A joint venture means different things to different people. In any event, people tend to refer to the term “joint venture” as an agreement in which several parties come together to carry out a project. The aforementioned definition of joint venture suggests that the common adventure is a simple limited partnership, but not exactly a partnership. In a joint venture, the responsibility of members/partners is, as in the case of a company, unlimited, but extended and temporary. Shareholders could deduct the profits of a joint venture by paying dividends, interest or royalties by the joint venture. Interest, royalties and royalties may be tax deductible for the joint venture, subject to provisions to avoid tax evasion, such as transfer pricing rules.B. As noted above, these rules limit tax relief for payments between parties related to the amount that should have been paid on the basis of an arm and which would have been more applicable with respect to loans. These are the rules on when joint activities should be treated as partnerships for federal tax purposes and when partnership tax status is not necessary. The joint enterprise agreement often contains specific provisions that deal with a situation in which a tax authority makes further adjustments to transfer pricing on transactions between the joint venture company and its shareholders. Overall, these provisions are intended to ensure that the economic effects of a possible transfer pricing adjustment between the joint venture company and the shareholders concerned are compensated. The aim is to isolate the company from the joint venture from any adjustment of transfer prices. There are many different reasons to create some kind of joint venture, including investing or developing real estate, running a business, designing a new product or combining resources to get a contract. A joint venture is a cooperation agreement between two or more companies, which is often in the process of creating a new activity.
Each entity participates in the assets of the joint venture and agrees on the distribution of revenues and expenses. If the joint venture results in the creation of a new entity, it can be structured as a company, limited liability company or company. For example, if the joint venture is a company and the two founding companies want the same control, they would generally structure the joint venture so that each founding company has an equal number of shares in the company as well as equal management responsibility and representation on the board of directors.