How To Set Up A Joint Venture Company In The UK: Legal Considerations

Teaming up with another business can be a smart way to grow faster, enter new markets, or take on bigger projects than you could handle alone.

But when money, customers, intellectual property and reputation are on the line, a “handshake deal” joint venture can unravel quickly.

If you’re considering setting up a joint venture company in the UK, this guide walks you through what it is, when it makes sense, how to set one up, and the legal foundations you’ll want in place to protect your business from day one.

What Is A Joint Venture Company (And When Does It Make Sense)?

A joint venture company is usually a new company (often a private company limited by shares) that’s owned by two or more parties who are collaborating on a specific commercial goal.

That goal could be:

• launching a new product or brand together
• building or developing property
• delivering a large client contract (where one party brings the client, and the other brings delivery capability)
• combining distribution + manufacturing
• pooling investment into a new venture without merging your existing businesses

In practice, a joint venture can be structured in a few different ways (we’ll cover the options below), but the “joint venture company” approach is popular because it creates a clear legal vehicle with defined ownership and governance.

Why Small Businesses Use A Joint Venture Company

For small businesses, a joint venture company can be attractive because it can:

• help ring-fence risk (liability generally sits with the joint venture company, but this protection isn’t absolute - for example, if a shareholder gives a personal/corporate guarantee, if a party assumes liability under a separate contract, or depending on director duties and conduct)
• clarify ownership (shareholdings, profit share, decision-making and exit rights can be documented properly)
• make funding easier (a company can issue shares, take loans, grant security, and keep separate accounts)
• separate the “JV project” from BAU (each party can keep running their existing business without mixing everything together)

That said, a joint venture company isn’t always the best option. Sometimes a contractual joint venture (two businesses collaborating under a contract without forming a new company) is simpler and cheaper. The right choice depends on your risk profile, timescale, and what you’re building together.

Should You Use A Joint Venture Company Or A Contractual Joint Venture?

Before you incorporate anything, it’s worth stepping back and deciding whether you actually need a joint venture company at all.

Broadly, joint ventures in the UK tend to fall into two categories:

• Incorporated JV (you form a new company owned by the parties)
• Unincorporated / contractual JV (no new company; the relationship is governed by a contract)

Option 1: Incorporated Joint Venture (A Joint Venture Company)

This is where you set up a new limited company and both parties subscribe for shares (often 50/50, but not always).

Common reasons to choose this route:

• you’re taking on meaningful financial risk (e.g. warranties, liabilities, long-term obligations)
• you’ll employ staff or engage contractors for the JV
• the JV will own assets (equipment, stock, software, property, brand names)
• you want a clean structure for profit distribution and (where relevant) tax outcomes - but you should speak to an accountant or tax adviser, as this isn’t tax advice
• the project is long-term or open-ended

Common downside: more setup, more ongoing admin, and you’ll need properly drafted governance documents to avoid deadlocks and disputes.

Option 2: Contractual Joint Venture (No New Company)

Here, each party keeps trading through their own business, and you agree on how you’ll work together via a contract. This can work well for a single project, a pilot collaboration, or a short-term arrangement.

Common reasons to choose this route:

• you want speed and simplicity
• the JV is limited in scope (one contract, one client, one deliverable)
• you don’t need a separate entity to hold assets or employ staff
• you want to test the relationship before committing to a company structure

If you go down this route, the contract becomes your “rulebook”, so it needs to be clear on roles, payment flows, IP, risk allocation, and what happens if things go wrong. A properly drafted Joint Venture Agreement is usually the key document here.

It’s also common to start contractual, then move to a joint venture company once the collaboration proves itself.

Step-By-Step: How To Set Up A Joint Venture Company In The UK

Setting up a joint venture company isn’t difficult, but the legal decisions you make early on can have a big impact on control, exit rights, and risk.

Here’s a practical step-by-step approach.

1) Agree The Commercial Deal First (Before The Legal Paperwork)

Before you jump into incorporation, get aligned on the fundamentals. This is where many joint ventures quietly fail - because the parties never fully agreed the “how” and “who decides”.

Key questions to settle:

• What exactly is the JV’s purpose and scope?
• What is each party contributing (cash, staff time, IP, premises, customers, equipment)?
• How will profits (and losses) be shared?
• Who is responsible for day-to-day operations?
• What decisions require unanimous approval vs a majority vote?
• How long will the JV run, and what’s the exit plan?

