Joint Venture Termination Laws

Joint ventures refer to types of informal business relationships in which two or more entities enter into agreements to share certain items in order to take on specific missions or business projects, including:

• Resources;
• Funds; and
• Expertise.

In the majority of instances, the business projects or missions which are undertaken by the entities in a joint venture are normally not transferable to parties which exist outside of that business relationship. It is important to note that the entities in a joint venture will maintain their separate identities during the duration of the project as well as after the project is completed.

Once the business project or mission has been achieved, the business relationship that was formed in accordance with the joint venture agreement will usually be dissolved. The only situation in which a joint venture will become a single entity is if the parties to the joint venture agree to merge to form a new company and they file the corresponding paperwork with the appropriate agent.

For example, two businesses which undertake a joint venture can agree to dissolve their separate businesses and to become a new entity, such as a limited liability company (LLC) or a general partnership. If an individual needs to learn more about the rules which govern joint ventures as well as other types of business relationships or structures in their state, they should consult with a local business attorney for further legal advice.

An attorney can assist the individual with navigating the laws and requirements for establishing joint ventures. An attorney can also explain how to dissolve joint ventures which no longer serve a purpose or that pose a threat to the individual or their company’s best interests.

What Are the Characteristics of a Joint Venture?

Joint ventures operate similarly to business partnerships. There is, however, one key difference between a joint venture and a partnership.

Partnerships are considered single entities that operate as continuous businesses for as long as they are profitable or until the parties opt to dissolve the businesses. In contrast, joint ventures only exist for as long as the shared business goal or project takes to complete.

In contrast, joint ventures only exist for as long as the shared business goal or project takes to complete. The entities involved in the joint venture also maintain their separate businesses.

Other common characteristics which joint ventures often share include:

• Agreements: The parties to a joint venture usually enter into an oral or written contract. The contract will serve as a guide for the parties involved by:
  • establishing the purposes of the joint venture;
  • outlining the duties of all interested parties; and
  • explaining the duration or estimated duration of the joint venture;
• Control: Each of the entities in a joint venture will be granted the right to control and oversee the property or funds which were contributed towards accomplishing the primary aims of the joint venture;
• Termination: Unlike a partnership, a joint venture does not automatically terminate in the event that a joint venturer becomes incapacitated or passes away;
  • In addition, a joint venturer has the power to dissolve or terminate the relationship between the entities at any point after the business transaction or project is complete; and
• Expenses and profits: In most instances, the parties involved in a joint venture will share all of the profits and expenses in equal measure;
  • However, the parties may contract to divide the expenses and profits in accordance with a preferred ratio.

What Are Some Examples of a Joint Venture?

In general, a joint venture can be used to take on numerous different types of business projects in nearly any industry. For example, two independent contractors may enter into a joint venture to combine all of their skills, resources, and funds for the purpose of obtaining a major construction contract, such as one to build a housing development or a mall.

Another example of a joint venture is when two large corporations undertake a business project in order to engage in a series of costly transactions, for example, when two car companies combine their resources in order to manufacture motor vehicles. Although the car companies would still conduct their businesses separately, the manufacturing process would be considered a joint effort to make motor vehicles.

What is Joint Venture Termination?

A joint venture termination, or the dissolution of a joint venture, is the process by which a joint venture is ended. The termination of a joint venture may occur for a number of reasons.

Some common situations in which joint venture operations may be terminated include:

• According to an agreement by all parties to the joint venture which is often pre-determined as a provision within the original joint venture contract;
• The joint venture is no longer profitable or practicable to continue; or
• If a joint venture member has become deceased or incapacitated, and there is no other individual or party to substitute for them.

In addition, if a joint venture was created to fulfill a specific purpose, for example, meeting a sales goal, then that joint venture may terminate upon the completion of that purpose. Or, if the joint venture is no longer practicable to pursue the purpose, the joint venture may terminate at the time at which it becomes impracticable to continue operations.

How Can the Parties Terminate the Venture?

If the parties to a joint venture wish to terminate the venture, there are several requirements that must be followed in order to make the termination legal. Although the specific requirements may vary by jurisdiction, they typically include:

• There must be definite intentions that the joint venture operation will be terminated;
• This intention must be clearly communicated to all parties to the joint venture contract, either through words or unequivocal acts, which are acts that are clear; and
• Notice of termination must usually be served to all parties.

What is Judicial Dissolution of a Joint Venture?

In certain cases, the dissolution or termination of a joint venture may arise by the order of a court instead of by an agreement of the parties. Pursuant to various laws, a court may grant judicial dissolution based upon different grounds, which may include:

• The existence of dissension and disharmony among the joint venture parties;
• A member of the joint venture has been shown to be of unsound mind;
• The joint venture operations can only be continued at a loss of profit;
• One of the members has consistently or willfully commits a breach of the venture contract terms;
• One or more joint venture members have been found guilty of conduct that can be considered prejudicial to the business; and
• Any other circumstance which may require dissolution, according to the discretion of the court.

A judicial dissolution may be ordered even if the members of the joint venture do not agree with the decision or when they are not ready to terminate the operations. Because of this, it is important for the parties to cooperate with one another in order to have an understanding of joint venture termination laws.

Do I Need a Lawyer for Help with Joint Venture Termination Laws?

A joint venture is often a major, complex business enterprise. Because a joint venture may involve several different parties, even a smaller joint venture project will require the assistance of a corporate lawyer.

If you need assistance with the laws governing joint ventures, especially those which govern termination and dissolution, it is in your best interest to consult with an experienced attorney. Your attorney can review your joint venture agreement and represent you in court during proceedings should any issues arise.