Forms of joint activity of companies

Contents:

• Features of united companies
• Members of the merged companies have the following rights:
• Goals and objectives of the creation of the association
• Forms of joint activity of companies
• Taxation of a joint venture
• Accounting for profit and loss in taxation
• Is it possible to optimize taxes?
• How to pay VAT

An association of companies is a form of economic activity that involves the presence of several organizations. The association is necessary to create a single organism for the coordination of their industrial, scientific and other activities, as well as to solve joint economic and social problems. In essence, this is what is called the joint activity of companies.

The merger of companies is carried out by firms voluntarily and by the decision of the relevant responsible authorities. Residents and non-residents of the Russian Federation can participate in the transaction.

In this article, we will tell you in detail how and why different companies can merge.

Features of united companies

When merging companies, it is important to take into account that such a partnership can be created for an indefinite period or a period prescribed in the contract. As a rule, the second option involves achieving certain economic or legal goals to continue independent work in new circumstances.

A combined company is a separate legal entity that is created on the basis of two or more companies. This form of education involves going through the state registration procedure to create a separate name, obtain a legal address, TIN and other things. It is also important to take into account the creation of a separate charter. At the same time, all companies that are part of the association are independent and retain the status of a legal entity. The management of the merged entity does not have administrative authority over the companies that are part of the association of companies and perform their functions on the basis of contracts with organizations.

Members of the merged companies have the following rights:

• Independent decision-making regarding withdrawal from the association on the terms and in the manner specified in the founding agreement on the establishment of the association or in the charter of the business association.
• Become members of other associations of companies, if it does not contradict the law, the founding agreement or the charter of the business association.
• Receive information related to the interests of the company from the business association in accordance with the established procedure.
• Become a beneficiary and receive part of the profit from the economic activities of the association.
• Other rights established by the founding agreement or the charter of the business association in accordance with the laws of the Russian Federation.
• Have an independent accounting department, a settlement account, consolidated balance sheets and maintain their own accounts as an independent legal entity.
• Have the seal of your own organization.  
• Not to be liable for the obligations of other companies that are part of the association, unless it is prescribed in the founding agreement.  

It is important to take into account that without the consent of other members of the association, the company cannot permanently withdraw from the company. This directly concerns state or municipal enterprises. In all other cases, the right to voluntary withdrawal is not limited.

Often, companies that are separate from each other cannot make a final decision on the creation of an association, because they do not understand the reasons for this step. There may be several reasons for joining:

• Similar technological and production processes.
• The development of the economy is closely dependent.
• Technical and production characteristics are improved synchronously.  
• The use of raw materials and other resources will be cheaper and more efficient if combined.
• Diversification of assets and sales markets.

Thus, the basic principles for the formation of business associations are:

• Voluntary nature.
• Equality among participants.
• Free choice of forms of doing business.
• Independent decision-making by all participants (with the exception of trusts).
• Responsibility solely for the obligations assumed by each participant upon joining the association.

Goals and objectives of the creation of the association

The main purpose of the association of any companies is the ability to coordinate production, marketing, scientific, research and other activities within one legal entity. This is especially important for solving a large number of joint economic, environmental, social and other tasks.

Such goals carry a number of advantages from the creation of an association:

• Increase in profit and profitability.
• Reduction of expenses due to joint wholesale purchases, reduction of expenses on advertising and other items.
• More confident protection of their own property, economic and legal interests.
• Increasing the level of competitiveness due to improved reputation and the scale of the business as a whole.
• Achieving the highest goals when working together.
• A simple way to organize and dissolve a combined company, which does not oblige the company to work for a long time.
• Expansion of production by combining assets.
• Increasing the resources already available to each firm.
• More stable operation due to increased scale.
• The opportunity to invite more qualified personnel and competent managers to each company.
• Great opportunities to increase competitiveness and expand the market.
• Distribution of commercial risks in case of failure of one company. It is important that financial and other mistakes do not affect the association as a whole.
• Increase in the quality of goods produced and services rendered.
• The ability to distribute the capital of the company, which is considered the parent.
• A more improved system of tax and financial administration.
• Division of activities to ensure specialization, successful work in each of the types of work.
• Creation of a system of coordination for the effective conduct of investment and financial policy.
• Combining scientific and technical achievements to obtain the best results.
• Lobbying for their interests by smaller companies.
• The ability to create an effective management system on the ground – within subsidiaries.
• Most often, each organization bears its own responsibility for debts.
• Improved investment climate.

