Joint Venture

A joint venture is a contractual undertaking between two or more entities. It is similar to a business partnership, with one key difference: a partnership generally involves an ongoing, long-term business relationship, whereas a joint venture is normally based on a single business goal, which can have a definitive beginning and an end.  The goal of a JV is for the mutual benefit of the entities involved.  Companies choose to enter a joint venture in order to share strengths, minimize risks (e.g. build or buy) and increase competitive advantages (e.g. speed to market) in the marketplace. JVs can be distinct business units (a new business entity may be created for the joint venture) or collaborations between businesses.  The structure of the JV is virtually limitless, it can have buyout provisions, ownership of new IP created by the parties or solely by the participating members of the JV.

All JVs are initiated by the parties entering an agreement that specifies their mutual responsibilities and goals. The parties have a mutual right to control the enterprise, a right to share in the profits, and a duty to share in any losses incurred. Each joint venturer has a fiduciary responsibility, owes a standard of care to the other members, and has the duty to act in Good Faith in matters that concern the common interest or the enterprise. A fiduciary responsibility is a duty to act for someone else's benefit while subordinating one's personal interests to those of the other person. A joint venture can terminate at a time specified in the contract, upon the accomplishment of its purpose, upon the death of an active member, or if a court decides that serious disagreements between the members make its continuation impractical.

The tax provisions for a JV essentially fall to the type of legal entity of the JV partners.  Any investment of capital, equipment, or services added to the JV can be thought of as an investment in a subsidiary.  Any subsequent gains or losses that are generated by the JV are then adjusted as losses or earnings on the income statement of the JV partner.

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