For some joint ventures, you may also want a short-form “heads of terms” document to record the key commercial points before the lawyers draft the full agreements. Depending on your situation, a Term Sheet can help keep negotiations focused (and reduce misunderstandings later).

2) Choose The JV Ownership Structure (It Doesn’t Have To Be 50/50)

A lot of people assume a joint venture company must be 50/50. It doesn’t.

You might choose:

• 50/50 where both parties contribute roughly equally (but you must plan for deadlock)
• majority/minority where one party has control (often because they contribute more capital or take on more risk)
• different share classes (for example, voting vs non-voting shares, or preferred returns)

This is also where you should consider “reserved matters” (decisions that require both parties’ approval even if one is the majority shareholder), such as taking on debt, entering big contracts, hiring senior staff, issuing new shares, or selling key assets.

3) Incorporate The Company And Set The Right Constitution

Most joint venture companies are incorporated at Companies House as private limited companies.

When you incorporate, you’ll need to think about:

• company name and registered office
• share capital (how many shares, and at what price)
• directors (who will sit on the board, and how decisions are made)
• the company’s governing rules (articles of association)

For joint ventures, the constitution matters more than usual because it interacts with the shareholders agreement. Off-the-shelf articles may not reflect how you want decisions made, especially if you’re trying to manage deadlock risk or set bespoke voting rules. This is where tailored Articles of Association can be important.

4) Put The Right Governance In Place (So The JV Can Actually Function)

Even if you trust the other party, governance is what keeps a JV stable when priorities change, cash gets tight, or the relationship becomes strained.

For example, you’ll want to decide:

• how directors are appointed and removed
• what quorum is required for board meetings
• how disputes are escalated (CEO-to-CEO meeting, mediation, expert determination, etc.)
• what happens if one party stops contributing time/money as promised

Most of this is captured in a strong shareholders agreement (more on that below).

5) Document Contributions (Especially IP, Data, And Customer Relationships)

One of the biggest risks in a joint venture company is confusion about what belongs to the JV and what remains owned by each party.

This is particularly important for:

• intellectual property (software, designs, content, branding, processes, know-how)
• customer lists and leads (who “owns” the relationship?)
• data (who can use it, store it, and for what purpose?)

It’s usually much easier (and cheaper) to define this upfront than to argue about it once the JV starts generating revenue.

6) Plan Your Exit Before You Start

This sounds counterintuitive, but it’s one of the best ways to protect your business.

A practical JV exit plan might include:

• when a party can sell its shares (and to whom)
• rights of first refusal (existing shareholders get first option to buy)
• good leaver / bad leaver outcomes (especially where founders/operators are involved)
• drag-along and tag-along rights (if the company is sold)
• what happens to IP and customers if the JV ends

Without a clear exit mechanism, joint ventures can get “stuck” - and that’s when disputes become expensive.

Key Legal Documents For A Joint Venture Company

If you’re forming a joint venture company, you’ll usually need more than just incorporation documents. The goal is to make sure everyone is clear on expectations and protected if the relationship changes.

Here are the key documents to consider.

Shareholders Agreement (The Main Rulebook)

A shareholders agreement sets out how the owners will run the joint venture company, how decisions are made, and what happens if something goes wrong.

It often covers:

• shareholdings and funding obligations
• board composition and voting
• reserved matters
• dividend policy
• transfer restrictions and exit rights
• deadlock resolution procedures
• confidentiality, IP, and restraint clauses (where appropriate)

For many JVs, a tailored Shareholders Agreement is the single most important document because it reduces the chance of disputes and gives you a roadmap if a dispute does happen.

Joint Venture Agreement (Sometimes Still Relevant Even With A JV Company)

Even when you form a company, you may still have a “JV agreement” style document to capture the commercial deal and each party’s obligations, especially where contributions are complex (for example, licensing IP into the JV, or providing services to the JV from an existing business).

In other cases, the JV company is the structure, and the shareholders agreement does the heavy lifting. The right mix depends on the deal.

Founders / Relationship Documents (Where Individuals Are Driving Delivery)

If the JV will be built and run by founders who are heavily involved day-to-day, it’s smart to be clear on roles, commitments and what happens if someone steps away.

This is where a Founders Agreement can help (even if each founder is involved via a company), particularly when the JV is early-stage and roles aren’t yet formalised.

