2.26 Table 2.A overleaf provides a summary level comparison of the main forms of JV structure contrasted with contractual partnering arrangements. For completeness the Table also includes Companies Limited by Guarantee (CLG) although these are not covered in detail within the rest of the Guidance.
2.27 Annex B provides a more detailed side-by-side comparison of the principal operating differences and characteristics of the main JV structures covered by the Guidance, namely companies limited by shares (CLS) and UK limited partnerships (LP) and UK limited liability partnerships (LLP).
2.28 Annex G provide a similar comparison focusing on the key differences in taxation between companies and UK partnerships.
2.29 The remainder of this Guidance is generally focused on JVs using a CLS or UK partnership structure however many of the issues apply equally to other models.
Table 2.A: Summary features of main JV structures for comparison
| Type of JV | Advantages | Disadvantages | Public Sector Examples | Comments |
| Contractual Partnering | Contractual partnering may be suitable where there are clearly defined and time-limited tasks to be undertaken. It is a more static and potentially less flexible model than a JV. It can have benefits of simplicity but where a contract starts to make detailed provisions for future decision-making it may prove more straightforward to align interests from the outset using a "structural" rather than "contractual" approach. | |||
| No corporate vehicle | ● Contractual structure is familiar to the public sector and may be regarded by some as lower risk than a JV ● Defined "horizon" and exit strategy in contract ● Can be effective when operating in a predictable environment, or where the partnering arrangement is expected to be a short one | ● Parties work less closely, relying more on the contract, potentially leading to disputes ● Contract must foresee all eventualities ● Less flexible and less able to manage change ● Potential inadvertently to create a partnership imposing joint and several liability on parties | ● MOD Estates in London (MoDEL) ● Private Finance Initiative (PFI) projects | Can achieve the same objectives as a JV using a separate legal entity. These arrangements operate best when the environment is static and predictable. |
| Company JV
| JVs embed partnership working and genuine risk sharing. Provides flexibility and allows decisions to be made in an efficient manner. | |||
| Company limited by shares (CLS: a limited liability company with shareholders) | ● Flexible and familiar structure ● Simple mechanism for introduction of new equity/transfers ● Limited liability for shareholders ● Appropriate risk sharing and management ● Can convert to a PLC or a CLG ● Corporate management structure allows a degree of independence from shareholders ● CLS can distribute dividends ● Rewards are linked directly to risks taken, generally in direct proportion to the proportion of shares held | ● Potential conflict of interest for public sector directors, particularly for profit distributing structures ● Maintenance of share capital requirements - less flexibility on withdrawing equity ● Tax at JV Company level at up to 30% - no credit for non-tax paying investors ● Cannot make distributions to shareholders in excess of distributable profits ● Value issues arise on transfer of membership | ● BBC Worldwide ● DSTL Acolyte ● Partnerships UK | A company limited by shares is a well recognised form of JV and accepted by the private sector. Even if private sector classified, there remains flexibility for public sector controls through reserved voting matters. Shareholders' influence is linked to the proportion of shares held and the rights reserved to shareholders. |
| Company limited by guarantee (CLG: a limited liability company with members) | ● Can convert to unlimited liability company, but not to a limited liability company ● Flexible structure for a "non profit distributing" venture ● Appropriate risk sharing and management ● No value issues created with membership interest, it is easier for members to join and leave ● Limited liability | ● Potential conflict of interest for public sector directors although as CLG is nonprofit distributing risk may be lower than CLS ● Rewards are linked directly to risks taken ● Termination, voluntary or involuntary, of the company could result in a financial loss ● Difficult for CLG to make distributions although still legally possible | ● Welsh Water ● Network Rail ● Local Authority Companies | CLG has no limit on participants, and the board structure is likely to be similar to that of a CLS. Set-up costs of simple CLS may be less than of a CLG, however for complex structures the set-up costs are likely to be aproximately equal. |
| Limited Liability Partnership (LLP: a limited liability partnership with members) | ● Corporate body with limited liability ● Transfer of equity/introduction of new members flexible ● Flexible basis for profit distributions and return of capital ● Tax transparent, so non-taxpayers do not suffer tax leakage ● Tax efficiency ● Investors in partnerships can get back their capital more easily than from corporate entities | ● Less familiar structure, though becoming more widely understood ● Transfer of interests may be subject to stamp duty of 4% ● Lack of case law in event of a dispute ● Potential limitation for local authorities to trade through a partnership | ● Forest Holidays ● British Waterways (ISIS) | Broadly speaking the main perceived benefit of a LLP or LP is that profits are taxed at member level only. In a limited company there may be "double" taxation liability, as corporation tax may be chargeable at company level, and may be chargeable on dividends at shareholder level. |
| Limited Partnership (LP: a limited partnership controlled by a general partner typically set up as a CLS) | ● Limited liability for limited partners ● Flexible basis for profit distributions (e.g. not necessarily in proportion to invested capital) ● Tax transparent, so non-taxpayers do not suffer tax leakage ● Tax efficiency ● Investors in partnerships can get back their capital more easily than investors in corporate entities since the company rules on capital repayments only apply to companies | ● Not a separate corporate entity ● Can be inflexible - limited partners cannot be involved in management ● Unlimited liability for general partner ● Less easy to introduce new members/transfer equity - transfer of an interest must be by way of assignment so that the prohibition on capital withdrawals is not breached ● Limited partners cannot withdraw capital ● Asset ownership can be complex | ● EM Property Investment Fund (Blueprint) ● PxP West Midlands ● One Northeast (B4B and ONEDIN) | See comments for LLP above. |