Joint ventures are a type of partnership that allow two or more people or companies to accomplish business goals that neither can accomplish on their own.  Particularly popular in business ventures which are international, joint ventures are often created not for the overall scope or success of the businesses, but to complete one particular project.  A good example of this would be if one company takes on a local partner who has knowledge of and/or access to business connections overseas, and that company wants to invest overseas.  In most cases, companies that engage in a joint venture share in both profits and losses.

With a joint venture, it is not necessary to have a written agreement; most joint ventures are temporary.  However, it is to both companies’ advantage to have a comprehensive written agreement which covers such specifics as administrative responsibilities, percentage of ownership, shares of profits and losses, partner investments and the sharing and transfers of business assets.  In the case of international joint ventures, such obligations such as government regulations, import policies and foreign currency conversion should be addressed.  Other considerations for a written agreement include how disputes should be resolved, how long it is expected the venture will last, and termination of the venture.

What happens when their is no formal or written agreement in a joint venture?

Because it is not necessary to have a written agreement, the relationship between the two people or entities are typically governed by the state where the joint venture is incorporated.  The way profits are distributed will be governed under the laws of that state.  At the very least, a verbal agreement is made so that both parties agree to share profits and losses, contribute services, property, or money, and to own/manage the venture.

Fiduciary duties must be observed by JV partners

Even when fiduciary duties of loyalty and care are not mentioned in a JV written agreement, partners must observe these duties under state and federal business laws.  Simply stated, partners are required under the duty of care to make business decisions and execute those decisions with a reasonable amount of care.  Partners may share in joint venture profits, but either partner may not profit on his or her own at the expense of the venture.

As is evident, creating a joint venture is not a simple matter, and in fact is quite complex.  Additionally, each unique situation is different.  If you are considering a joint venture, it is in your best interest to consult with an established and trusted Los Angeles business attorney.