A Joint Venture Between Two Individuals

Contents:

• Business Registration Formats
• Legality of Informal Partnerships
• Legal Forms of Partnerships Between Individuals
• Conclusion

Not everyone possesses the means or inclination to launch and manage a business independently. Often, this necessitates a partnership—an alliance with someone who fully shares your vision and is willing to share the financial burdens of establishing the enterprise. In this article, we will thoroughly explore the most pertinent forms of joint ventures for two partners.

Business Registration Format

It is not possible to register a sole proprietorship (IP) under two individuals. A sole proprietorship entails full personal liability for the enterprise, which is operated independently. For two partners working together, other organizational forms are available.

The most obvious and popular choice is a limited liability company (LLC). This structure enables two partners to pool their efforts and resources while defining their mutual relations through a charter and a founding agreement. An LLC features particular profit distribution rules for its founders, including the obligation to pay a 13% personal income tax. It is also crucial to understand that, unlike a sole proprietorship, not all profits in an LLC belong directly to the founders.

It is not permissible to open a sole proprietorship for two individuals to simplify profit distribution. Article 23 of the Civil Code of the Russian Federation allows an individual to engage in business without forming a legal entity. However, this provision applies exclusively to a single person, not a group, so a joint sole proprietorship does not exist. The status of an IP is conferred upon a specific individual; it cannot be transferred, sold, or bequeathed. When a person registers as an IP, they gain expanded rights compared to ordinary citizens, primarily the right to conduct entrepreneurial activities and earn lawful income. Nevertheless, it is important to bear in mind that the IP is personally liable for all obligations with their own assets.

Due to these factors, it is fundamentally impossible to register an IP as a joint enterprise between two individuals. The law does not provide mechanisms for distributing rights and responsibilities between two persons under this format.

Legality of Informal Partnerships

Occasionally, parties agree to register a sole proprietorship under one individual while jointly investing resources. Such an arrangement is deemed unlawful, as it constitutes direct tax evasion. Should such activities be uncovered, both parties may face liability. The registered sole proprietor risks personal asset forfeiture, while the unregistered participant may be prosecuted for engaging in unauthorized entrepreneurial activity. Essentially, this individual conducts business without official recognition as an entrepreneur. Crucially, the informal partner also risks forfeiting any share of the profits altogether.

Providing a non-targeted loan to an unregistered sole proprietor is a legally dubious practice, though it may occur in exceptional cases. Nonetheless, the loan’s purpose must be explicitly documented and used strictly for its intended objective.

Appointing the partner as an accountant or another employee within the sole proprietorship does not rectify the situation, as this does not establish an equal partnership. Moreover, this arrangement entails not only the 13% personal income tax but also an additional 30% in social insurance contributions.

Consequently, we strongly advise against employing such “grey” schemes to avoid becoming entangled in administrative or criminal proceedings. Furthermore, genuine partnerships presume equitable profit distribution, which is rarely achievable under informal arrangements.

Legal Forms of Partnerships Between Individuals

Chapter 55 of the Civil Code of the Russian Federation enumerates all permissible business structures. The partnership model—an association formed to generate profit—is ideally suited for joint ventures between partners, allowing two sole proprietors to participate. However, it is essential to note that each partner must register independently with the Federal Tax Service.

A simple partnership is not a legal entity. Its relations are governed by an agreement of joint ownership. Each partner contributes specific resources toward the establishment of the enterprise, which may include capital, property, goodwill, or business connections. Such contributions are recognized as shared fractional ownership. Each partner retains the right to enter into contracts on their own behalf that do not conflict with the interests of the partnership. Moreover, participation in multiple partnerships simultaneously is permitted. Profits from the joint venture are allocated in proportion to the contributions made, unless otherwise stipulated in the agreement. Tax obligations rest individually with each partner.

Regarding liabilities, all partners bear joint and several liability, unrestricted by the size of their contributions. In managing common affairs, any partner may act on behalf of all others. Additionally, the partners may appoint a representative responsible for conducting business operations and overseeing the accounting system.

Within the framework of the joint activity agreement, only the general taxation system (OSNO) or the simplified taxation system (USN) under the “income minus expenses” scheme with VAT payment may be applied.

Conclusion

It is impossible to register a sole proprietorship under two individuals. Should two persons wish to enter into a partnership, they may establish a limited liability company (LLC) or a joint-stock company (JSC). A simpler alternative is a partnership comprising two independent sole proprietors. Each of these options carries its own advantages and drawbacks. The paramount consideration is to select the form of collaboration that best suits both parties, meticulously prepare and register the requisite documentation, and thereafter diligently fulfill tax obligations, comply with legal requirements, and cultivate the enterprise to the mutual benefit of all involved.

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