Joint Venture Liability
What are Joint Ventures?
Joint ventures are a type of business relationship that allows several individuals or business entities to pool their funds, assets, and skills for specified business purpose. A joint venture is limited to the particular purpose of the parties and will terminate once the business purpose has been completed or achieved.
Entering into a joint venture generally does not result in the creation of a new business entity such as a corporation, unless the parties specifically file for the creation of one. A joint venture is not a separate legal entity; therefore it may not hire employees, and it does not have its own tax liabilities.
Joint ventures are governed largely by contract law, since the business relationship in a joint venture is usually almost entirely dictated by the contract agreement between the various parties (the “co-venturers”). Therefore liability in a joint venture is much different than in a more formal business structure such as a corporation.
Which Parties can be held Liable in a Joint Venture?
If a third party is injured by the activities of a joint venture, all of the parties involved may be held equally liable. For example, assume that joint venture was formed to produce a product. If a consumer was injured by the product, each of the participants in the joint venture may be held individually liable for the consumer’s injury.
The principle of “limited liability” does not automatically apply to joint ventures. Limited liability is a legal doctrine that allows participants in a business project to avoid legal liability for injuries or losses in connection with the project. Limited liability only applies where a new business entity is formed through the agreement of the parties. The new business entity will be liable for injuries or losses caused by the project, and not the individual contributors.
Therefore, many business ventures are achieved through the formation of a formal business entity rather than a joint venture, such as a limited liability corporation (LLC) or limited liability partnership (LLP). These types of structures allow the individual parties to avoid liability on the whole venture, although the formation of such structures usually involves extra costs.
Are there any Exceptions to Joint Venture liability rules?
Yes- the National Cooperative Research Act allows limited liability in some joint ventures related to joint research and development efforts. These protections are generally applied in anti-trust violations. Some laws also extended limited liability protection to some joint ventures that deal with production.
The laws governing joint ventures may vary according to region. You may wish to consult with an attorney to determine whether these liability protections apply to your particular joint venture.
Do I need a Lawyer for Joint Venture Liabilities?
As mentioned, joint ventures are highly individualized projects that are governed largely by the contract agreement between the co-venturers. Therefore, you should consult with a lawyer before entering into such an agreement, so that you understand how the contract will affect your own interests. Also, in the event of a dispute over liability or other issues, a business attorney can represent you in court.
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Last Modified: 08-22-2012 03:20 PM PDT
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