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Setting up a joint venture via either agreement or incorporation

If you've come up with a business idea but feel that another company would be better suited to manufacture, market or distribute it, then you may decide that pursuing a joint venture is best. This type of business structure is often used by two companies who wish to collaborate on making a particular aspect of their business more efficient.

Many companies that join together to work on a joint venture set up a new corporation to do so. It can take the form of a limited liability company, corporation or partnership. It's through that new company that the two distinct partners may invest startup funds, manage proceeds and operate their business.

In other cases, companies investing in a joint ventures may never choose to join together and form a new business entity together. Instead, they may sign a joint venture agreement that allows them to share management responsibilities as well as profits and losses.

Operations governed by a joint venture agreement are not recognized by the Internal Revenue Service (IRS) unless incorporated as some kind of business entity.

A joint venture that is set up as a new, independent business entity will require the owners to pay taxes according to the percentage of ownership they have in it. If it's formed as a corporation, then it's likely that each party will maintain equal shares in the business, its stocks and influence in its selection of members of the board of directors.

If the businesses remain independent of one another, then each entity will be responsible for paying their own taxes.

Whether you're looking to establish a joint venture by coming together and forming a new corporate entity or by remaining independent of one another, then a St. George, Utah business organizations attorney can guide you through this critical process.

Source: The Balance, "What is a joint venture and how does it work?," Jean Murray, accessed Nov. 24, 2017

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