Confidentiality Agreement (Before You Share The Good Stuff)

Most joint ventures start with lots of information-sharing: pricing, supplier terms, customer pipelines, internal processes, sometimes even source code.

Before you disclose anything sensitive, a Non-Disclosure Agreement can help set boundaries around how information can be used, who can access it, and how long confidentiality lasts.

It won’t fix a bad partnership, but it can reduce risk while you’re still deciding whether to proceed.

Service / Supply Agreements (If A Party Is Providing Services To The JV)

It’s common for one party to provide services to the JV company - for example, manufacturing, marketing, development, logistics, or sales.

Don’t rely on informal arrangements here. If the JV is paying one of the shareholders for services, you’ll want a clear contract setting out scope, fees, service levels, and liability. Often this sits alongside (and must be consistent with) the shareholders agreement.

Data Protection Documents (If You’re Handling Personal Data)

If the joint venture company will handle personal data (for example, customer contact details, end-user data, mailing lists, platform user accounts), UK GDPR and the Data Protection Act 2018 are likely to apply.

Depending on who is processing data and why, you may need contracts covering data processing and security obligations. In many collaborations, a Data Processing Agreement is important where one party processes personal data on behalf of another.

Data protection can feel like a lot, but getting it right early can save you major headaches (and potential regulatory risk) later.

Ongoing Compliance And Common Risks To Watch Out For

Once your joint venture company is live, the legal work isn’t “done”. You’ll want to keep the JV compliant and manage the risks that commonly trip up joint ventures.

Director Duties And Conflicts Of Interest

In a joint venture, directors are often appointed by each shareholder. That can create tension, because directors owe duties to the company, not to the shareholder who appointed them.

Conflicts can arise where:

• a director wants the JV to contract with their “parent” business
• one shareholder wants profits distributed, while the other wants reinvestment
• the JV competes (even unintentionally) with a shareholder’s existing business

Good governance, transparency, and clear contractual terms help manage this.

Funding: What Happens When The JV Needs More Cash?

A classic JV problem is underestimating how much funding is required.

Make sure your documents address:

• whether shareholders must contribute further capital (and in what proportions)
• what happens if one party can’t (or won’t) contribute
• whether funding is by loans, new shares, or third-party finance
• who can approve borrowing and what security can be granted

Without clear rules, you can end up in a deadlock right when the business needs quick decisions.

Deadlock: Plan For It, Even If You’re Optimistic

Deadlock is especially common in 50/50 joint venture companies.

Deadlock provisions might include:

• a structured escalation process (management meeting → mediation)
• chairperson casting vote (if appropriate)
• buy-sell mechanisms (where one party offers to buy the other out at a set price, with the other party able to accept or reverse the offer)
• sale of the company as a last resort

This isn’t about expecting failure - it’s about avoiding the situation where the business cannot move forward because nobody has the legal power to break the tie.

IP Ownership: Who Owns What You Build Together?

Many joint ventures create valuable IP. If ownership isn’t clear, you can end up with both parties believing they own the same asset - or worse, nobody can commercialise it without the other’s consent.

Common approaches include:

• the JV company owns all IP created by the JV (cleanest for scaling)
• one party owns the IP and licenses it to the JV (common where pre-existing tech is involved)
• joint ownership (often messy in practice unless carefully drafted)

There isn’t a one-size-fits-all answer, but you do want the answer written down.

Employment And Contractors

If the joint venture company hires staff or contractors, make sure the JV (not an individual shareholder) has proper agreements in place, and that responsibilities for payroll, management, and HR processes are clear.

This is especially important where the JV is relying on secondees or shared resources. If you’re unsure whether someone is an employee, worker or contractor, it’s worth getting advice early - misclassification can create tax and employment law risks.

Key Takeaways

• A joint venture company is typically a new limited company owned by two or more parties collaborating on a defined commercial goal.
• Before you incorporate, consider whether a contractual joint venture could achieve the same outcome with less complexity.
• When you set up a joint venture company, get alignment early on contributions, control, funding, and how profits and losses are shared.
• A well-drafted shareholders agreement is usually essential to manage governance, deadlock, exits, and dispute scenarios.
• Be crystal clear on ownership and licensing of IP, customer relationships, and data from day one to avoid expensive disputes later.
• Plan for the hard stuff (additional funding, conflicts of interest, deadlock, and exit) while the relationship is still positive.

If you would like help setting up a joint venture company or putting the right agreements in place, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.