A joint venture is when two or more individuals or businesses enter a business relationship for a specific purpose. Joint venture members unite their skills, knowledge, or property to engage in a specific business activity. To form a joint venture, all that is needed is for the parties to enter into an agreement or contract, which can be oral or written. A joint venture is not the same as a general partnership. For example, unlike partnerships, joint ventures usually terminate after the project is completed. Partnerships can continue indefinitely until one party desires to dissolve the entity. However, the fiduciary duties of the parties to a joint venture can be the same as those of the parties to a partnership. Below, we discuss in detail joint venture fiduciary duties.
One may wonder whether parties in a contractual agreement, such as parties to a joint venture, owe fiduciary duties to one another. Joint venture relationships can create fiduciary relationships. The following are some of the fiduciary duties that may be owed in a joint venture:
So, when do fiduciary duties in a joint venture apply? As soon as people or businesses form a joint venture, fiduciary responsibility begins. From the word go, each party to a joint venture has an obligation to disclose information that may be crucial to the project. Only after a joint venture has been completely ended do fiduciary duties terminate.
A breach of fiduciary duty in a joint venture can occur in many different ways. Often, a breach arises because someone misappropriated funds meant to support the project. For example, a business may take money from a shared account for its own benefit. If a party to a joint venture violates fiduciary duties, several remedies could be pursued. For instance, the guilty party could be required to compensate the joint venture for any money obtained without authorization. The guilty party could be required to reimburse the other parties for any losses caused by the violation(s). Additionally, criminal charges could be filed against the guilty party.
Note: If a joint venture agreement contains guidance on handling issues of violation of fiduciary duties, the parties will handle the situation as per the agreement.
Entering into a joint venture can seem like a great idea, especially because it takes little to form such a business relationship. However, because a joint venture can involve different people or businesses with competing interests, it is crucial to speak to a qualified business attorney who can help protect your interests and assets.
Are you considering forming a joint venture in California and need legal guidance? Contact the skilled and dedicated business attorneys at SAC Attorneys LLP.