What is Joint Venture? When 2 friends come together and open a book stand in a street, sell books and agree to divide the profit, they establish a business partnership.
It is also a partnership with companies around the world (such as Apple, BMW) whose profits, employees and investors reach billions.
In other words, the term “Joint Venture” has a very wide scope.
In the United States, Turkey has several types of Joint Venture as is. Joint Venture is established and managed by real persons. Even if they are established and managed by legal entities, there is still a real person (s) behind them. What is important here when you decide to establish a Joint Venture, what type will this be? Here, some legal and functional differences come into play. Although it requires a detailed examination, 5 main factors will affect your choice in this case.
There are Joint Venture types with different characteristics such as taxation, responsibility of partners, how to manage the business, fund-raising, exit the Joint Venture.
The most preferred company types:
As a Partnership; General Partnership(GP), Limited Partnership(LP), Limited Liability Partnership(LLP).
As a corporation; C Corporation and S Corporation.
Limited Liability Company (LLC)
General Partnership (GP) : It is defined as 2 or more people jointly carrying out a business for profit. It is a partnership type based on trust. The partnership does not have a separate legal personality. Partners are also liable for the partnership’s debts with their personal assets (Unlimited Liability) The partnership is also not taxed.
( Pass-through taxation ) Partners are taxed individually. Unless the partners have agreed otherwise in the partnership agreement, each partner has the right to manage the business. The partners can appoint and authorize managing partners with the partnership agreement. Since the partnership and partners do not have different personalities, the separation phase is not easy and the partnership dissolves with the separation of a partner.
Limited Partnership (LP)
It is a joint venture in Limited Partnership like “GP”. This type of business partnership consists of the “general partner” who directly manages the business, and the passive investor, ie “limited partners” who only put capital and do not have management authority. This partnership type is a mixed / hybrid type.
Taxation is the same as in GP. Partnership is also not taxed (Pass-through taxation).
General Partners with management authority in the partnership have personal responsibilities for debts and liabilities of the company (Unlimited Liability). Limited Liability is limited to the capital that they put in the company or undertake to put the liability for company debts and liabilities. Generally, it is a type that brings together professionals who understand business and rich investors. The investor does not take more risks than he invested, and the partner who manages the business and needs funds can easily find investment and set up his business. It is difficult to leave the partnership in the same way as the GP. Leaving a partner puts the company in the process of breaking up.
Limited Liability Partnership (LLP)
LLP is a subform of GP. In this partnership type, unlike GP, general partners have limited their personal responsibilities (Limited Liability). A completed certificate must be sent to the relevant state office. In the LLP, the liability of the partners is limited, but their responsibilities continue for the damages caused by their personal contract and personal mistakes. Corruption and individual errors are excluded from the shield of limitation of liability. Taxation is again available in person and not for partnership (Pass-Through Taxation). Breaking up with a partner is also difficult and can cause breakup. It is the type generally preferred by law firms and the medical sector. It is preferred in risky jobs.
Common features of companies; separate legal entity, limited liability of shareholders, central management, continuation of company in separation of shareholders.
Double taxation is applied in C corporations (Double Taxation). Shareholders are taxed both personally (during profit distribution, etc.) and on the income generated by the company. Company owners have limited liability. Company owners / shareholders elect a board of directors and have their company policies determined by the Board Of Directors. The board of directors also includes CEO, CFO, etc. throws. These officers manage and perform the day to day management of the company. So shareholders do not run the company. Profit and loss belong to the company. It is easy to break up in this type of partnership due to the separate legal entity. The shareholder can leave by transferring / selling his shares to another person. Generally, Publicly Held companies are seen as C Corporation.
Unlike C corporation, pass-through taxation is applied, that is, double taxation is not applied. S Corporation are generally non-public companies. (Closely Held)
Limited Liability Company (LLC)
As a liability limitation similar to Partnership in terms of taxation, this type of business partnership, which has a mixed structure that has the feature of Corporation, is briefly called LLC. In other words, while double taxation (pass-through taxation) is not applied in LLC, the partners also have limited liability (Limited Liability). In this type, the regulations regarding the Contract Law outweigh the Commercial Law regulations. In other words, the arrangements made with the contract are prioritized and it is a business partnership type that can provide a flexible management method. Most of these types of companies are closed to the public. Changes in taxation may be observed if they are open to the public. The basis of this type is the partnership agreement. Each partner has a management right in the LLC. Each partner can transfer this management right to another partner. This management right comes from the partnership agreement. It is usually set up by completing and sending a certification to the state (File AoA). It is a type that depends on the will of the parties, not strict rules as in other types. When any problem is encountered, the problem is resolved by first considering the partnership agreement (Partnership Agreement). Regarding matters not regulated by the partnership agreement, the complementary legal rules (default rules) are applied.
How to establish a General Partnership?
You do not need to fill in any documents or make a written partnership agreement to establish a GP. However, by making a written partnership agreement, you can decide how to divide profit and loss. However, it is not possible to change the unlimited liability principle applicable to GPs mentioned above with this contract and change the terms of representation.
LP & LLP –
It is established by filling out a form and sending it to the state secretary. These forms can be completed and sent online in some states. Apart from this, there is no necessary operation for the setup, but in this case, it is recommended to have a partnership agreement.
The application document called “Articles of Incorporation” is filled and given to the state secretary. The document must be signed by the founder. Articles of incorporation document must include the company name (Corporation, company, incorporated). The address of the company and the general outline of the business to be done must be specified in the document (Nature of the business).
Some states require only one installation certification, while others require the document to include an organizational chart. In addition, complementary legal rules will have to be used if business owners do not arrange an Operating Agreement while it is not a mandatory element for LLC. The preparation of the Operating Agreement helps determine the internal process because LLC’s are the Commercial Code (Uniform Commercial Code) etc. They are not regulated in detail in places, the basis of which is the contracts made by the founders, and in case of any problems, firstly the contracts between the parties will come to the agenda.