Before achieving the above benefits, it is important to perform a number of tasks within the created association of companies:

• Increase the efficiency of activities as a result of the joint efforts of members. This is due to the development of internal cooperation of industrial, scientific, design, construction and other organizations into a single economic complex.
• Expand and stay in new markets for goods or services.
• Secure the supply of raw materials, materials, components and other resources. It is important to put this process on stream.
• Accelerate the technical development of production.

Forms of joint activity of companies

There are several forms of joint activity of companies, each of which has its advantages and disadvantages, depending on the goals and objectives that companies want to achieve. Below we list the main forms of joint activity of companies.

1. Consolidation of companies.

This is a form of joint activity in which two or more companies create a new company. The newly created firm becomes their joint property. The merger allows companies to reduce costs and increase economic power.

2. Joint venture.

This is a form of joint activity in which two or more companies jointly create a new organization to carry out a specific project or business operation. Each company contributes to the joint venture and has its own share in its ownership.

3. Concession.

This is a form of joint activity in which one company grants another company the right to operate a certain object, for example, a land plot, a mineral deposit or other property in exchange for a certain share of profit.

All conditions are prescribed in the concession agreement or concession agreement. Such a document allows the copyright holder to officially grant a set of exclusive rights for the implementation of entrepreneurial activity by another company. This list may include the right to a trademark, a service mark, or the right to a commercial designation. The document usually prescribes:

• Methods of using a set of exclusive rights.
• Subject of the agreement.
• Requirements for the quality of goods, works and services.
• The amount and methods of transfer of remuneration.

It is important to take into account that Article 1027 of the Civil Code of the Russian Federation prohibits concluding a concession agreement without a trademark. However, this does not apply to the conclusion of a commercial concession agreement. Such an agreement grants one party the right to use the results of someone else’s intellectual activity. At the same time, the presence of a trademark is not a prerequisite for signing an agreement. A commercial contract can be chosen if the business has been operating for a long time and is successful in commercial terms.

4. Franchise.

This is a form of joint activity in which one company grants another company the right to use its trademark, brand, technology or knowledge in exchange for a certain fee or a share of profit.

Today, a franchise allows you to get the right to open your own business for a fee using a ready-made brand, trademark, technologies, rules, business model of an already well-known large organization. In order to issue a franchise, it is necessary to conclude a major transaction that will give another person the legal right to use a trademark, brand name in work on the terms stipulated in the contract.

It is important to know about the three main types of license:

• Commodity. It gives the right to sell exclusively goods produced under a specific brand. It is most popular in retail and catering.
• Production. Allows you to produce goods under a certain name.  
• Business. Allows you to use someone else’s name when training partners to organize a new collaboration.

The popularity of franchising is due to the fact that franchisees actively seek to recapture the costs of building a business. Also, such businessmen strive to take a leading position in a particular niche.

5. Consortium (Consortium).

This is a form of joint activity in which several companies combine their resources to carry out a specific project. Each of the organizations retains its independence and owns its own part of the project.

In such an entrepreneurial union, the roles are distributed in a special way. Within the consortium, each participant works in the field where his success is most noticeable. The leader company is responsible for coordinating the activities, which receives a percentage in the form of deductions.

The consortium may include companies of different sizes that want to participate in a particular project, but do not have independent opportunities to do so. At the same time, membership in the union is voluntary, that is, you can leave the community at any convenient moment. Due to the fact that such a community is temporary, it cannot obtain the status of a legal entity. At the same time, the companies included in it retain the LLC.

Each consortium has the following specific features:

• The existence of an agreement on the formation of the union.
• Full preservation of the legal and economic independence of the member companies of the community.
• Absence of an administrative apparatus other than the board of directors or other supervisory authority.

The main advantage of the consortium can be called coordination of activities and long-term cooperation. Among other positive features , one can distinguish:

• A unified investment policy.
• Integration into many business processes.
• Effective work in market conditions.
• Attracting significant investments to implement capital-intensive programs.
• Frequent achievement of the set results.

6. Alliance.

This is a form of joint activity in which two or more companies cooperate to achieve certain goals, but retain their independence and independence. An alliance can be created to exchange information, experience or resources.

