What Is a Joint Venture? - Definition & Examples

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  • 0:00 Definition
  • 0:10 Joint Venture Agreement
  • 0:50 Fiduciaries
  • 2:20 Example of a Joint Venture
  • 3:30 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

Joint ventures are common business agreements that individuals and corporations engage in every day. In this lesson, you'll learn about joint ventures and see some examples of how they work. Then you can test your understanding with a short quiz.

Definition

A joint venture is a temporary business association between two or more persons or organizations for profit without forming a permanent partnership, corporation, or other business entity. Members of the joint venture maintain their independence.

Joint Venture Agreement

A joint venture is formed by a contract, often referred to as a joint venture agreement, which defines the scope of the joint venture's activities, as well as the roles, rights, and obligations of each party to the joint venture. All parties to a joint venture have the right to participate in the management of the venture and share in its profits and losses. Joint ventures end either by agreement, the accomplishment of the joint venture's purpose, the death of one of the parties, or any other reason agreed to by the parties.

Fiduciaries

The parties to a joint venture are fiduciaries to each other and owe fiduciary duties to each other. A fiduciary is someone who has a special relationship with another person or entity that requires the fiduciary to act solely in the best interest of the other person or entity. If you are a fiduciary, you must even place the other person's interests above your own. The most common example of a fiduciary is a lawyer who must place his client's best interests above his own.

An important fiduciary duty owed to the members of a joint venture is the duty to act in good faith in matters that involve the interests of the joint venture. For example, a party to a joint venture cannot take a side business deal that would benefit the joint venture unless the opportunity is first presented to the joint venture and it is declined.

Joint ventures do cause some regulatory concerns. Since a joint venture is basically a temporary partnership used often to pursue some profitable business enterprise, anti-trust laws may come into play. Anti-trust laws are basically laws that attempt to prevent companies either from buying out all the competition or coming together to carve up a market between themselves in order to manage the market rather than to compete in it. For example, let's say that all the auto manufacturers in the world agreed to limit the sale of their products to specific regions where no one else would compete with them, and they would also agree not to sell a product to someone who lived in an area outside of their designation. What do you think will happen to the prices and quality of cars in such a circumstance?

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