What is a Joint Venture and Is It Appropriate for You?

 Posted on January 26, 2023 in Business Law

Yorkville Joint Venture Attorney

A joint venture is a business agreement where two or more persons enter a business relationship to invest in a real estate project or investment. The goal of the joint venture is to make profits and losses on a project. The general idea of a joint venture is to reduce the risks of the parties because the parties pool resources, expertise, and investment resources. One of the major benefits of a joint venture is the ability to finance larger real estate ventures and maximize one’s resources by investing with other members or owners.

In this article, we will discuss the different methods to form a joint venture for real estate companies. The first way to form a joint venture agreement is through a limited liability company or otherwise known as an “LLC.” An LLC is a new popular business entity because it possesses the limited liability feature of the corporation and the flexibility of a partnership. Multi-member LLCs are taxed automatically as partnerships unless the members or otherwise known as “owners” choose a different tax classification. 

For a real estate venture, the LLC is an excellent tool because it is cost-effective, and its' flexibility allows the multi-member owners (or managers) to customize their business agreement in a manner that meets its goals. An LLC Operating Agreement is a written legal agreement between members (owners), which outlines the roles and responsibilities of the members. The goal of the LLC Operating Agreement is to outline the business agreement to provide clarity and reduce the legal risks of conflict. 

Benefits and Elements That Should Be Included in the LLC Operating Agreement for a Joint Venture

The LLC Operating Agreement for a joint venture must be structured and outlined fairly and beneficially for all parties involved. The role of the business attorney is often to listen to the parties’ concerns and reasons for entering the joint venture and assist the members of the multi-member LLC to create a written agreement that concisely protects the parties.

• Highlight the name and addresses of the members (owners) of the LLC including their respective ownership percentages.

• The LLC Operating Agreement may desire to describe the purpose of the joint venture and the specific roles and responsibilities that each member, whether an individual or company, will bring forth to the LLC.

• Describe the capital contributions, expertise, and restrictions that may apply to additional cash contributions.

• Describe the management structure and how the decision is made to appoint a manager and describe the powers and responsibilities of the managers such as managing the day-to-day real estate venture to purchase properties and make financial decisions.

• Describe the rights and access to information, the financial books, and access information related to the LLC.

• Illustrate the method of decision-making and how decisions shall be made and the vote requirement for several types of decisions such as the sale of all the company or creation of new ventures or bringing in additional members or owners into the LLC.

• Provisions related to the sharing of profits, losses, and capital for the joint venture.

• How the LLC will dissolve and wind down its affairs in case the members decide to dissolve the LLC. The LLC should also describe how the decision to dissolve the LLC is made and what type of vote requirement is required.

The LLC is an excellent business structure, which allows for voting and non-voting members and provides a flexible business management and tax structure that makes the LLC an attractive business entity tool for joint ventures.

Yorkville Limited Partnership Attorney: The Benefits and Weaknesses of the Limited Partnership as a Joint Venture Business Entity

The second most common type of business venture is a limited partnership. A limited partnership is comprised of a general partnership and limited partners. The general partner's role is responsible for managing the day-to-day affairs of the company. Similarly, to an LLC, the general partner is like a manager because the general partner operates the company. The limited partners have no management role. They are simply investors, and they have minimum voting rights in exceptional circumstances such as whether the limited partnership will dissolve or sell all its’ assets.

The general partner for a limited partnership has no liability protection. The general partner may be personally liable for the company’s financial losses and business decisions. The method around the personal liability loophole is to set up a general partner as an LLC. Setting the general partner as an LLC will create limited liability protection for the general partner due to the LLC protection provided by an LLC. Limited partners have limited or no liability risks because they are limited partners. The Limited Partnership Agreement will detail that the limited partners should have the legal risks that the general partner possesses. The limited partners must have no role in the day-to-day decision-making of the business. Limited partners in a joint real estate venture are often investors of the company or key employees.

Yorkville Business Attorneys: Business Advisors That Understand Business & Real Estate

In conclusion, joint ventures are excellent to build a new business and maximize profitability. Here, at Gateville Law Firm, our attorneys and staff assist new ventures particularly in the real estate industry to protect their legal rights. Call us today at 630-864-5788 or fill out the online contact form to reach an attorney.