Our previous column
raised the question of what is a joint venture and how does one determine
who is liable in a joint venture.
Dictionary defines a joint venture as “an association of persons jointly
undertaking some commercial enterprise”, or “a one-time grouping of
two or more persons in a business undertaking”. This, a joint venture can be made up of proprietorships,
partnerships or corporations or a combination of the three.
enter into joint venture agreements when a project is too large to be
managed by any one company. Joint ventures are typically found in the
construction, securities, real estate and petroleum industries although
any group of companies in any industry could combine forces and create a
Members of the
joint venture often bring unique resources to the venture, such as
technical expertise, capital, competent personnel or sources of necessary
materials. Joint ventures are sometimes formed to develop a new product.
It is not uncommon in the defense industry for defense contractors to form
joint ventures to produce a new product for the military.
For the credit
professional, a joint venture is similar to a partnership. In general, it
can be assumed that the parties involved in the joint venture can bind
each other to contracts that are necessary to complete the project that
the joint venture was created to undertake. During this time co-ventures
are usually held jointly and severally liable for the debts of the joint
venture. However, not all states look at the liability of co-ventures the
same. It is prudent to check the laws of the state where the joint venture
will operate to determine if written guaranties are necessary to bind the
The joint venture
normally will continue for the length of time it will take to complete the
project. However, some joint ventures have been created to operate
independent of their member’s business activities. An example of this is
a company known as Cal-Tex that is a joint venture between Chevron and
Texaco that was formed to provide oil exploration services in selected
When credit is
extended to a joint venture member for products or services that are not
associated with the joint venture project then the credit professional
should again consider employing written documents to guarantee payment for
the goods or services provided.
credit to the joint venture the credit professional should analyze the
creditworthiness of each of the co-ventures individually. A co-venture
that is not a good credit risk is not likely to improve just because it
has entered into a joint venture. Dealing with a joint venture can prove
to be a complicated matter especially if one is presently doing business
with the co-ventures. The credit professional would be well advised to
consult with their law department or legal counsel before entering into a
credit relationship with a joint venture.
I wish you well.
information is provided as information only and not legal advice.
Legal advice should be obtained from a competent, licensed attorney,
in good standing with the state bar association.