What is a San Diego Joint Venture?
Under California law, a joint venture is a type of general partnership. Like a partnership, California case law defines a joint venture as an undertaking by two or more persons or entities to jointly carry out a single business enterprise for profit. While not a defining characteristic, joint ventures usually involves a single business transaction with an expectation of a limited duration, whereas partnerships usually involve a continuing business expected to operate indeﬁnitely into the future.
Under the case law, there are basic requirements for a joint venture to exist:
- Members must have joint control over the venture (even though they may delegate management to one member or another),
- Members must each have an ownership interest in the enterprise, and
- Members must share the profits of the undertaking.
The existence of a joint venture depends on the intention of the parties and the facts of the case. Joint ventures can be formed pursuant to formal written Joint Venture Agreements or pursuant to oral statements or pursuant to course-of-dealings (that is, an agreement implied by the parties’ conduct).
As with a general partnership, each of the members of a joint venture, and the joint venture itself, are responsible for the debts and obligations of the joint venture, including any wrongful conduct of a member acting in furtherance of the venture.
All of the requirements above must exist. Thus, for example, if there is no joint right to participate in the management and control of the business, then no joint venture will be deemed to exist by the courts. That is, the mere fact that a member receives money or other consideration for services rendered or for capital contributed does not make that member joint venturer. See Simmons v. Ware, 213 Cal.App.4th 1035 (Cal. App. 2013).
California Partnership Law Applies
Since joint ventures and general partnerships are similar, San Diego courts will apply California partnership law to a joint venture. Thus, all members of a joint venture are jointly and severally liable for the joint venture obligations, irrespective of their individual member’s percent of ownership in the joint venture. Likewise, each member is liable to an injured third party for the torts of a venturer acting in furtherance of the enterprise. There is an exception where imputed liability for negligence will not be recognized.
Joint ventures are also treated as partnership for tax purposes. That is, joint ventures are “pass-through” entities.
A Written Joint Venture Agreement is Important
It is important to have a written partnership agreement. Here are some of the basics that should be included in your joint venture agreement:
- Contributions — initial and expected subsequent contributions; type and value
- Management — who controls? what rights of control?
- Dispute resolution — if the venturers are in disagreement, how are disagreements resolved?
- Limitations on who has the authority to bind the joint venture
- Separation of venturers — death or dissolution, voluntary and involuntary
- Buyout — voluntary, involuntary, appraisals, terms of payment
- Property ownership
Contact San Diego Corporation Law Today
If you would like more information about joint ventures and drafting joint venture agreements, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email.