Key Elements of a Joint Venture

The complexity of a joint venture varies depending on its legal framework, the level of capital the parties contribute, and the total scope of the project. A joint venture can be based on a contractual relationship. It may also involve the formation of a separate legal entity that would dissolve after the project is complete. Many businesses choose this route to limit their liability for the project to the amount of their investment. Regardless of the form, the parties undertaking the joint venture are legally independent, except for the work they do together to accomplish a mutually beneficial goal of their joint venture. Both parties contribute resources and share the joint venture’s assets and liabilities. Both are involved in the project’s implementation and share its risks. If the joint venture is a separate business entity, it will pay its own income taxes based on the form of entity used. In an unincorporated joint venture, the parties who signed the joint venture agreement will account for any profits. Joint ventures carry with them a host of accounting, antitrust, intellectual property, licensing, and tax issues that need to be considered and addressed before the parties commit to the project. Since many projects fail despite the parties’ best efforts, an effective joint venture agreement will provide an exit strategy for the parties.