A joint venture is a specific type of business relationship that is formed for a specific purpose, for a limited period of time. The partners in a joint venture may include two or more individuals or business entities. These parties unite their interests through a joint venture agreement or contract in order to achieve their particular purpose.
A joint venture is different from a general partnership in many respects. Joint ventures are usually entered into for one specific purpose, and will usually terminate once the project is completed. In contrast, a general partnership may be formed for several different projects or aims, and may continue indefinitely until one of the partners expresses a desire to dissolve the entity. However, the various business and fiduciary duties of the parties to a joint venture are to the same as those of a partnership.
Joint ventures may involve the cooperation of several different individuals, corporations, and business entities. Each of the partners in a joint venture owes the other partners a basic fiduciary duty to exercise reasonable care in all of the activities connected with the joint venture. The fiduciary duty requires the parties to:
- Cooperate with the other parties in order to reach their stated business goals
- Utilize the appropriate degree of skill and care when performing individual tasks
- Avoid disrupting or thwarting the aims of the joint venture
- Inform the parties of business opportunities and important decisions of interest to the joint venture
- Exercise diligence and prudence when investing shared funds
- Avoid actions which are motivated by personal gain and hurt the joint venture
Fiduciary responsibility in a joint venture begins at the formation of the venture. At the very outset, each party has a duty to faithfully and fully disclose information that may be necessary for the project. The fiduciary duty continues to exist through completion of the joint venture. Fiduciary duties only terminate after the business venture has been completely terminated and “wound-up”.
Many of the breaches of the fiduciary duty involve the misappropriation of funds and assets that are dedicated solely for the joint venture. For example, one of the companies may withdraw funds from a shared account for the benefit of their own organization. Remedies for such violations may include: Reimbursing the joint venture organization for any funds that were obtained without authorization
- Reimbursing the parties for any losses caused by violations. The joint venture may sometimes be reimbursed for future losses of profits or opportunities.
- Paying for damages in connection with breach of contract or statutory violations
- In some instances, criminal charges may be filed if the breach of fiduciary duty was motivated by illegal or criminal intent.
Additionally, the joint venture agreement between the parties may contain guidance on how to remedy violations.
Entering into a joint venture can be an efficient way to accomplish a stated business purpose. However, joint ventures can involve several different persons or business entities, some of whom may have competing interests. So, it is important to consult with a corporate lawyer so that your own interests and assets are protected. Your attorney can help oversee documents to make sure that the aims and limitations of the joint venture are properly indicated.