What are the benefits for a shareholder to a joint venture in financing the joint venture company using debt, such as loan note or loans, as opposed to solely equity?

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Produced in partnership with Julian Henwood of Gowling WLG

Published on: 17 March 2017

There are two principal advantages in funding a joint venture company by way of debt rather than equity. However, these advantages need to be carefully evaluated in the light of tax issues.

The first advantage is that loans may carry interest, either at fixed or variable rates. Interest may be paid by the joint venture company from any available funds (unlike dividends on shares, which may be paid only from net realised profits). Furthermore, interest payments will usually (subject to the precise circumstances) be deductible in calculating the joint venture company's taxable profits, whereas dividends would never be deductible expenses.

However, this basic position may be affected

Jurisdiction(s):

United Kingdom

Key definition:

Loans definition

What does Loans mean?

occupational pension scheme resources may not at any time be invested in an employer-related loan. In accordance with section 40 of the Pensions Act 1995, employer-related loans are: loans to the employer or any such person; shares or other securities issued by the employer or by any person who is connected with, or an associate of, the employer; or employer-related investments eg a guarantee or security for obligations of the employer. This does not apply in respect of small self-administered schemes (SSASs) and self-invested pension plans (SIPPs).

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