What is a Joint Venture?

February 13, 2020

At its most basic, a joint venture is a temporary strategic alliance between two or more persons or entities undertaken to obtain a mutual benefit. The parties to a joint venture maintain their distinct personal or business identities, and the partnership expires after the venture comes to its natural end. The IRS treats joint ventures as partnerships for tax purposes, as a joint venture is not a distinct business entity.

Bulletproof your Joint Venture Agreement

Joint ventures are typically governed by a combination of state business, commercial, and contract law, which means protecting your business during a joint venture requires the assistance of an experienced Virginia joint venture lawyer. Speak with the top-rated Virginia joint venture attorneys at McClanahan Powers, PLLC, to protect and prepare your business for a new venture. Contact our office today at (703) 520-1326 or online to schedule your joint venture agreement review and partnership consultation.

How a Joint Venture Works

Joint ventures can encompass almost any type of business transaction or relationship. The parties to a joint venture typically have a common goal, such as the sale of a product, but find it more beneficial to achieve this goal together. For example, a small business in Virginia wishing to launch a product in Europe may form a joint venture with a business that already has storefronts in London. This saves the small business from having to register in Europe and expend resources to enter the market while the local business benefits from a portion of product sales. Joint ventures are often used in place of mergers. If one party is not open to being purchased by another but sees the potential benefits of the relationship, they can agree instead to a joint venture. Joint ventures are extremely flexible and can take many different forms; provided the parties retain their autonomy and execute a joint venture agreement, the scope of joint ventures are nearly limitless.

Joint ventures are typically formed when one party identifies a need or business goal and determines it would be more beneficial to pursue that goal in partnership with another company. The business may then research companies or individuals it can partner with to meet its needs and propose a joint venture. The parties may agree to the basics, but consulting an experienced joint venture lawyer is necessary to address the remaining details. For example, what happens if the venture isn’t successful? What if it is? When does it end? A detailed and unique joint venture agreement drafted by an experienced Virginia joint venture lawyer can address all these questions and more, protecting all parties’ interests.

Common Types of Joint Ventures

The following are some of the most common types of joint ventures utilized by businesses in the United States:

  • International Marketplace Ventures – A party in one country wishing to enter the market in another may do so in partnership with an already established business in that nation
  • Research/Knowledge Ventures – Certain major companies in the same industry may pool resources and knowledge into a research venture whereby the results can be shared and used by both parties for profit. For example, BMW and Toyota currently cooperate on alternative fuel research
  • Product Development Ventures – Two companies may work together to develop a product that can be used by both parties
  • Sales Ventures – One party provides the product while the other provides the marketplace
  • Partnership Ventures – This is a traditional type of venture whereby two parties with unique skill sets agree to work together to achieve mutual goals

Joint ventures may involve multiple parties, multiple goals, and be of unlimited duration. Some parties prefer to enter into a general joint venture and define the scope of the venture over time, while others prefer to enter into limited ventures. Long-term joint ventures are typically considered general or limited partnerships as opposed to the temporary strategic alliance contemplated by a joint venture agreement.

Legal Prerequisites to Forming a Joint Venture in Virginia

The parties to a joint venture must generally execute a joint venture agreement for legal and tax purposes. This agreement must typically set forth:

  • The nature of the venture
  • The individual parties to the venture
  • The perceived start and end date of the venture, if any
  • The scope of the venture
  • How the agreement may be modified or terminated
  • The distribution of profits and losses
  • The obligations of each party
  • Legal considerations

The parties to a joint venture should also address the principles of agency with a local attorney. The agreement should limit the scope of the joint venture such that one party to the agreement cannot legally bind or incur liability on behalf of the other outside of the scope of the agreement. For example, giving one business access to your product to sell in a storefront doesn’t mean that business has unlimited authority to bind your business to production contracts. Failing to address this in the joint venture agreement may result in unanticipated liability if a parent company has apparent – even if unauthorized – authority to bind your business to an agreement.

Call Us Today to Schedule a Consultation with a Virginia Business Lawyer

Some businesses form shell companies to hold joint venture contracts while others wish to hold the joint venture agreement directly. While forming a legal joint venture in Virginia can be simple and inexpensive, always do so with the help of an experienced joint venture agreement attorney at McClanahan Powers, PLLC, to protect your personal and business interests. Forming a shell company, LLC, or limited partnership prior to entering into a joint venture agreement may be the best option for protecting your business from serious losses and liabilities. Prepare for success with the help of the top-rated Virginia joint venture formation attorneys at McClanahan Powers, PLLC, by calling (703) 520-1326 or contacting us online.