What is a Joint Venture? (April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805)

Underwood-Blog-Images-300x300In California, business enterprises can take many forms (LLCs, corporations, partnerships, etc.). But perhaps the most unique is the “joint venture,” a special entity that, more often than not, is imposed by courts as a matter of law. This is because a joint venture is simply an “undertaking by two or more persons jointly to carry out a single business enterprise for profit.” (Unruh-Haxton v. Regents of University of California (2008) 162 Cal.App.4th 343, 370.) 

Joint ventures can be thought of as informal general partnerships, lacking the formalities of partnership agreements and usually lasting for a shorter duration. That said, they nonetheless carry the same fiduciary duties and responsibilities associated with partnerships in California. Moreover, the statutes within the Revised Uniform Partnership Act apply with equal force to both types of entities. (Chambers v. Kay (2002) 29 Cal.4th 142, 151.) 

At Underwood Law Firm, our attorneys are well-versed in the law behind joint ventures and partnerships, particularly as these entities relate to real estate projects. With our skills, we stand ready to help all of our clients achieve their litigation goals. 

What is required for a joint venture to exist? 

The broad scope of the joint venture definition might lead some to believe that almost any joint business enterprise is automatically a joint venture under the law. This is not the case. While joint ventures can and are assumed into existence by courts with some frequency, there are nonetheless multiple requirements that need to be met. 

First, the members making up the venture need to all have joint control over the enterprise, whatever it may be, even if that can control can be delegated to a third party. Second, the members must share in the profits and losses of the venture. And third, each member must have at least some level of ownership interest in the enterprise. (Orosco v. Sun-Diamond Corp. (1997) 51 Cal.App.4th 1659, 1666.) 

If any of these elements are missing, then a joint venture does not exist. For example, if the losses of the business activity are being shouldered by only one party to the enterprise, then it cannot be a joint venture because joint ventures require a sharing of all members in the profits as well as losses. 

Can a joint venture exist absent a contract? 

Yes. While it is true that partnerships can exist despite the absence of a partnership agreement, that is the exception, not the norm. Joint ventures, on the other hand, often lack a formal written contract containing the details of the business arrangement. 

Under California law, if the parties actually intended to enter a business enterprise, and their actions demonstrate this intent, then a court will assume a joint venture exists if that deduction is reasonable. (April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 819.) 

For example, suppose “Shawn” and “Julie” are two business partners who decide they want to buy a property as an investment to rent it out for profit. They both contribute to the property’s acquisition, renovate the building with shared funds, and equal pay for property expenditures. 

In addition, each is giving input into the next steps, like setting the rent and tenant qualifications. If they then shared in the profits from the renters, there is a strong case that Shawn and Julie are joint venturers despite the lack of any formal written agreement. Their intent and subsequent actions demonstrate that they were carrying out a single business enterprise for profit. 

How are joint ventures different from partnerships? 

Even though partnerships and joint ventures are recognized as different business entities, the difference is really a mere technicality. In most respects, the two types of enterprises are the same. “The incidents of a joint venture are in all important respects the same as those of a partnership.”  (Myrick v. Mastagni (2010) 185 Cal.App.4th 1082, 1091.) 

Like partners, joint venturers are fiduciaries with a duty of disclosure and liability to account for profits. And additionally, like partnerships, joint ventures may be formed orally or “assumed to have been organized from a reasonable deduction from the acts and declarations of the parties.” (Swanson v. Siem (1932) 124 Cal.App. 519, 524.) 

The differences between joint ventures and partnerships generally relate to the scope. For example, joint ventures may be limited to a single project or business, while partnerships may extend to several different businesses or projects. 

Does RUPA apply to joint ventures? 

Yes. RUPA is the set of statutes and codes that govern partnerships in California. They set out the duties owed by members to the partnership and each other, the procedure for the dissolution of the partnership, and what occurs in the event a partner dissociates from the partnership, among other things. 

But again, because joint ventures are so similar to partnerships, courts apply partnership law and statutes in dealing with them. “From a legal standpoint, both relationships are virtually the same.” Accordingly, the courts freely apply partnership law to joint ventures when appropriate. (Weiner v. Fleischman (1991) 54 Cal.3d 476, 482.) 

How can the Attorneys at Underwood Law Firm Assist You? 

Establishing the creation of a joint venture (or a partnership) can prove to be a difficult task once in court. Despite the ability of courts to assume the existence of these entities, it is still difficult for litigants to provide the right evidence. In addition, bringing claims based on the existence of a joint venture can be equally difficult. Absent a written agreement, a litigant’s ability to understand their rights with respect to the business entity can be quite onerous. 

As each case is unique, prospective litigants would thus be well-served to seek experienced counsel familiar with the law of both joint ventures and partnerships in California. At Underwood Law, our knowledgeable attorneys are here to help. If you are concerned about whether you’ve entered into a joint venture, wondering if you have claims based on a joint venture, or if you just have questions, please do not hesitate to contact our office.

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