My business involves developing land by building townhouses and selling them on. Last year I started a joint venture with a master builder in my local area. I buy the land and he builds the house. It worked really well the first time and we want to continue doing it. If we keep on operating like this will we be classified as a partnership?
Lawyer Answers (1): Answers from lawyers are general preliminary responses. They are not formal legal advice and cannot taken account of all your circumstances. They do not create a lawyer–client relationship.
Answer by LegalEagle™ staff, Northcote VIC 3070
- It is possible that if you make this arrangement ongoing it is likely to be construed as a common law partnership rather than a joint venture.
- A partnership generally involves two or more individuals or businesses carrying on a business with a view to jointly profit.
- As the first development was just a one-off project it is unlikely to be construed as a partnership other than for tax purposes (though this will also depend on how your profit and fee arrangements are structured).
- If you continue to work together developing and selling properties and sharing in the profits jointly then your business is likely to have the degree of repetition and consistency of actions that defines a partnership.
- This will have a range of implications in terms of your liability for each other's mistakes or debts and for the way your business is taxed.