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Often, diversification on farm may cause an increase in workload, a requirement for new skillsets or even capital.
One potential opportunity to fulfil these requirements could be a joint venture partnership. Many farms are familiar with this term and business structure, due to the increase in agricultural joint venture partnerships in recent years, in an attempt to reduce overheads.
However, is a joint venture the answer to your diversification funding, labour and business needs? Why not use our free Diversification Discovery Assistant which will help you understand whether this type of business structure will be suitable to you.
Alternatively, contact us today and we’ll gladly help guide you through the options available with regards to business structures.
What is a Joint Venture Partnership?
Firstly, it is important to decide on whether the joint venture will operate as a business partnership, or limited liability partnership. A standard business partnership is where an arrangement between two or more people collaborate to run a business, sharing profits and liabilities between themselves personally. By way of a partnership agreement, how the business is run is up to the stakeholders. Each partners profit share is taxed as personal income as per a self assessment. It’s important to note that each partner has unlimited liability for business debts.
A limited liability partnership (LLP) ensures the partnership is a separate legal entity entirely, therefore, partners are not liable for its debts and liabilities, unless specified within the agreement. Similarly, partners within an LLP are taxed on their share of the profits. The LLP is not taxed seperately.
What are the Pros of a Joint Venture Partnership?
- Scope and opportunity for an increase in capital investment
- Additional skillsets, contacts and labour
- Shared investment in terms of costs and responsibility
- A second opinion, greater idea generation and in some cases, increased satisfaction
What are the Cons of a Joint Venture Partnership?
- Potential for disagreements and conflicts
- Sharing of profits
- Loss of total control over business
- Potential for increased managerial input
What to Consider Before Creating a Joint Venture Partnership?
Prior to the formation of a joint venture partnership, we think it is important to answer the following questions:
- Have you found a reliable, likeminded and effective business partner?
- What do you need out of your business partner? Capital, labour etc? Do they satisfy this requirement?
- Do you mind sharing profits, responsibility and control?
- How will you exit the joint venture if you needed to?
- Who will be responsible for mediation of the formal agreement?
Do you think a joint venture partnership will help you diversify your farm? Unsure whether its the right option for you? Use our free diversification discovery assistant. Simply fill out the short questionnaire and receive a free review of what diversifications will suit you and your business, including whether a joint venture agreement is right for you.
Need further advice on structuring your diversification business? Contact us today for a no obligation consultation, to see how we can help guide you through the process.