Fiduciary Responsibilities: Joint Ventures Text Size:

A joint venture is a legal organization that takes the form of a short-term partnership in which two or more persons jointly undertake a transaction for mutual benefit or profit. Generally each person contributes assets and shares risks. Like a partnership, joint ventures can involve any type of business transaction, and the parties involved can be individuals, groups of individuals, companies or corporations.

Joint ventures are governed by state partnership, contracts and commercial transactions law. A joint venture is also treated like a partnership for federal income tax purposes.

Joint venturers, like copartners, are legally obligated to conduct themselves in a certain manner with respect to their fellow venturers while the enterprise continues. These obligations are called fiduciary responsibilities or duties. The fiduciary duty is a legal relationship of confidence or trust between two or more individuals. Joint venturers must be loyal, cooperative and use reasonable care.

A member of a joint venture owes the duty to the other members of the venture to cooperate with them and to exercise reasonable care and skill to effectuate the purposes for which all have joined, and the duty not to disrupt or abandon the venture for the purpose of obtaining benefits for him or herself and not to do any act which obstructs the carrying on of its business to a successful conclusion.

When Fiduciary Obligations Begin

These obligations begin with the opening of the negotiations for the formation of the venture, apply to every phase of the business undertaken and continue until the enterprise has been completely wound up and terminated. Thus, at the outset, there is a duty of full and faithful disclosure.

Violations of Fiduciary Duty

Someone who is contemplating the formation of a joint venture may not purchase property at a low price and then resell to the venture at a profit. One venturer may not purchase property which was originally the object of the venture for his or her individual account. Also, at the termination of the joint venture, the venturers must wind up the venture in a way that will not damage the venturers' interests or result in a loss to the venture.

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