As the adage goes, "good contracts in business are like good fences between neighbors", and when starting a small business and considering entering into a joint venture, every business owner should seek the comprehensive counsel of a joint venture attorney. Joint ventures in business encompass the union of two or more companies in a pseudo-partnership for an explicitly defined period of time. The parties involved in a business joint venture agreement will all share liabilities, risks, expenses, and initial contribution of assets during the formation of the venture, and if successful, the mutual benefits of any revenue will also be shared according to contract agreements. The entities undergoing a joint venture together will be, in essence and legally speaking, forming an entirely new business together with all parties contributing some form of equity to the business joint venture. The structure of a joint venture company can take the form of partnerships, corporations, or limited liability corporations, but the label of "business joint venture" is a legal term to delineate explicitly the purpose, nature, and with proper contracts and agreements, the terms of the joint venture.
Legal Aspects of a Joint Venture
Within the United States, individual state laws where the joint venture partnership is formed will dictate the manner and methods the new venture must abide by law. Typically, applicable state laws and statutes to business joint ventures will include commerce laws, contract labor laws, and corporate laws of the individual state. Understanding that many businesses today have an outreach much further than state lines, the Internal Revenue Service has offered joint venture equity holders an easy process of filing their taxation information in regards to all business joint venture transactions. The federal government, for federal tax and income purposes, will treat the revenue or losses from a business joint venture similar to those of a partnership, which in turn, allows for equity holders in a business joint venture to file all income information from the venture as part of their personal income tax statement, rather than a corporate tax statement of any kind. In some instances, federal courts have ruled a business joint venture far exceeds the reach of a typical partnership agreement, and in turn, has mandated ulterior taxation methods on the basis of the venture's intentions, levels of equity, revenue or loss sharing plans, and several other uniquely applicable standards. Having a business joint venture attorney counsel clientele prior and during the operation of any business joint venture can help insure the venture against any unforeseen or undesired taxation restructuring.
When forming a joint venture, companies must meet the following state standards
- File for trade name certification with the state department of commerce
- Draw up contract or agreements defining the intent to establish a business joint venture
- Include in these contracts, an agreement on the equity control and ownership of each party
- A reasonable contribution of equity or assets by all parties involved
- Definitive agreement for the sharing of revenues and losses according to applicable local, state, and federal laws
Aside from the minimal presence of applicable state laws in most cases, the agreements and terms within which a joint venture operates is defined by the defined or implied agreements between all contributing equity partners in a business joint venture. For this reason, the implementation of a business joint venture attorney as counsel in all joint venture agreements is essential to say the least. A business joint venture attorney will not only protect and promote a company's equity interest and proprietorship in a company, but also, look to mitigate any future liability and responsibility for losses, which their clients in a given joint venture may endure.
Joint Ventures Global Impact
Although domestic business joint ventures do exist, an estimated seventy-five percent of all joint venture businesses operate on a global or international scope. Typically, one company will utilize the presence of one company in a foreign market as a means of entering that given market without the hassles and difficulties of being a completely foreign entity attempting to gain entry into a foreign market. The domestic company will then offer the foreign company a host of business relationships and pertinent government documents to facilitate the smooth entry of the joint venture into the foreign market. In instances such as this, the use of a business joint venture attorney is of the utmost paramount. Foreign business joint ventures require an intricate working knowledge of the complex arena of international trade and commerce law, as well as all the laws, regulations, taxation, and statutes pertinent to a respective foreign country as well.
Limitations of a Joint Venture
Regardless if the business joint venture operates domestically or internationally, a joint venture will face similar caveats to those found in general partnerships. Some of the similarities between general partnerships and joint ventures that will affect the individual equity investors or partners include:
- All partners prove liable, dependent on other terms of agreements, for at least their pro rata share of joint venture debts incurred
- Sharing of assets, proprietorship, and revenues can be structured flexibly according to the terms agreed upon by the parties involved in the venture
- Joint venture agreements terminate when one partner leaves or dies
- Buy-sell provisions in agreements do, however, allow for the transfer of equity interests in a joint venture to mentioned heirs
- First right of refusal clauses can cease all transfers of interest in a joint venture if present in business joint venture agreements
- If a joint venture remains with only one vested owner for a period of time, then the company no longer retains the rights to joint venture status
Using a business joint venture attorney is integral to forming a business joint venture that will promote your best interests in any contractual agreements. Additionally, exercising forethought from experience with business joint venture agreements, a business joint venture attorney can help clientele mitigate any future detrimental events regarding taxation, liability, and proprietorship in their joint ventures.
Do you need a business joint venture agreement reviewed or amended? Contact a business joint venture attorney today.
