ESTABLISHING A BUSINESS ENTITY IN NEW ZEALAND 370
Tax : LPs are fiscally transparent for tax purposes – each limited partner’s income share is taxed according to its own tax status. Tax losses can be passed through, utilised or carried forward. No RWT/NRWT payable. The LP can register for GST, and as it is a separate legal entity, the LP is liable for GST.
Tax : Loss limitation rule applies (i.e. limited partners’ tax deductions are limited to their contribution to the LP).
UNINCORPORATED JOINT VENTURE An unincorporated joint venture (JV) is often described as a “creature of contract”. JV exist when an association of participants come together to achieve a common goal, the terms of which are generally recorded in a joint venture agreement or similar contract. You may find this entity option most suitable in the early stages of a business, when there are still uncertainties as to long term prospects and commitments. JVs operate without specific statutory governance or obligations, relying instead on a combination of common law and legislation for guidance. International law may also play a part if a participant is non-New Zealand resident or if the business of the JV is to take place (either wholly or partly) outside of New Zealand.
A JV is very similar to a partnership. Some of the differences are however significant, most notably the joint and several liability that exists between partners in a partnership. Care must therefore be taken to ensure that the joint venture agreement is carefully drafted so as to be consistent with the characteristics of a JV and not otherwise deemed to be a partnership. A key characteristic differentiating a JV from a partnership is that participants in a JV maintain their independence. A common reason that a JV may be deemed to be a partnership (where that may not have been the parties’ intention) is when an element of joint management or liability exists. Notable advantages and disadvantages of JVs are as follows:
Advantages
Disadvantages
Flexibility and freedom in drafting joint venture agreement – no statutory requirements. Subject to the joint venture agreement, no joint liability (as is the case with partnerships). No registration requirements. No statutory ongoing administrative obligations.
The JV does not have a separate legal identity. No limited liability protection – participants can be personally sued and held liable (however indemnities can be provided for in the joint venture agreement).
ILN Corporate Group – Establishing a Business Entity Series
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