Joint ventures between two existing entities form in many different ways. Most of the time entities agree to work together for a distinct purpose. As you will see stated below in more detail, regardless of which form the joint venture takes, many issues must be considered and agreed upon. A failure to anticipate and address issues may result in a breakdown of the joint venture, conflict in the company, and even litigation. 

A joint venture is a limited type of business relationship where two or more parties agree to share funds, resources, and skills to undertake a particular business. Joint ventures are usually not transferable and do not involve the creation of a new entity unless one is filed for. 

The business relationship in a joint venture will typically last anywhere from 5 to 7 years. Joint ventures are formed with a unique business goal in mind and are generally dissolved once the specific goal has been achieved. The laws covering business formation and dissolution may vary according to where the lawsuit is filed. In a joint venture, each of the entities is responsible for profits, losses, and costs associated with it. But each venture is its entity, separate from the participants’ other business interests. 

When creating a joint venture it is important to have trust between the two parties. In most cases, a joint venture will be a long relationship from which you will be working closely with individuals from both parties. That is why it is crucial to ensure you can trust both parties. As you will read below there are many different considerations to think about when starting up a joint venture.  

Some joint venture examples are listed below:

Example 1 Company A and Company B enter into a joint venture. Company A owns 45 percent of the joint venture and Company B owns 55 percent. The joint venture lasted 5 years and the total capital was worth 100 million. This would be an example of a successful joint venture.

Example 2 Company A and Company B have different skill sets. Company A produces widgets that Company B desperately needs to help his failing business. Company B has goods and land that will drastically improve Company A’s sales. Company B and Company A decide to enter into a joint venture with Company A as it is beneficial to both businesses. 

What Does Joint Venture Formation Involve?

The most important part of a joint venture is not the process itself, but instead the rationale behind creating a joint venture. When creating a joint venture there should be a common agreement and understanding between the parties for a successful joint venture to occur. However, it is very easy to overlook the fact that you will be joining another business. Some parties run into difficulties when calculating profits and other shared duties. 

It is most common for different individuals or companies to form a joint venture through a contract. The contract agreement will contain all of the relevant provisions for the entire project, from beginning to end. The contract need not be created in an official drafted agreement and sometimes a court may infer the existence of a joint venture from the circumstances, facts, and conduct related to the parties. For example, a joint venture can be formed through the court system, a memorandum of understanding, or by obtaining regulatory approval.

Some of the common elements and characteristics of a joint venture may include:

  • A communal interest and joint effort in the culture of the company and reaching the purpose of the joint venture
  • The right of each venturer to control and manage the property to be used in the venture
  • The right of each venturer to direct the policy of conduct which will guide the joint venture
  • Sharing in both the profits and losses from both ventures and whether that is agreed to before the joint venture was formed 
  • The existence of a contract between the various parties and if there are clause or conflicts of interest between either party in the joint venture
  • Equal and proportionate contributions by each party
  • Mutual sharing of risk other liabilities

Joint ventures may be created for nearly every type of business and there are no uniform guidelines that determine when a joint venture has formally been entered into. Determining whether a joint venture has been formed is usually done on a case-by-case basis and will depend on the facts of each venture. 

However, a valid joint venture agreement or contract is usually more helpful to establish the existence of a joint venture. Finally, the courts will consider the various parties’ intent to exercise control over operations more than they will consider their economic interest in the project.

How Is a Joint Venture Dissolved or Terminated?

Dissolution is the termination of a joint venture. Dissolution or termination of a joint venture will depend largely on each case and the relevant facts. Listed below are the ways a joint venture can be terminated or dissolved:

  • According to the termination or dissolution provisions in the joint venture contract, most joint venture contracts will state a date upon which the venture is to end. 
  • Because it was ordered by a court decree. 
  • At the direction of one of the venturers. Moreover, provisions regarding at-will dissolution will likely be contained in the contract.
  • The stated goals of the venture have not been met, or have already been completed.
  • The aims of the venture have become impossible to fulfill and therefore the joint venture in jeopardy.
  • There are one or more entities that disagree with the aims of the venture or have developed different business goals.
  • The market conditions could have rendered the joint venture unprofitable, inappropriate, or irrelevant.
  • Legal problems or other financial hardships have taken place.

Upon dissolution, the different co-venturers are usually entitled to profits that are proportionate to the number of contributions that they have provided. Similarly, distributions may be dictated by the terms contained in the contract and debts will also be dealt with similarly.

It should be noted that, if there are any outstanding claims or liabilities, these will likely be deducted from the party’s distributions during the wind-up phase. Finally, a party to a joint venture may be terminated from the project before dissolution if they have significantly refused to perform their duties. 

Do I Need a Lawyer for Legal Issues with Joint Venture Formation and Dissolution?

As explained above, starting a joint venture involves many moving parts that can either hurt or harm your company depending on if you have the right match. That is why it is important to be thorough and detailed when picking a partner to start a joint venture with. Furthermore, joint ventures may range from simple business collaborations to complex, large, multi-corporation enterprises. 

It is suggested that you contact a corporate lawyer if you will be involved in a joint venture. This is because many different parties and interests are always involved. Your attorney will help you with such tasks as document drafting and review and can help defend your interests in court if necessary. They will be able to guide you through your case from beginning to end.