Setting up a Joint Venture in the UK: Getting the structure right from day one 

Joint ventures are one of the most flexible ways for businesses to pursue growth. They allow parties to share investment, combine expertise and accelerate delivery, while keeping a clear boundary between the venture and each party’s wider business. 

They are used across sectors for good reason. A joint venture can provide a structured route into a new market, a way to bring in funding or specialist capability, or a platform for developing an asset or business that would be difficult to deliver alone. 

The key is to treat the joint venture as a separate entity in its own right. That means choosing the right structure, putting workable governance in place, and agreeing how value will be realised over time. Getting those foundations right early does not add unnecessary complexity. It provides clarity, momentum and confidence for everyone involved, including funders and other stakeholders. 

Here, we look at how joint ventures are typically structured in the UK, and the governance and exit issues that should be addressed before significant expenditure is committed. 

Structure 

One of the first decisions is whether the joint venture should operate through a separate legal entity, or whether it should be documented as a contractual arrangement. 

A corporate joint venture is typically established through a private limited company owned by the participants. The company becomes the vehicle through which the venture is run. It owns assets, enters into contracts, employs staff where required, and can raise finance. The relationship between the shareholders is governed by a shareholders’ agreement, supported by the company’s articles of association. 

A contractual joint venture, by contrast, involves the parties working together under a detailed agreement without incorporating a new company. This can be suitable where the collaboration is narrow in scope, time-limited, or where there is no need for a standalone vehicle. 

In practice, a corporate structure is often preferred where the venture will involve material investment, long-term activity or external funding. A separate company creates a clear framework for ownership and decision-making, and it can make it easier to ring-fence risk and demonstrate to third parties that the venture is properly governed. 

Governance  

Governance is sometimes approached as a negotiation about control. In a well-designed joint venture, it is better understood as a way of ensuring that the venture can operate with appropriate oversight, while still being able to make decisions and move forward. 

Corporate joint ventures are usually governed through a board of directors, with each shareholder entitled to appoint directors in agreed proportions. Certain key decisions are then reserved for shareholder approval, typically through “reserved matters”. 

Reserved matters can include approval of budgets and business plans, significant capital expenditure, borrowing above agreed thresholds, material contracts, changes to share capital, appointment of senior management and strategic decisions such as acquisitions or disposals. 

The aim is to strike a balance. The board needs enough authority to manage the venture effectively day-to-day, while the shareholders retain control over decisions that materially affect their investment or risk exposure. 

This balance is rarely achieved through standard drafting. Reserved matters need to be tailored to the nature of the venture, the sector, and the commercial expectations of the parties. It is also important to ensure the governance framework aligns with how the venture will operate in practice, particularly where day-to-day management will sit with one shareholder, a dedicated management team, or a third-party operator. 

Funding arrangements  

A joint venture’s initial funding position is usually agreed clearly with the terms of repayment or returns on those initial investments also being made clear at the start. What requires more careful thought is how future funding requirements will be handled. 

If additional capital is needed, will it be provided through equity, shareholder loans, external debt, or a combination? Are capital calls mandatory? What happens if one party wishes to invest further and the other does not? Can the venture borrow, and if so, what approvals are required? 

These questions are not simply technical. In practice, funding disagreements are one of the most common reasons why otherwise successful joint ventures run into difficulty. When one party is ready to commit further capital and the other is not, or when the venture needs external finance and the shareholders cannot agree on terms, the pressure falls on a relationship that may not be well-equipped to absorb it. Clear provisions at the outset make it easier to secure funding later, whether from the shareholders or from external lenders, and they help avoid time-consuming renegotiation at moments when the venture needs to move quickly. 

Dividend policies are also worth addressing early, particularly where one party is investing with an expectation of income. A joint venture that is intended to distribute profits regularly will often need tighter rules around budgets, reserves and funding obligations, to ensure it can meet working capital requirements while still delivering returns. Where the intention is to reinvest for growth, the agreement may instead focus on capital planning and decision-making thresholds for further investment. 

Protecting IP, confidential information and commercial boundaries 

Joint ventures often involve sharing information and assets that sit at the core of each party’s wider business. Where intellectual property, know-how, branding or customer relationships are involved, the documentation needs to deal clearly with ownership and usage rights – and to do so before those assets are pooled, not after. 

