of JV
The best-suited type of Joint Venture will depend on the tax consequences, the purpose, the nature of the participants and sector requirements of the Joint Venture. You will need to choose carefully, and consider a range of important implications.
Mostly, the “right” choice will be different for each individual case.
Obtain the services of a skilled and experienced professional for assistance in making the correct decision.
