What is a Joint Venture?

Congratulations! You found a business partner with skills or assets to complement yours. The two of you are now exploring ways of structuring this new business venture. You are thinking about forming a new business, whether a corporation, limited liability company, or other entity, but you are hesitant. You know this business venture has a definite date when it will end. You also know that there are significant fees associated with filing corporate documents with the Department of State. You are also unsure because any business entity comes with tax consequences.

That’s the bad news. The good news is that you may be a perfect candidate for a contractual joint venture! A joint venture is a collaboration of two or more independent parties who join resources or skills for a commercial purpose for a specific amount of time. Frequently, joint ventures are used to enter foreign markets. However, they can have a more domestic purpose as well. Joint ventures can be a corporate entity but they can also be formed by contract as well, which makes them ideal for business projects that are not in need of all the formalities that accompany corporate entities.

By way of example, you and your best friend find a green but talented horse that the owner is almost giving away. You are a trainer and your friend has some extra money to invest. You know you can train the horse for competition and more than double your investment when the horse sells. Forming a corporation for the purposes of purchasing and training this horse will significantly cut into the profits. This may be a good situation where you use a contractual joint venture instead of a corporate entity.

In order to start your joint venture, you will need an agreement or contract to set out the terms of the joint venture. The American Bar Association has a very comprehensive list of considerations when forming a joint venture.  However, you should always consult a qualified attorney.

This blog is for informational purposes only. It does not constitute legal advise and does not constitute an attorney/ client relationship.

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