A joint venture is a business relationship entered into by two or more independent business entities to create a completely new partner relationship for a specific purpose or project. Each member invests capital in the venture, provides management support for the venture, and participates in the profit or loss of the venture.
Particular agreements and relationships may also be classified as joint ventures. The following are a few examples:
- Purchase and sale of personal/real property: Generally, agreements by which two or more persons join in purchasing property for resale with a provision for sharing the resulting profits or losses are in the nature of joint ventures, if they are not sufficiently broad in scope to amount to partnerships[i]. Here the parties should have the requisite intent to form a joint venture. Also, they should make a joint effort to combine their money or property for a common goal.
- Securities: Agreements to buy and sell stock or bonds are deemed to be joint ventures where it appears that the transactions are to be joint and that there is to be a sharing of profits or losses. However, for considering it as a joint venture, there should be a specific understanding that the transaction is to be joint, with a division of profits from the sale[ii].
- Use or rental of personal property: The use of property may be placed in a joint venture. Thus, the owner of construction equipment and a company which rented out such equipment to third parties in return for a share of the profits are joint ventures.
- A contract for the subdivision and improvement of real property, and for the sharing of the resulting profits, may be in the nature of a joint venture.
- Oil and gas operations: Projects conducted for the development of oil and gas wells may be deemed to be joint ventures. Also, an agreement between adjoining landowners, as lessees and royalty owners, for the recovery of secondary gas and oil which was to be shared, regardless of where it was produced, in amounts proportionate to the parties’ holdings in the pooled land constitutes a joint venture[iii].
- Exploitation of intellectual property; patent or patented article: A written agreement between an inventor and another party for the production of the invented article for commercial purposes, which provides that the other party should arrange for the payment of the necessary expenses for getting the article into production, including the expense of putting it on the market, amounts to a joint venture agreement[iv].
- Copyright, literary property, or theatrical production: A person producing a play under a license and who divides the receipts with the licensor is subject to the fiduciary obligations of the character of those imposed on joint venturers[v]. A joint venture also arises where one person loans money to another to finance a show and is to receive an undivided one-half interest in the proceeds derived from the show or where one party, for the purpose of producing a play, acquires financing supplied by other parties on the conventional basis of taking their pro rata shares of the profits to be earned from the play.
- Relationships between agents or brokers: Agents or brokers employed to effect a sale by their united efforts and who are to be compensated by the excess of the sale price over a stipulated sum, are deemed to be engaged as between themselves in a joint venture[vi].
- Relationships between attorneys at law; fee-splitting agreements: Attorneys who do not have a general partnership relationship may be regarded as joint venturers where they jointly undertake to represent a client in a case. In order for a joint venture to exist between two attorneys working together to represent a client, all the elements of a joint venture must be present; thus, where both attorneys wrote the pleadings in the case, conducted discovery, paid the expenses, and agreed to the settlement that was reached, there is sufficient joint control.
- Relationship under combination to exercise option: Agreements by which two or more persons combine to exercise options of various sorts constitute joint venturers where the agreements provide for some form of joint contribution to the enterprise and some sort of joint proprietorship in it with a sharing of the profits to be derived from it[vii]. Thus, an agreement between two real-estate salespersons where one of them would obtain an option to purchase certain real property and where they would work together to procure a purchaser for the property during the life of the option at a price in excess of the option price and divide the profits amounts to a joint venture.
A disinclination to assume the burdens of a joint venture does not necessarily preclude the creation of that relationship, since the substance of the legal intent rather than the actual intent may be controlling. The status may be inferred from the purpose of the enterprise and the acts and conduct of the parties in relation to the engagement, which in some cases may speak above the expressed declarations[viii].
[i] Mid-Columbia Production Credit Ass’n v. Smeed, 171 Ore. 140 (Or. 1943).
[ii]Riordan, Kauder & Co. v. Coughlin, 226 A.D. 97 (N.Y. App. Div. 1929).
[iii] Schmude Oil Co. v. Omar Operating Co., 184 Mich. App. 574 (Mich. Ct. App. 1990).
[iv] United Tool & Mfg. Co. v. Gray, 264 Mich. 566 (Mich. 1933).
[v] Underhill v. Schenck, 238 N.Y. 7 (N.Y. 1924).
[vi] Arnold v. Humphreys, 138 Cal. App. 637 (Cal. App. 1934).
[vii] Tufts v. Mann, 116 Cal. App. 170 (Cal. App. 1931).
[viii] Albina Engine & Machine Works, Inc. v. Abel, 305 F.2d 77 (10th Cir. Okla. 1962).