A joint venture – commonly referred to as JV – is an arrangement wherein two or more individuals or businesses join forces to achieve a common goal. Each individual or business entity associated with the joint venture is required to contribute their assets, manpower, technical expertise, or other resources in order to achieve the goal. In this post, let us take a look at five of the most commonly asked questions about joint ventures.
What are the Two Types of Joint Ventures?
A joint venture can be contractual or equitable. The former is established based on a contract and governed by the terms of the contract. The latter is established as a separate business entity and governed by the state and federal laws and regulations applicable to it.
What Are the Key Elements of a Joint Venture Agreement?
The key elements of a joint venture agreement include:
- The names of the joint venture partners, their role in the JV, and the degree of control they have over the JV
- The goals to be achieved
- The timeframe within which the goals are meant to be achieved
- A resource-sharing plan between the parties
- A profit-sharing plan between the parties
- A loss-sharing plan between the parties
Is a Joint Venture the Same as a Partnership?
Yes and no. A contractual joint venture is generally established for the purpose of completing a particular project or accomplishing a specific goal within a specified period of time – after which the parties involved might no longer associate with each other.
A partnership, on the other hand, is a long-term business relationship between two or more parties with common interests and common goals.
Similarly, the partners involved in a legal partnership owe fiduciary duties towards each other. The parties involved in a contractual joint venture, on the contrary, do not owe fiduciary duties towards each other. They are only required to work with each other in good faith – which is not the same level of standard as fiduciary duty.
At the same time, there can be an overlap between a joint venture and a partnership in some cases. For instance, under an equitable joint venture agreement, the parties involved can form a new legal entity in order to collaborate with each other and achieve their goals. The new entity could be an LLC, partnership, or corporation – depending on their needs.
How Are Joint Ventures Taxed?
In a contractual joint venture, each joint venture partner is required to pay taxes on their share of the profits. In an equitable joint venture, the parties involved will be taxed depending on the business entity they create.
Do Joint Ventures Protect the Parties Involved Against Liability?
Again, it depends. A contractual joint venture relationship does not provide any sort of protection against liability to the parties involved. They can be held liable for the damages resulting from their mutual undertaking.
On the other hand, an LLC or a corporation formed under an equitable joint venture agreement can protect the parties involved from potential liability issues.
Looking to Form a Joint Venture in Texas? We Can Help You.
If you are looking to set up a joint venture in Texas, the business law attorneys at Kelly Legal Group can help you. We bring unparalleled legal expertise and decades of combined legal experience to the table and can help you with forming a joint venture, drafting the necessary agreements, and taking care of all the paperwork involved, all while providing you with the advice you need at every step of the process.
To discuss the legal or financial issues related to joint venture partnerships with an accomplished Texas business law attorney, call us today at 512-505-0053 or contact us online and schedule a free consultation.