Joint Venture

JOINT VENTURE

An association of two or more individuals or companies engaged in a solitary business enterprise for profit without actual partnership or incorporation; also called a joint adventure.

A joint venture is a contractual business undertaking between two or more parties. It is similar to a business partnership, with one key difference: a partnership generally involves an ongoing, long-term business relationship, whereas a joint venture is based on a single business transaction. Individuals or companies choose to enter joint ventures in order to share strengths, minimize risks, and increase competitive advantages in the marketplace. Joint ventures can be distinct business units (a new business entity may be created for the joint venture) or collaborations between businesses. In a collaboration, for example, a high-technology firm may contract with a manufacturer to bring its idea for a product to market; the former provides the know-how, the latter the means.

All joint ventures are initiated by the parties' entering a contract or an agreement that specifies their mutual responsibilities and goals. The contract is crucial for avoiding trouble later; the parties must be specific about the intent of their joint venture as well as aware of its limitations. All joint ventures also involve certain rights and duties. The parties have a mutual right to control the enterprise, a right to share in the profits, and a duty to share in any losses incurred. Each joint venturer has a fiduciary responsibility, owes a standard of care to the other members, and has the duty to act in good faith in matters that concern the common interest or the enterprise. A fiduciary responsibility is a duty to act for someone else's benefit while subordinating one's personal interests to those of the other person. A joint venture can terminate at a time specified in the contract, upon the accomplishment of its purpose, upon the death of an active member, or if a court decides that serious disagreements between the members make its continuation impractical.

Joint ventures have existed for centuries. In the United States, their use began with the railroads in the late 1800s. Throughout the middle part of the twentieth century they were common in the manufacturing sector. By the late 1980s, joint ventures increasingly appeared in the service industries as businesses looked for new, competitive strategies. This expansion of joint ventures was particularly interesting to regulators and lawmakers.

The chief concern with joint ventures is that they can restrict competition, especially when they are formed by businesses that are otherwise competitors or potential competitors. Another concern is that joint ventures can reduce the entry of others into a given market. Regulators in the justice department and the federal trade commission routinely evaluate joint ventures for violations of antitrust law; in addition, injured private parties may bring antitrust suits.

In 1982 Congress amended the sherman anti-trust act of 1890 (15 U.S.C.A. § 6a)—the statutory basis of antitrust law—to ease restrictions on joint ventures that involve exports. At the same time, it passed the Export Trading Company Act (U.S.C.A. § 4013) to grant exporters limited immunity to antitrust prosecution. Two years later the National Cooperative Research Act of 1984 (Pub. L. No. 98-462) permitted venturers involved in joint research and development to notify the government of their joint venture and thus limit their liability in the event of prosecution for antitrust violations. This protection against liability was expanded in 1993 to include some joint ventures involving production (Pub. L. No. 103-42).

further readings

Harrigan, Kathryn Rudie. 1986. Managing for Joint Venture Success. Lexington, Mass.: Lexington Books.

Levins, Cary, and James S. Lawlor. 1988. "Legal Considerations of Joint Ventures." In The Handbook of Joint Venturing. Edited by John D. Carter, Robert F. Cushman, and C. Scott Hartz. Homewood, Ill.: Dow Jones–Irwin.

Practising Law Institute (PLI). 1996. Joint Ventures: Practices in Search of Principles, by Stephen V. Bomse. January–February. Corporate Law and Practice Course Handbook series, PLI order no. B4-7134.

——. 1996. Monopolies and Joint Ventures, by William T. Lifland. Corporate Law and Practice Course Handbook series, PLI order no. B4-7128, May–July.