Today, strategic alliances help businesses create a competitive advantage through access to partner resources and capabilities. This applies to markets, technologies, capital and people. The creation of a large team allows the united entrepreneurs to increase their resources and abilities, which allows them to work more efficiently and extract more profit.

Many fast-growing companies use the creation of strategic alliances. This is facilitated by positive traits:

• Quick achievement of goals.
• Maintaining flexibility and corporate strategy.

7. Strategic Partnership.

It is an agreement between two or more companies that work together to achieve common goals. Unlike a joint venture, a strategic partnership does not create a new company, but connects the forces of existing companies.

Each form of joint activity has its advantages and disadvantages, and the choice of a specific form depends on many factors, including the goals and objectives of companies, legal and tax aspects, risks and benefits.

Taxation of a joint venture

When taxing joint companies, it is important to take into account that the combined entities become full-fledged taxpayers. However, the same rules apply to such companies as in the case of individual firms. This means that taxes are paid in accordance with the general principles of taxation, but a transition to a simplified system is allowed.

There are also grounds for reducing tax rates. This applies to the operation of international agreements, if a joint venture is established with a state that provides for a reduction in income tax rates in respect of dividends.

Accounting for profit and loss in taxation

Participants in joint activities pay tax on the joint profit received. The tax base in this case is calculated by the so-called “parent company”. It is important to take into account that according to paragraph 3 of Article 278 of the Tax Code of the Russian Federation, the person responsible for tax accounting is obliged to inform other participants about the joint venture. The data is communicated to companies using a quarterly report by the 15th of the month following the end of the quarter.

It is important to know that each participant contributes profit to non-operating income. Then the tax is calculated in accordance with the selected taxation system. With the OSN, this is the base for income tax, with the simplified tax system, it is the base subject to a single tax under the simplified taxation system.

As for losses, they are not distributed among the participants and are not taken into account in the taxation of profits. Also, the loss is not included in expenses under the simplified taxation system. The participants cover the negative results of their activities at the expense of net profit.

Is it possible to optimize taxes?

Chapter 26.2. The Tax Code of the Russian Federation makes it possible to optimize the tax base when creating partnerships as a form of organization of united enterprises. It is important that the companies that are part of the partnership apply a simplified taxation system and pay income tax. Under such conditions, the association of companies will pay to the budget not 24%, but 6%.

However, it is important to take into account that since January 1, 2006, only those companies that consider income tax according to the formula “income minus expense” can be members of a simple partnership. Thus, organizations paying 6% cannot become part of a simple partnership, which means that the tax savings amount to 9%. That is, the association can pay 15%, which in any case is significantly lower.

There is another way to optimize. It concerns the creation of a combined company with a foreign company registered offshore. In this case, a separate article of the Tax Code of the Russian Federation comes into play, which defines other rules for the payment of income tax. The rules are as follows:

• Income and expenses should be taken into account exclusively by the Russian side.
• To account for income and expenses, it is necessary to maintain a separate balance sheet.
• Funds for the purchase of raw materials and proceeds from the sale must be transferred to a separately opened settlement account.
• The received income can be distributed on the basis of the agreement of the participants or in proportion to the contributions.

With such a scheme of work, a domestic company will pay 24% of its profit. However, an offshore company will not pay such an amount to the Russian budget. She will pay tax to the treasury of the registrar country at a much reduced rate.

How to pay VAT

Since January 1, 2006, joint companies have been charged with the duties of calculating and paying VAT. This should be done by one entity of the association – a legal entity or an individual entrepreneur. The company that assumes the duties of the taxpayer must issue invoices for the goods sold. This company also uses the right to deduct VAT. Thus, another member of the association will not be able to deduct VAT even if the goods are sold. It turns out that the functions of buying and selling and VAT accounting should be taken by a single company.

It is important for a VAT taxpayer to take into account that when carrying out parallel (own) activities, these operations must be carried out on separate accounts and become the subject of separate reporting.

As for the tax declaration for joint activities, it is not necessary to submit the document to the Federal Tax Service.

When organizing a joint company and setting up an accounting policy, it is better to seek professional help. VALEN specialists are ready to advise companies on the creation and maintenance of the accounting policy of the combined company.