What is a Joint Venture?
According to California law, a joint venture exists when two or more entities or individuals combine their property, skill, or knowledge to carry out a single business undertaking and agree to share the control, profits, and losses. Joint ventures are common in business dealings when two or more entities, individuals, or established businesses decide to partake in a particular enterprise together, and is often used to facilitate a new project and pooling of resources while also dividing potential risks.
The process of establishing a joint venture is much like that of a general partnership. Specifically, like a general partnership, a joint venture does not have any filing requirements with the California Secretary of State in order to be formed. All that is necessary to form a joint venture is a written or oral agreement, or an agreement implied by the parties’ conduct. However, though a joint venture may be formed like a general partnership, a partnership relationship is usually for an ongoing, continuous business, whereas it is not unusual for a joint venture to last only as long as the project or collaboration lasts.
A joint venture is typically considered an attractive means to operate because it does not require formation documents and they are generally not subject to securities laws or franchise taxes. However, unlike a corporation or limited liability corporation (LLC), a joint venture and each of its members are responsible for the debts of the venture as well as liability arising from wrongful conduct of any venture member acting within the scope of his, her, or its authority. Each member of the joint venture may be found jointly and severally liable for any such liability. In other words, each person or business will be responsible for the entire amount of the debts until the debt is satisfied.
Because of the potential risk of liability associated with a joint venture, it is best to form an entity as the vehicle through which the joint venture will operate, such as a corporation or LLC to protect the individual members and businesses from liability.
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