Joint Venture Liability

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 What Are Joint Ventures?

Joint ventures are special types of business relationships between individuals or business entities. Businesses can pool their resources together for a specific business purpose. Most resources include:

  • Funds
  • Assets
  • Skills

A joint venture is limited in purpose and will end 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. If businesses do want to create a corporation, then they must file for the creation of one. A joint venture is not a separate legal entity. It may not hire employees, and it does not have its own tax liabilities.

Contract laws govern joint ventures. Most joint ventures are usually dictated by a contract agreement. The parties in the contract agreement are called the “co-venturers.” 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 the parties involved may be held equally liable. For example, assume that a joint venture was formed to produce a product. If a product injures a consumer, then 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. Specifically it limits the 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.

Many business ventures are achieved through the formation of a formal business entity rather than a joint venture. Common business entities, such as:

These types of structures allow the individual parties to avoid liability on the whole venture. Liability may be limited, but 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.

Should I Get a Lawyer for My Joint Venture?

Yes. Joint ventures are highly individualized projects that are governed by the contract laws. An experienced corporate lawyer can help you draft an agreement and help you understand your rights. Also, in the event of a dispute over liability or other issues, a business attorney can represent you in court.

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