A Joint Venture Agreement
Joseph Valof, Esq.
Joseph Valof, Esq.
A joint venture is an association of two or more individuals or business entities who combine and pool their respective expertise, financial resources, skills, experience, and knowledge in the furtherance of a particular project or undertaking. Joint Ventures are generally created for a single activity or project, and may have a limited time span. Joint Venture agreements, commonly referred to as a "JV", are typically formed either by individuals, business entities, corporations or partnerships. The contributions to the joint ventures are either in the form of money [capital], services, or physical asset(s), i.e. equipment or intellectual property [software, patents], etc., or a combination of all.
JOINT VENTURES GENERALLY:
Most joint ventures arise via an express written agreement, but could arise by the nature of the parties conduct [a non-contractual JV]. As the rights and duties of joint venturers are typically governed by the same principals that govern 'partnerships' i.e. each joint venturer has the power and ability to bind the other joint venturer personally to unlimited liability to third parties, unless of course, the JV has been incorporated as a separate business entity. It is highly recommended, therefore, that the JV be expressed by a written agreement and incorporated as a formal professional corporation.
TYPES OF JOINT VENTURES:
Joint Venture agreements generally take one of three forms:
In a 'Contractual' joint venture, the terms, obligations, and liabilities of the parties are set forth in a written instrument signed by both parties. In a 'Corporate' joint venture, the obligations, terms and liabilities are also set forth in a written agreement, however, this agreement is a much more extensive document in that it contemplates that the JV will be incorporated and become a separate legal entity. In the 'Partnership' joint venture, the partners either form a general or limited partnership and the rights and obligations of the venturers are set forth in a partnership agreement. The Partnership form of JV is primarily used for real estate type ventures, and generally not used for a business activity contemplating either research or product development. In a non-contractual joint venture, there is no written agreement, but the JV does business under a selected name and the conduct of the parties and the law establishes the liability and obligations of the venturers to third parties doing business with the JV.
KEY DRAFTING ISSUES:
The key provisions in any JV include: (1) clearly defined business objectives; (2) the degree of participation and the management roles of each joint venturer in the business; (3) contribution of capital and ownership rights to property; (4) division of the profits and losses; (5) a dispute mechanism to avoid management impasses that may produce deadlock or litigation; (6) termination/liquidation of the JV and the buy-out provisions; (7) confidentiality; and (8) indemnification.
A FINAL WORD:
This brief is designed to give some insight into the complexities of a Joint Venture, and the resulting liability of the co-venturers. Co-venturers owe each other the highest standards of good faith, honesty and fair dealing. A comprehensive, well-crafted formal joint venture agreement would help to minimize the liability of the JV as well as for the co-venturers.