Should you incorporate or set up a joint venture?

I recently wrote a blog that examined whether you should give up equity for expertise or hire in order to get it. Another either/or scenario entrepreneurs often face is whether to incorporate a new entity when partnering with an outside company or to set up a joint venture (JV).

When I first started out I regularly contemplated parterning with other companies, and I would always gravitate toward the incorporating option. I now realize this was more out of insecurity than business intelligence because I wanted to "own" everything, I was uncomfortable with my value add, and I was concerned about getting cut out of future deals.

Here's a closer look at each one.

It's cheap.
It's simple. All you require is a bank account and a short document outlining your agreement.
It's a great way to way to start a new business relationship.
If the partnership fails, there are very few costs related to parting ways.

Incorporation

It's expensive. There are incorporation fees, the need for a shareholders' agreement, and reporting fees at year end.
There may be tax savings.
Agreements are typically tighter than JVs. It's ideal if the partnership is forecasting significant revenue.

I've actually started to consider a third option: charge a management fee for expertise. It's the least risky of the three options. It's the best one for cash flow and I need to be selective about equity opportunities I invest in.

Tags: operations, process, billy hennessey, incorporate, joint, values, management, fee

Should you incorporate or set up a joint venture?

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