Joint Venture
3. Joint Ventures
Authors: Staff Legal Eagle
Firm / Chambers:
Last updated: 08 Aug 2015
- A joint venture is a relationship between two individuals or businesses that enter into an agreement to work alongside each other to achieve a common commercial goal while still maintaining their independence as two separate businesses. The joint undertaking will have the aim of obtaining a mutual benefit of some description.
- Throughout the course of a joint venture each business will share agreed resources, skills and knowledge to reach the common goal.
- Usually a joint venture is established for a specific project and for a fixed time. In this way joint ventures are usually short term relationships.
- Sometimes only one particular branch of a business will be involved in the joint venture rather than the entire business.
- There is no settled legal definition for joint ventures however a number of common characteristics have been pointed out by the courts. A joint venture usually involves each participant:
- exercising a level of joint control over the project or undertaking;
- holding interests in the joint assets of the venture;
- contributing finances, skills or knowledge to the venture but not necessarily in equal proportions to each other;
- possessing rights and obligations severally rather than jointly and severally; and
- engaging in the relationship with a view to mutual commercial benefit.
- The joint venture business structure is often confused with a partnership structure. Despite some similarities these are in fact different business structures.
- A partnership occurs where two or more people ‘carry on a business’ with a view to profit jointly. Carrying on a business implies repetition of certain acts and continuity. A joint venture may not always involve carrying on a business with any regularity or continuity. It can be a one off purpose or project. It is important to note that this factor alone will not distinguish a partnership from a joint venture. Many other considerations will be taken into account.
- Partners are considered jointly and severally liable but participants in a joint venture are usually only severally liable. This means that if a claim is made against the joint venture the liability will usually only affect the party who caused the claim to arise rather than to all parties equally. The liability can be 'severed' from the group.
- Usually the outcome or product of the joint venture is taken or sold by each participant separately rather than each sharing a percentage of the profits made. The 'benefit' may not be profits but for example:
- information;
- access to markets; or
- increased lobbying power.
- While each participant may contribute property to the joint venture the ownership of the property is retained by the individual business. In a partnership the property is often owned jointly by all partners.
- The activities of the joint venture relationship are often carried out by a specifically appointed manager and not by the participants themselves. This manager is considered an agent for each participant.
- A joint venture can be incorporated or unincorporated. This legal guide focuses mostly on unincorporated joint ventures.
- It is important to ensure that you obtain legal advice about how your particular enterprise can operate within a joint venture framework. Even if you intend to establish a joint venture the law may find that you are actually engaged in a partnership. Your rights and responsibilities as a partner may be significantly more onerous than as a participant in a joint venture.
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