Existing intellectual property may be transferred to the venture, licensed to it, or retained entirely by the contributing party, with the venture operating under licence. The position should be explicit, because ambiguity about who owns what will become harder to resolve once the venture is operational and the IP has been developed or built upon. The agreement should also address what happens to new IP created through the venture. Who owns it? Can either party use it outside the venture? Does it revert on exit? These questions are particularly acute in technology-led ventures, where IP may be the primary asset, but they arise in development, manufacturing and trading contexts too. 

Confidentiality provisions are usually straightforward in principle, but they are often tested in practice. A particular pressure point arises where individuals are seconded into the venture from one of the parent businesses. Those individuals may have detailed knowledge of a competitor’s strategy, pricing or client relationships, and the boundaries between what they can and cannot share are not always obvious in the day-to-day. Similarly, where commercially sensitive information is discussed at board level, clear rules about what can be reported back to the appointing shareholder, and in what form, are important from the outset. The agreement should be explicit about what information can be used outside the venture, what must remain confidential, and how long those obligations continue after exit. 

Where the parties operate in the same or adjacent markets, it may also be appropriate to include non-compete and non-solicitation provisions. These need careful drafting. Overly broad restrictions can be difficult to enforce, while narrow restrictions may not provide meaningful protection. The objective is to protect legitimate commercial interests, without unnecessarily restricting future business activity. 

Competition law considerations may also be relevant, particularly where the parties are actual or potential competitors. Care should be taken to ensure that information sharing and strategic discussions are structured appropriately. 

Deadlock provisions  

A deadlock provision is a contractual mechanism that sets out what happens if the shareholders cannot reach agreement on a key decision and the venture is unable to progress. 

Deadlock provisions are often discussed in negative terms, but in reality they are part of sensible governance. A joint venture is a shared enterprise, and there may be times when the parties take different views on timing, risk, investment or strategic direction. A well-drafted agreement does not assume those differences will never arise. Instead, it provides a structured route for resolution. 

Deadlock provisions might include escalation to senior executives, referral to mediation, expert determination for technical disputes, or agreed decision-making mechanisms where a vote cannot be reached. The most appropriate approach will depend on the nature of the venture and the types of decisions likely to be contentious. 

Where the venture is structured as 50:50, these provisions become particularly important because there is no natural majority. In that context, deadlock mechanisms are not about anticipating failure. They are about ensuring that the venture remains capable of making decisions and maintaining momentum. 

Exit provisions  

Even where the parties intend a long-term relationship, it is good practice to document how value will ultimately be realised. 

Exit provisions are not only relevant where relationships deteriorate (or a deadlock situation, as discussed above, cannot be revolved). They also matter in perfectly successful ventures, particularly where one party wishes to sell, restructure, or bring in new investors. Well-drafted provisions can also make the venture more attractive to funders and future purchasers by demonstrating that there is a clear pathway for ownership change. 

Key provisions include restrictions on share transfers, pre-emption rights, tag-along and drag-along clauses, and mechanisms for valuing shares if a buy-out or liquidation is contemplated. 

Valuation is often one of the most important points to address. A joint venture will at the outset provide a clear mechanism for determining value, whether through an agreed formula, independent expert valuation, or market-testing. The right approach depends on the venture’s assets and business model, and should be considered carefully where value is likely to sit in future performance rather than current balance sheet assets. 

Termination provisions should also deal with practical issues such as ownership of assets, treatment of contracts and employees, and ongoing intellectual property rights. Clear drafting in this area provides certainty and protects value. 

Clarity from the outset 

A joint venture can be a powerful commercial tool, but its success depends on the strength of its foundations. 

Agreeing structure, governance, funding principles and exit provisions early allows the parties to focus on delivery, secure investment with confidence and build value over time. The ventures that run into difficulty are rarely those where the commercial idea was wrong. More often, the problems trace back to assumptions that were never tested, expectations that were never written down, and decisions that were deferred because agreement felt difficult at the time. Getting those foundations right at the outset is not about introducing unnecessary complexity. It is about giving the venture the best possible conditions to succeed. 

For businesses considering a joint venture, early legal advice can help ensure the arrangement is not only legally sound, but commercially workable and properly aligned with the parties’ objectives from day one. 

About the Author: Jack Peart is an Associate in the Corporate and Commercial team at Coodes Solicitors. He advises buyers and sellers on share and asset transactions, with a particular interest in mergers and acquisitions and the commercial negotiation points that shape each deal. Jack also works closely with the firm’s Private Client team to support farming clients, helping to structure partnership arrangements so day-to-day operations can continue smoothly while protecting succession planning and testamentary wishes. 

Get in touch: jack.peart@coodes.co.uk 01872 246 215