A joint venture is an association of two or more entities combining property and expertise to carry out a single business enterprise. The entities can be corporate, governmental, or individual. A Joint Venture can be termed as a contractual arrangement between two companies, aiming to undertake a specific task. In a partnership, partners agree to share the profits and take the burden of loss incurred. However, in joint venture, it is not just profit that binds the parties together.
Basic elements constituting a joint venture are[i]:
- Contractual Agreement
- Intention to form a joint venture
- Joint Property Interest
- Joint control over the venture; and
- Shared profit and loses.
A joint venture is established through a contract between the parties. The contract may consist of two or more agreements. The agreement is entered into between individuals, or organizations. The parties enter into specific agreement to carry on an enterprise for profit. A contract, express or implied, between the parties, is essential to create the relation of joint ventures. However, little formality is necessary to the establishment of a joint venture and an agreement therefore is not invalid because of indefiniteness with respect to specifics. A formal agreement is not required to constitute a joint venture. The contract need not particularly specify or define the rights and duties of the parties. The relationship can be formed by parol agreement. Moreover, the existence of the joint venture can be inferred from the conduct of the parties, or from the facts and circumstances which make it appear that a relationship was in fact entered into[ii].
The agreement entered into between the parties must evidence the intent of the parties to enter into a joint venture. Usually a joint venture is formed for a specific purpose and for a specific limited duration. The essential test in determining the existence of a joint venture is whether the parties intended to establish such a relation. In the absence of an express agreement setting forth the relationship, the status can be inferred from the conduct of the parties in relation to themselves and to third parties[iii].
A joint venture is not merely a contractual relationship. Certain contributions are made to a newly formed business enterprise. Each member in a joint venture contributes property, asset, capital, skill, knowledge or effort for a common and specific business purpose.
Parties in a joint venture share a common expectation regarding the nature and amount of the expected financial and intangible goals and objectives of the joint venture. Usually goals and objectives are narrowly focused. Assets deployed by each participant represent only a portion of the overall resource. Each member enjoys the right of control over the other[iv].
The contract must contain a provision regarding the sharing of profit and loss. The joint venture parties share in the specific and identifiable financial and intangible profits and losses. Additionally, the members share certain elements of the management and control of the joint venture.
However, the five elements above mentioned need not be all present in a joint venture. “simply stated, a joint venture depends upon three elements: joint ownership, joint operation, and an express or implied agreement”[v].
Moreover, the elements required to establish a joint venture are essentially the same as that for a partnership[vi]. They include: agreement; sharing profits and losses; ownership and control of the partnerships property and business; community of power; rights upon dissolution; and the conduct of the parties towards third persons[vii]. Although very similar to a partnership, a joint venture is generally more limited in scope and duration[viii].
The existence or non-existence of a joint venture depends on the facts and circumstances of each particular case. Generally, no fixed and fast rule can be applied to all situations[ix].
[i] Ruppa v. American States Ins. Co., 91 Wis. 2d 628, 645 (Wis. 1979).
[ii] Estep v. Sirk, 1975 Ohio App. LEXIS 6092, 16-17 (Ohio Ct. App., Butler County Dec. 8, 1975).
[iii] Martin v. Chapel, wilkinson, Rigs & Abney, 1981 OK 134 (Okla. 1981).
[iv] Christensen v. Superior Court, 54 Cal. 3d 868, 893 (Cal. 1991).
[v] Woolsey v. Petroleum Production Management Inc.,1990 U.S. Dist. LEXIS 6071 (D. Kan. Apr. 4, 1990).
[vi] Carney v. Hansell, 831 A.2d 128, 134 (Ch.Div. 2003).
[vii] Kozlowski v. Kozlowski, 164 N.J. Super. 162, 171 (Ch.Div. 1978).
[viii] Nancy W. Bayley, Inc. v. Maine Employment Sec. Com., 472 A.2d 1374, 1377 (Me. 1984).
[ix] Liona Corp. v. PCH Assocs. (In re PCH Assocs.), 949 F.2d 585, 599 (2d Cir. N.Y. 1991).