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What Are the Best Tips for Minimizing Joint Venture Liability?

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  • Written By: Geri Terzo
  • Edited By: PJP Schroeder
  • Last Modified Date: 17 September 2016
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    Conjecture Corporation
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In a joint venture arrangement, two or more entities come together with a common goal. The purpose may be to produce a new product or explore some new opportunity, but regardless of the reason, there are some commonalities to these business arrangements. Each of the participants has a role to play, and those positions may be similar or different. If successful, profits are shared among the partners, but in the event that the partnership fails, the loss is similarly experienced by each participant. To minimize joint venture liability, communication must remain clear among all parties, and insurance coverage should be purchased.

Risk is inherent in a joint venture agreement. In fact, it could be the driving force behind a partnership because a project might just include too much risk for one business or individual to accept alone. With the stakes so high, proactively minimizing any joint venture liability is sensible.

One way to begin is to identify the risks and liabilities associated with an endeavor in the legal documents of the partnership. The business documents should recognize the parameters of the arrangement so that not only are the benefits, such as profits, clearly outlined, but so too are risks and liabilities. All of the participants should be aware as much as possible what the assigned risk for each party will be.

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The greater number of participants involved in a joint venture, the more that the liability is spread out. Consequently, another way to reduce joint venture liability is to share the risk among multiple partners. The purpose and role that each of the participants play should be clearly communicated and defined so that there is less of a chance for conflict.

It is likely that a joint venture business is a new endeavor for the parties involved, and some of the liabilities might not be clear from the onset. Investing in the most suitable insurance can help minimize joint venture liability. Not all coverage is the same, and it may be necessary to attend a legal session or consult with an insurance professional to identify the best type of policy to buy.

Insurance products exist to protect a business against fraudulent activity, damage to property, or injury to employees. There are some other sensible steps to take toward reducing joint venture liability. For instance, training employees of the new business to be highly productive can create the most cost-efficient results so that financial liability is reduced.

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