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What Is an Unincorporated Joint Venture?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 09 September 2016
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An unincorporated joint venture is a type of business arrangement in which multiple entities come together using a contract as the basis for governing the collective relationship, but without creating some sort of corporation arrangement in order to pursue the joint venture. This type of approach is common in a number or applications, especially when the venture in question is for short-term purposes only. In many nations around the world, there are few if any regulations that specifically apply to an unincorporated joint venture, making it necessary to cover as many contingencies in the joint venture agreement as possible.

Since the relationship is governed by the agreement that is adopted by each of the participants, the main task is to work out the amount of resources each one contributes to the venture, and in turn the amount of benefits each one can reasonably expect to derive from the arrangement. Typically, the contract will also address the limit of liability that each participant assumes, as well as outlining provisions for any participant choosing to withdraw from the unincorporated joint venture by selling his or her interest in the activity. By developing terms that are agreeable to all the entities involved in the project, the chances for proper funding and eventually earning some sort of profit from the venture is enhanced, although there is still always some risk that the project will not yield the anticipated results.

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One of the benefits of an unincorporated joint venture is the relative ease of setting up the working relationship between each of the participants. Since there is no incorporation of a new entity that is jointly held by all the participants, there is no need to create a corporate structure that complies with corporation laws in the jurisdiction in which the unincorporated joint venture is taking place. While the members of the venture will normally create some sort of steering committee that helps to move the venture along, the exact organization of that committee or group is left up to the members, and can be defined in the joint venture agreement itself.

Another benefit is that once the project is completed, dissolving the unincorporated joint venture requires a minimum of effort. For example, if the purpose of the venture was to build a new housing development, the participants would see the project through until the development was finished. At that point, the finished development could be sold at a profit to a new investor and each venture participant compensated from the proceeds from the sale. Once the compensation was distributed, the venture would be considered complete and the participants could move on to other projects or ventures.

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anon936434
Post 4

With respect I disagree. In practice, unincorporated joint ventures have a much higher chance of failing apart than incorporated joint ventures. As a human, you cannot possibly anticipate everything and include them into the joint venture agreement. The culture and management conflicts between participants will make it more likely to lead to deadlock.

If you mean serious business and are aiming for long-term cooperation, incorporated joint venture is the one to go with.

Logicfest
Post 1
Unincorporated joint ventures often make a lot of sense. Forming corporations is expensive and usually involves the involvement of an attorney to file articles of corporations, make sure everyone is in agreement with the laws of the incorporating state, etc.

Business people who know what they're doing can generally come up with a good joint venture agreement and spend a lot less time having their group formalized. That means they spend less money, deal with fewer legal hurdles and can concentrate on getting to work.

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