Joint Venture help...

[DeannK007]

Hey All,

I recently create a Limited company with the purpose of signing a JV contract with a few friends.

A little back story on this so me and three others are coming together to form a property company, one member of the group has the the subtantial capital (in the 7 figures) to carry this JV out at great scale.This said person is the driving force of the JV and has created a seprate company for this with all our names in as directors...the JV details a asset loan backed agreement that every property purchased gives all members a 25% share of each property. Sale of each property must be paid to the lender back first (0% interest) before any profit is paid to any of the three businesses in the JV.

Now as you can see this does come across a bit all over the place,to keep things simple would it be better to have two seprate contracts detailing the loan agreement and joint venture? or scrap the JV and have one company with a loan term agreement to the three members?

Open to all thought and opinons

Thank you

D

 

[Mark T Jones]

I'd pay good money for good, dedicated advice

 

[The Resolver]

I can advise you but need much more clarity on the existing proposal. JV;s can take many different forms. You refer to "three businesses". Does the proposal envisage each of the 3 non-investors running their own limited companies as well as having shares in the main property owning company? Will each company run a separate property or are these to be owned by the main company? You say you will each be directors of the man company but will you not have shares? If so you can have no say in major decisions save those by the Board and can of course be removed from the Board at any time.

In simple terms you would not want to separate the loan arrangement as this would potentially, subject to the detailed terms, give the lender the opportunity to call up the loans at any time irrespective of performance by the main company. You ought to have clear terms on repayment.

I am happy to help but would need to see the existing proposal in detail with the JV agreement before advising as to its content and whether alternate arrangements may be preferable.Of course,given the level of investment, I would imagine the investor would take some persuasion away from his proposal. Divide and rule may be the option he seeks. Is this a discussion that has already commenced?

 

[The Resolver]

I'd pay good money for good, dedicated advice

Yes and indeed and it should be given to all three of you jointly and you should be insisting that the investor pays for such advice and with such being independently selected.

You can book in for a free call with myself

 

[DeannK007]

I can advise you but need much more clarity on the existing proposal. JV;s can take many different forms. You refer to "three businesses". Does the proposal envisage each of the 3 non-investors running their own limited companies as well as having shares in the main property owning company? Will each company run a separate property or are these to be owned by the main company? You say you will each be directors of the man company but will you not have shares? If so you can have no say in major decisions save those by the Board and can of course be removed from the Board at any time.

In simple terms you would not want to separate the loan arrangement as this would potentially, subject to the detailed terms, give the lender the opportunity to call up the loans at any time irrespective of performance by the main company. You ought to have clear terms on repayment.

I am happy to help but would need to see the existing proposal in detail with the JV agreement before advising as to its content and whether alternate arrangements may be preferable.Of course,given the level of investment, I would imagine the investor would take some persuasion away from his proposal. Divide and rule may be the option he seeks. Is this a discussion that has already commenced?

1.Yes all 3 non-investors have equal shares in the main company (all 4 members have 25% ownership each)

2. All properties will be under the main company

 

[Mr D]

Have heard of some similar schemes in the past that went very wrong.
One with all the money and reward everyone else left in the cold with debts to pay.


Get professional advice. Have a qualified and experienced contract lawyer look over the contract / agreement. Have him or her explain it all to you.

Deals that look good can turn out to be problematic in the details. Deals that look great for little or no investment .....
Don't skimp on the professional advice. If the person with the substantial capital tells you that you don't need professional advice then run away very quick.

 

[The Resolver]

1.Yes all 3 non-investors have equal shares in the main company (all 4 members have 25% ownership each)

2. All properties will be under the main company

Do any of the three non-investors have stronger personal relations with the investor than the others? The context in which you all came together will be relevant.

Apart from the basic structure you clearly need a Shareholders Agreement to apply to the main company. See here for the reasons.

 

[DeannK007]

Apologies I didnt highlight this key part all 4 of us have a very strong relationship, known each other for years.The one member that is putting the capital in came across it through inheritance, pushing to bring us all in this equaully.....even stuck with the default article of association for the main company.

 

[OGgy21]

your description of the set-up is quite confusing. From what i can gather a JV company has been set up with 4 25% shareholders (all of which are also directors)?

JV's are notoriously risky so using a ltd co vehicle is sensible. I am not sure that you need to have your own separate co to hold the shares in the JV company. From a legal perspective you will have limited liability anyway so if the JV gets in to trouble you will not be liable personally - i guess holding the shares through a co may have different tax advantages but not sure

 

[Mark T Jones]

Apologies I didnt highlight this key part all 4 of us have a very strong relationship, known each other for years.The one member that is putting the capital in came across it through inheritance, pushing to bring us all in this equaully.....even stuck with the default article of association for the main company.

In my view, the closer the personal relationship,the more important it is to have a solid agreement in place

 

[Mr D]

your description of the set-up is quite confusing. From what i can gather a JV company has been set up with 4 25% shareholders (all of which are also directors)?

JV's are notoriously risky so using a ltd co vehicle is sensible. I am not sure that you need to have your own separate co to hold the shares in the JV company. From a legal perspective you will have limited liability anyway so if the JV gets in to trouble you will not be liable personally - i guess holding the shares through a co may have different tax advantages but not sure

Common for people to go into business with close friends or family.
The forums have had many people that later developed problems with those very people they trusted at one time.
Figure problems in advance and take steps to deal.

Including disagreement, someone wanting out, voting (even numbers can mean no majority) and so on.