Joint ventures are an important area of corporate strategy, whether in exploring and conquering new markets and generating the benefits or costs of developing innovative technologies.
When expanding business, a joint venture deal in America can be a healthy alternative to M&A as it offers many management advantages, including considerable flexibility over other structures.
A joint venture in America also brings with it a reduction in tax rates, which is very attractive for businesses.
Possible difficulties when creating a joint venture
The general advantage of joint ventures in any of its forms is the creation of favorable starting conditions for new production. However, the potential quickness of partnerships and product development raises strategy problems, in particular with regard to capital structure and taxes, distribution of dividends, etc.
Problems associated with additional material costs of potential participants in a joint venture are also important.
This primarily relates to the costs of preparing a joint venture in the United States, from the stage of initial contacts with potential business partners and negotiations on the conclusion of a cooperation agreement to planning and organizing the activities.
In addition to the initial costs of the preparatory period, there may be issues of coordination of partners when making decisions in the process of establishing a joint venture in America. To ensure the coordinated collaboration the partners have to create certain information and communication mechanisms. Accordingly, the development and implementation of such mechanisms will require increased costs in the future for monitoring their compliance and functioning.
Registration of a joint venture in the United States
There are certain requirements you should keep in mind when registering a joint venture in the USA and further activities:
- regulation of taxation;
- provisions on competition and securities;
- import/export rules.
The US Foreign Investment Committee has the authority to check the joint venture transactions.
US Joint Venture Structure
Taxation and accounting rules - these two aspects determine the choice of the JV structure.
Crucially, in the USA, a corporation will be subject to double taxation, while a partnership or limited liability company will generally not be taxed on the legal entity level and will transfer its tax attributes to the owners for their payment (i.e. a single taxation level).
Conclusion
Since firms tend to have different motives in setting up joint ventures, their interests and needs are often in conflict. To be successful in a long-term relationship, it is imperative that the JV structure and all the documents clearly and legally record how decisions are made.
We have provided a brief overview of the main aspects of managing joint ventures in the US. For more detailed information please fill out the feedback form. You also have the opportunity to sign in for a personal consultation on a JV registration in the United States.
