Joint Venture Fiduciary Duties
What is the definition of a Joint Venture?
A joint venture is a specific type of business relationship that is formed for a specific purpose, for a limited period of time. The actors or parties in a joint venture may include two or more individuals or business entities. These parties unite their interests through a joint venture agreement or contract in order to achieve their particular purpose.
A joint venture is different from a general business partnership in many respects. Joint ventures are usually entered into for one specific purpose, and will usually terminate once the project is completed. In contrast, a business partner may be formed for several different projects or aims, and may continue indefinitely until one of the partners expresses a desire to dissolve the entity.
However, the various business and fiduciary duties of the parties to a joint venture are similar to those of a partnership. Joint ventures are governed by a variety of state laws which cover both the contracts and transaction aspects of the business. For federal tax purposes, joint ventures are treated like a partnership.
What are the Fiduciary Duties involved in a Joint Venture?
Joint ventures may involve the cooperation of several different individuals, corporations, and business entities. Each of the participants in a joint venture owes the other parties a basic fiduciary duty to exercise reasonable care in all of the activities connected with the joint venture. The fiduciary duty requires the parties to:
- Cooperate with the other parties in order to reach their stated business goals
- Utilize the appropriate degree of skill and care when performing individual tasks
- Avoid disrupting or thwarting the aims of the joint venture
- Inform the parties of business opportunities and important decisions
- Exercise diligence and prudence when investing shared funds
- Avoid actions which are motivated by personal gain
In other words, each actor in a joint venture is expected to conduct their tasks in a manner that is cooperative and demonstrates loyalty to the overall project. Some joint ventures may require the participants to contribute a certain percentage of capital in order to get the project started.
When do Fiduciary Duties in a Joint Venture apply?
Fiduciary responsibility in a joint venture begins at the opening negotiations for the formation of the venture. At the very outset, each party has a duty to faithfully and fully disclose information that may be necessary for the project.
The fiduciary duty continues to exist throughout the entire process and applies to every phase of the business undertaking. Fiduciary responsibilities only end after the business venture has been completely terminated and “wound-up”.
Actually, the duty to exercise fiduciary responsibility is probably most important during the winding up phase, where the profits and assets are distributed to the parties according to the contract provisions. It is during these final stages where many disputes occur over financial matters.
What are the Remedies for a Violation of Fiduciary Duties and Responsibilities?
Most violations of fiduciary duties involve the misappropriation of the funds and assets that are dedicated solely for the joint venture. For example, one of the companies may withdraw funds from a shared account for the benefit of their own organization. Remedies for such violations may include:
- Reimbursing the joint venture organization for any funds that were obtained without authorization
- Reimbursing the parties for any losses caused by violations. The joint venture may sometimes be reimbursed for future losses of profits or opportunities
- Paying for poorly made investments or other business errors
- Paying for damages in connection with breach of contract or statutory violations
- In some instances, criminal charges may be filed if the breach of fiduciary duty was motivated by illegal or criminal intent
Thus, the remedy for most violations of fiduciary duties will require the party in breach to make up for the losses out of their own pockets. Also, the contract agreement between the parties may contain instructions for how to remedy violations.
Do I Need a Lawyer for Disputes involving a Joint Venture?
Entering into a joint venture can be an efficient way to accomplish a stated business purpose. However, joint ventures can involve several different persons or companies, some of whom may have competing interests. Thus, it is important to consult with a business lawyer so that your own interests and assets are protected. Your attorney can help oversee documents to make sure that the aims and limitations of the joint venture are properly indicated.
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Last Modified: 03-15-2011 11:46 AM PDT
