LEGAL PERSPECTIVE: LLC & Joint Venture by Dr AbdelGadir Warsama, Legal Counsel

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Businesses are required to operate under one of several legal structures that determine the rules and regulations of the operation. As per the Company Law in Bahrain, there are 8 types of companies. LLC, recognized among them, is a kind of business structure that combines features of partnerships, sole proprietorships and corporations. LLC can consist of one or multiple members and can be operated by its members or by managers.

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A joint venture is a partnership between two or more individuals or businesses for making profit. Each partner in the joint venture contributes assets, receives profits and assumes the risks and liabilities associated with the joint venture. Joint ventures are subject to the Company Law, contract law and laws governing commercial transactions.

One important distinction between a multiple-member LLC and a joint venture, is the personal liability. A joint venture is a partnership, and partners are personally liable for partnership debts. LLC is a limited liability entity, and its owners are not personally liable for the obligations of the LLC.

LLC must be registered, approved by Ministry of Industry & Commerce and must have an approved business name. Whereas, for Joint Venture, there is no need for registration (Commercial Register) and no need for a commercial name. Legally, the partners in a joint venture, or members of an LLC, need to reach an agreement on the operation of the business. An operating agreement is the document that outlines the agreement of the members of an LLC (Articles of Association), while a joint venture agreement outlines the partners‘ agreement (Joint Venture Contract). A written agreement is not usually required, but it helps protect the interests of all parties and legal consultation may be necessary to ensure that all matters are properly addressed in the operating agreement. The terms of the Joint Venture, are to be mentioned in a contract to be agreed and understood by the contracting parties. This legal document suffices to protect the legal interests of the parties.

One primary advantage of LLCs is that, by law, members are granted limited liability. Limited liability means a member cannot be held personally responsible for the debts and legal obligations of the company. This is similar to the shareholders of corporations, who only stand to lose the value of their investment if a corporation goes out of business.

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