Joint Venture

What is a Joint Venture?

In legal terms, there is no one, settled meaning of the term 'Joint Venture'.  Joint ventures are generally created by agreement (a Joint Venture Agreement) between two or more organisations wanting to undertake a project together where, at the end of the project, the organisations will share in the product (or other output) created by the project.

A Joint Venture Agreement is a legally binding agreement which is enforceable against (and by) a party to that agreement just like the terms of any other contract.  A joint venture is usually established for a specific project. 

A joint venture is different from:

• a merger: community organisation’s merge when they agree to join forces permanently to become one legal entity. In a joint venture arrangement, the organisations remain separate legal entities and combine their resources for a particular (often temporary) project.
• a ‘fee-for-service’ arrangement: in a fee-for-service arrangement one organisation provides a service or product to the other for a fee. In a joint venture arrangement the organisations agree to work on a project together, and then to share in the product or benefits when it is completed.
• a partnership arrangement: although the term ‘partnership’ is often used loosely in the community sector, it has a technical legal meaning. In particular, in a partnership the two organisations have joint interests in the project and are jointly and severable liable for the expenses of the project, whereas in a joint venture, the organisations usually have defined interests and are usually liable for their own debts, which they incur individually. 

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When is a Joint Venture agreement appropriate?

A community organisation may use a joint venture agreement to work with other organisation for the purposes of fundraising, service delivery or advocacy. However, given that there is no settled definition of a joint venture, and a Joint Venture Agreement may be cover many arrangements, we suggest you seek legal advice about whether a joint venture is a suitable arrangement for a particular project you wish to work on with another organisation or organisations.

If you are an income tax exempt organisation, you may need to seek legal advice before entering into a joint venture arrangement. Depending on the nature of the activities involved, becoming a party to a joint venture agreement may jeopardise your income tax-exempt status.

Depending on the circumstances you may be advised not to enter into a joint venture arrangement, or that the arrangement will be appropriate provided the joint venture agreement is drafted in a way which complies with various tax and other laws.

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What are my obligations under a Joint Venture Agreement?

If, after obtaining advice, you decide that a joint venture arrangement is appropriate for your circumstances, your obligations will arise from two main sources.  Firstly, you will have obligations under the Joint Venture Agreement itself and secondly, you will have more general (common law) obligations towards your joint venture partner(s). 

Specific obligations

A joint venture agreement is a legally binding contract. Your obligations under the joint venture agreement are likely to be relatively clear and mechanical.  The joint venture agreement will set out such things as:

• what you will have to contribute to the joint venture initially;
• the acts you will have to perform throughout the duration of the joint venture;
• reporting obligations;
• governance of the joint venture;
• the process that you will need to go though if there is disagreement amongst joint venture parties; and
• what happens at the end of the life of the joint venture.

These obligations will depend on the particular circumstances of the agreement. 

General obligations

Your general obligations towards the other organisation(s) involved in a joint venture may not be as obvious as those included in the joint venture agreement.  These obligations can arise from the development of law over time (common law) and your special relationship with your Joint Venture partner. 

In certain circumstances, obligations that you will owe the other organisations involved in a joint venture can include a duty of loyalty and a duty to account to the other joint venture party for any benefits gained as a result of your position as a joint venturer.  In other words, you may be required to avoid conflicts of interest with joint venture activities and account for any personal or 'one-sided' gain arising out of your position as a joint venturer, unless the other joint venturer has allowed you to take up a particular opportunity. 

These obligations may also be enforced against (or by) you at law.

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