# Regulatory Compliance Category > Tax Forum >  Joint ventures, VAT and income tax.

## PieterPan

Hi All

What is the profit sharing implication of a joint venture?

Do the parties invoice the J/V (14%) for the profit part or is the profit distributed without a VAT implication (like a dividend)?
Does the J/V need to be registered for income tax (if possible)?

Thanks

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## CLIVE-TRIANGLE

In SA partnership legal principles apply to joint ventures, except that it is of limited duration.
It is difficult for it to exist without an agreement in place, which amongst other things must specify the profit sharing method and ratio.
Like a partnership, profits are distributed or apportioned and is taxable in the hands of the partners. 
Like a partnership, the joint venture is not an incorporation and is not registered for tax, but it's partners must be.
The appropriation is not subject to vat.

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Blurock (29-Aug-12), Dave A (29-Aug-12), PieterPan (29-Aug-12)

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## PieterPan

Thank you Clive.

"In SA partnership legal principles apply to joint ventures, except that it is of limited duration."

Where can I get legislation regarding this.

Again Thanks.

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## CLIVE-TRIANGLE

Partnerships are not governed by statute. The legal principles are founded in common and Roman-Dutch law.

Cliffe Dekker put it this way:
Partnerships are not governed by statute. A partnership may be formed between at least two persons. In terms of the Companies Act, no unincorporated company, association or partnership may include more than 20 people (other than for certain professional partnerships).

There are no specific formalities required to form a partnership. While an agreement is usually entered into, the conduct of the parties may imply a partnership.

The requirements for a partnership are the following:

1. two or more persons agree to act jointly;
2. each makes a contribution;
3. the objective of the partnership is to make a gain; and
4. the profits of the partnership are divided between them.

No registration of a partnership is required. The formation procedure is thus flexible and informal.

A partnership does not have a separate legal personality from the partners. Each partner in an ordinary partnership is liable jointly and severally for the debts and obligations of the partnership. If a partnership is sequestrated, so too are the individual estates of the partners concerned. Should a partner however undertake to pay the partnership debt and provide security therefor, the partner's private estate can avoid sequestration.

Due to the liability of partners, certain forms of limited partnerships can be created. Limited partners are usually only partners insofar as their internal relationship is concerned and are not also liable viz a viz third parties. The limited partner is not usually allowed to participate actively in the business or to hold itself out as an ordinary partner to outsiders and only enjoys protection from liability for so long as it does not act as an ordinary partner. Limited partnerships can be in two forms:

a silent partnership – the silent partner is not represented as a partner in the partnership and does not act for the partnership. It is thus afforded protection against third parties from personal liability for the partnership debts. It does however share full risk of the enterprise and remains liable to its co-partners for debts of the partnership; and

an en commandite partnership – this limited partnership is identical to a silent partnership, save that the partner en commandite limits its liability to its co-partners for the losses of the partnership to an agreed amount, on condition it receives a fixed share of the profits.

*Partnerships are flexible and are often used as joint venture vehicles.

Many people make a distinction between the concept of a partnership and the term "joint venture". Even though many joint venture agreements explicitly state that a partnership is not created, if all the elements of a partnership are present, a partnership is created in law and treated as such.
* 

Each time there is a change in partners (due to death, insolvency or otherwise), the partnership terminates. There is no perpetual succession.

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AndyD (30-Aug-12), Dave A (30-Aug-12), PieterPan (30-Aug-12)

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## PieterPan

Thanks again
Does this apply to companies (cc’s and Pty(ltd)’s) as well as individuals acting as parties in the JV?

Regards

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## CLIVE-TRIANGLE

Yes it does.

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