Joint ventures are a very specific type of business arrangement. They can be organized in several different legal structures, such as limited companies, partnerships, limited partnerships and limited liability partnerships, and used to achieve any number of particular business ends. While there is no formal state or national registration and compliance procedure to create joint ventures in the United States, these agreements are bound by tort law, and members of a joint venture are legally obligated to uphold their end of valid contracts.
Setting a Clear Legal Agreement
Domestic joint ventures in the United States fall under the governance of commercial transactions law, including all relevant partnership and contracts precedents. International joint ventures often have to comply with the rules in the jurisdiction where the home market is located. Some countries require their businesses to comply with international trade laws. The Internal Revenue Service (IRS) treats joint ventures like a partnership.
Since joint ventures are almost entirely governed by establishing legal agreements, it is imperative for businesses to set clear terms. These terms can be very flexible, but they need to be explicit and easily understood or defended in a court of law.
It is common practice for joint venture agreements in the United States to lay out the short-term business objectives of the agreement, how each company contributes to the agreement, how profits and losses are shared, how disputes are resolved and whether activity needs to remain confidential.
Avoiding Regulatory Burdens Through Joint Ventures
Oftentimes, a joint venture is created with the implied goal of bypassing licensing restrictions, regulatory risks or other legal inhibitions. In these cases, an outside business leverages the experience or permissions of another company; huge compliance costs can be avoided with the right joint venture agreement.