Business Law

Joint Ventures Are Created for a Specific Purpose and Time

Reviewed by Diana Fitzpatrick

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A joint venture is a type of business partnership. It is especially popular in international ventures. Forming a joint venture can help small businesses enter new markets or combine resources with a partner to accomplish business goals that neither company is capable of accomplishing alone. A joint venture should be governed by a comprehensive written joint venture agreement.

A Joint Venture Is a Type of Partnership

Generally, a partnership is automatically formed whenever two or more people or companies agree to do business together and to share profits and losses. For examples, a group of lawyers may join together, for example, to start a law firm. A joint venture differs from a typical general partnership because it is only temporary. No written agreement is necessary, and government filings aren't usually required.

In many cases, two companies form a joint venture to complete a particular project. A company that wishes to invest overseas, for example, may take on a local partner to contribute knowledge of the local market and access to business connections.

JV Agreements Should Be Comprehensive

In any business situation, it's best to have a written agreement. When there is a formal joint venture agreement, it should be comprehensive, and should include specifics such as:

  • Ownership percentages
  • Shares of profits and losses
  • Partner investment
  • Administrative responsibilities
  • Business asset sharing and transfers

And a host of other obligations of each party, including how long the venture is to last, how the venture may be terminated, and how disputes should be resolved. If the venture is international, the agreement will need to cover many other issues such as foreign currency conversion, government regulations, and import policies, and meet international business standards.

When No Formal Agreement Exists

When creating a joint venture, it is not necessary to have a written document. The relationship will be governed by default by the state where it's incorporated. These laws govern issues such as how profits are distributed. The very minimum requirements for a joint venture is a verbal agreement to jointly own and manage the venture, share profits, share losses, etc. Both parties must contribute money, services, or property to the venture.

JV Partners Must Observe Fiduciary Duties

State and federal business laws require partners in a joint venture to observe the fiduciary duties of loyalty and care, even if these duties aren't specifically mentioned in the joint venture written agreement, The duty of loyalty requires that a joint venture partner cooperate with other partners and act with the best interests of the venture. A partner may share in the profits of the joint venture, for example, but may not profit at the expense of the venture. The duty of care simply requires that partners make and execute business decisions with reasonable care.

A Lawyer Can Help

The law surrounding creation of a joint venture is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a business lawyer.

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