Call Us Today 630-864-5788

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

Posted on in Business Law


"Yorkville,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 joint venture aims to make profits and losses on a project. The general idea of a joint venture is to reduce the parties' risks because the parties pool resources, expertise, and investment resources. One of the significant benefits of a joint venture is the ability to finance more significant real estate ventures and maximize one's resources by investing with other members or owners.

This article will discuss the different methods for forming a joint venture for real estate companies. The first way to create a joint venture agreement is through a limited liability company or an "LLC." An LLC is a new popular business entity because it possesses the corporation's limited liability feature and the partnership's flexibility. In addition, multi-member LLCs are taxed automatically as partnerships unless the members or "owners" choose a different tax classification. 

The LLC is an excellent tool for a real estate venture because it is cost-effective, and its flexibility allows the multi-member owners (or managers) to customize their business agreement to meet its goals. An LLC Operating Agreement is a written legal agreement between members (owners), which outlines the members' roles and responsibilities. The LLC Operating Agreement aims to draft the business agreement to clarify 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 set forth reasonably and beneficially for all parties involved. Therefore, 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 in creating 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. Describe the managers' powers and responsibilities, such as managing the day-to-day real estate venture, purchasing properties, and making 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, creation of new ventures, or bringing in additional members or owners into the LLC.
  • Provisions related to sharing profits, losses, and capital for the joint venture.
  • How the LLC will dissolve and wind down its affairs if 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 company's day-to-day affairs. Similarly, to an LLC, the general partner is like a manager because the general partner operates the company. On the other hand, the limited partners have no management role. Instead, they are investors with 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 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 company investors or key employees.

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

In conclusion, joint ventures are excellent for building a new business and maximizing profitability. 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.


Back to Top