Joint Ventures Come In Different Flavors

“Joint venture” refers to lots of things. However, the framework of the arrangement is one of the most important aspects of executing it correctly. According to Freeborn & Peters, the requirements of the parties helps determine what is beneficial to each person, for instance:

A contractual partnership is not constituting a standalone lawful entity.
Certain joint ventures can take the primary type of revenue sharing agreement, a rental, a supply deal or another deal not forming a particular legal entity. Frequently these arrangements are suitable for primary ventures with an exceptionally limited objective and brief period. A possible downside is that, in a few jurisdictions, based on the scope of the parties’ partnership, a judge might enforce partnership obligations on the parties, in spite of the parties exclaiming any partnership.

A general partnership. The groups might accept to set up an unincorporated relationship to run a venture as co-owners.
An advantage of this method, in the US, is that no federal filing is necessary for a general partnership. Nevertheless, in contrast to a few of the other lawful entities explained next, the partners of a general partnership do not have the comfort of limited liability.

A limited partnership. A limited partnership is a relationship with at minimum one limited partner and one general partner. A limited partnership is created by submitting a record of limited partnership with the proper federal office. Although the general partner of a limited partnership is vulnerable to lenders of the partnership, the limited partners are not. The usage of limited partnerships have been removed for the newer, yet more versatile limited liability company (refer to below) for ventures in which the parties along with the operations are exclusively in the US. Therefore, international countries’ tax management of US Limited partnerships can be more advantageous compared to that of limited liability companies. Consequently, limited partnerships remain applicable in the international framework.

A limited liability company. For the last ten years, the most popular lawful entity in the US for creating a joint venture is a limited liability company ( “LLC” ). An LLC is an unincorporated company established by submitting a record of formation or articles of organization within a state limited liability company act. Not any of the members of an LLC is liable to a 3rd party for the responsibilities of the LLC only because of being a member. The real benefit of an LLC in the joint venture framework is their versatility. State legal guidelines typically allow joint ventures to come to an agreement on any provisions they want within the context of an LLC ruling document (i.e., the operating agreement .)

A corporation. In certain circumstances, the groups can establish a standalone organization to operate and own the joint venture. A Corporation, owned by their stockholders and administered by their board of directors, is a practice which is well-known to organizations in the least developed regions of the globe. Freeborn and Peters believes creating a corporation can be the route of least opposition whenever developing a joint venture with a foreign party that is relatively new to working with U.S. Legal agencies.

An additional organization developed within a non-U .S. jurisdiction. In circumstances in which the joint venture will do business mainly in an international court, it can be wise that the joint venture itself be an organization formed in that foreign jurisdiction. Otherwise, joint ventures frequently formulate the joint venture in the US ( via, as an example, an LLC ), which then owns 100% of an international organization that contains the significant functions of the venture.

Along with the legal entity ( or which will shape the base for the parties’ agreement, it can be beneficial to establish more entities to perform certain tax or liability protection requirements. Also, frequently a joint venture entity will get into more than one agreement with one among its joint venture members, including leases, supply deals, IP licenses and merchandise purchase contracts. The presence of such split up arrangements is a section of the total “structure” just like the formation of separate lawful entities. Regularly, a joint venture agreement will consist of a master “joint venture formation agreement” or some other record that links the entity creation and separate arrangements collectively.For more information on joint ventures, please visit Freeborn Peters.