Toronto's Business Lawyer Blog

Joint ventures are legal constructs that are designed as a form of short-term partnership, which is generally intended by the participants to facilitate the pursuit of a specific goal, typically with a financial motivation. The joint venture is best structured with a written agreement, which sets out not only the intended goal, but the contributions that each participant is required to make, the methodology for advancing the venture and how the joint venture will come to its conclusion (among other aspects that may be covered in such an agreement).

Whereas the participants contribute to the joint venture, the joint venture becomes an enterprise unto itself, imposing demands upon its participants in pursuant of its stated objectives (with the participants having committed to those obligations) and dispersing the resulting achievements of its endeavors to the participants as they are achieved. It is a symbiotic relationship, which needs to properly structured and managed from the outset, given its potential (as well the adverse effects of its failings). As such, the importance of the joint venture agreement cannot be understated and must be properly negotiated and drafted if the intended results are to be realized.

Joint ventures are particularly common in international business arrangements, when specific companies are seeking to gain entrance into foreign markets. Because of legal, regulatory and culture barriers, together with the time co-efficient associated with penetrating a foreign market, entering into a multinational joint venture with a native corporate partner, tends to provide an accelerated incursion into the domestic market, generally with greater success and at a lower cost. The trade off is the need to divest a degree of control and a proportion of the profits to the native joint venture partner, given their specific role in making the venture happen in their backyard.

As with other forms of business partnership, the legal challenges associated with joint venture tend to arise when problems and conflicts arise. This state of affairs typically is not present at the outset, when the joint venturers tend to be overly optimistic about the success of their particular enterprise. However, this is a substantive danger for the future and a primary rationale for involving an experienced lawyer in the formation of a joint venture, such an objective approach is taken to its creation and operation.