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Published Articles by David Balovich

Title: Joint Ventures
Published in: Creditworthy News
Date: 8/6/03
Our previous column raised the question of what is a joint venture and how does one determine who is liable in a joint venture.

Black’s Law 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.

Companies usually 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 joint venture.

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 co-ventures.

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 foreign markets.

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.

When extending 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. 

This 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.

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