How a joint venture partnership is structured plays a big role in liability and engagement questions. Those partnerships work best when the relationships are well defined.
Joint venture partnerships (JVPs) of several types are a popular and effective means by which individuals combine resources of expertise, money and strategic relationships to bring about business success. Look no further than the realms of UK land and real estate to understand where such partnerships can be very productive.
Those partnerships typically join professionals in the various aspects of development (acquisition of land, change of use designation, infrastructure development, construction and sale or rental of property) with investors who understand real estate in broad terms but whose expertise may lay elsewhere. Participants in such joint ventures know that their money can grow quickly in such sectors as residential development, given the pressing need for new housing in the UK.
But UK joint ventures can be structured differently. For example, a JVP company that is limited by shares enables participants to have limited risk as they would as shareholders in a company. A contractual venture is more flexible as it is not technically an entity that needs incorporation, but it also is vulnerable because it has a poorly defined structure and identity. A limited liability partnership provides participants with a legal entity, but partners are still taxed directly on their percentage of profits and losses. A fourth category, general (limited) partnership, is popular as an investment vehicle for passive investors because limited partners cannot be involved in the management of the venture.
For investors hoping to cash in on the rush for land and the exceptionally underserved housing market, each of these structures might work. But the general or limited partnership might provide the best advantages when such individuals do not work professionally in real estate or development.
But regardless of the type of JVP an investor chooses, there are at least four criteria they might apply to the partnership by which to evaluate it:
Mutually understood objectives – There are so many directions a real estate entity can go with a project: to create short-term asset growth, to hold for rental income, or even to remain flexible to determining the objective as a construction project nears completion. Whichever it may be, participants in a JVP should share overarching objectives to help guide decisions made along the way.
Clear-cut strategy – Members of the partnership should also agree on how to achieve those objectives with a coherent strategy. If external circumstances change and disrupt plans, a good strategy is to adapt and apply to leverage as possible to achieve a strong outcome. Throughout, the real estate professionals leading the JVP should communicate as needed to the other partners, financial and otherwise.
Adequate documentation – Regardless of the type of structure, a JVP is nothing without the paper. But it is not only about the documents that establish the partnership; partners should be informed of due diligence provided with land acquisitions, of applications for land use changes, and other moments of regulation and transaction that affect the cost and revenue structure.
Commitment by all parties – Just as important, a large degree of shared commitment can have a great impact on all paid staff, managers and investors in a project. Unified, the JV partners can accomplish much more than if not.
Real asset funds investments of any kind should be closely scrutinised relative to other investments. For any individual or family, counsel from an independent financial advisor is highly recommended.
Joint venture partnerships (JVPs) of several types are a popular and effective means by which individuals combine resources of expertise, money and strategic relationships to bring about business success. Look no further than the realms of UK land and real estate to understand where such partnerships can be very productive.
Those partnerships typically join professionals in the various aspects of development (acquisition of land, change of use designation, infrastructure development, construction and sale or rental of property) with investors who understand real estate in broad terms but whose expertise may lay elsewhere. Participants in such joint ventures know that their money can grow quickly in such sectors as residential development, given the pressing need for new housing in the UK.
But UK joint ventures can be structured differently. For example, a JVP company that is limited by shares enables participants to have limited risk as they would as shareholders in a company. A contractual venture is more flexible as it is not technically an entity that needs incorporation, but it also is vulnerable because it has a poorly defined structure and identity. A limited liability partnership provides participants with a legal entity, but partners are still taxed directly on their percentage of profits and losses. A fourth category, general (limited) partnership, is popular as an investment vehicle for passive investors because limited partners cannot be involved in the management of the venture.
For investors hoping to cash in on the rush for land and the exceptionally underserved housing market, each of these structures might work. But the general or limited partnership might provide the best advantages when such individuals do not work professionally in real estate or development.
But regardless of the type of JVP an investor chooses, there are at least four criteria they might apply to the partnership by which to evaluate it:
Mutually understood objectives – There are so many directions a real estate entity can go with a project: to create short-term asset growth, to hold for rental income, or even to remain flexible to determining the objective as a construction project nears completion. Whichever it may be, participants in a JVP should share overarching objectives to help guide decisions made along the way.
Clear-cut strategy – Members of the partnership should also agree on how to achieve those objectives with a coherent strategy. If external circumstances change and disrupt plans, a good strategy is to adapt and apply to leverage as possible to achieve a strong outcome. Throughout, the real estate professionals leading the JVP should communicate as needed to the other partners, financial and otherwise.
Adequate documentation – Regardless of the type of structure, a JVP is nothing without the paper. But it is not only about the documents that establish the partnership; partners should be informed of due diligence provided with land acquisitions, of applications for land use changes, and other moments of regulation and transaction that affect the cost and revenue structure.
Commitment by all parties – Just as important, a large degree of shared commitment can have a great impact on all paid staff, managers and investors in a project. Unified, the JV partners can accomplish much more than if not.
Real asset funds investments of any kind should be closely scrutinised relative to other investments. For any individual or family, counsel from an independent financial advisor is highly recommended.
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