Joint ventures (JV) are a limited form of a partnership in that the activities are not ongoing and wide-ranging, but restricted to a specific project and transactions associated with that project. Another difference is that partnerships between two individuals are dissolved if one partner walks away. However, a JV will continue to operate once it has been setup, even if one of the members is no longer part of the venture. A JV can be a simple agreement between two people for a small project, or it can be a multi-billion dollar JV between two large corporations.
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Listed below are the critical legal aspects of JV formation and operations:
Members in a JV may be separate companies involved in related businesses. This raises the possibility of a conflict of interest between each company's own wellbeing and that of the JV. The JV is also going to be a registered company, so the board and officers of the JV have to be tasked with ensuring all members of the project keep their personal and JV responsibilities separate.
Two companies coming together to form a third company also raises the possibility of each member getting to know the other's trade secrets. The agreement needs to have confidentiality and non-compete clauses to prevent trade secret theft disputes. Both parties get a 50-50 profit share by default, but the exact share can be specified in the agreement along with the ownership percentage for each member.
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Did you know?
All parties involved in Joint Ventures can be held equally liable.
If a third party has been affected by the Joint Venture, all members of the venture will be held equally liable.