Corporate Governance

The term “joint venture” is frequently used without appreciation of its meaning. The risk in this is that two parties may unintentionally create a partnership and expose themselves to the acts/omissions of their partner.  Generally speaking, partnerships are ongoing business relationships between two or more parties where assets, debts, confidential information, profits and business responsibilities are shared more-or-less freely within the business over an extended period of time. Joint ventures are more commonly used for “one-off” projects or a well defined series of projects where each joint venture party maintains greater independence but defines exactly what contribution they will make to the joint venture.  This is often set out in the joint venture agreement, where the parties often account for: (i) how funds will be contributed to the operation; (ii) how profits and losses will be allocated; (iii) whom will exercise operational control of the joint venture; (iv) what patents, personnel or other private expertise of a party will be contributed; (v) protection of confidential information; and (vi) dispute resolution mechanisms.

Partnerships typically conjure up greater trust between the parties, which also carries with it greater risk. Each partner is considered to be the agent for other partners, which means that an innocent partner may face liability for an act of its partner. Joint ventures are not completely immune to this, but the parties can often protect themselves to a greater degree and there is less expectation that a joint venture party is agent on behalf of the other joint venture parties