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Joint Venture Dissolution

There are many reasons why businesses form joint ventures. For example, a business may have strong potential for growth and innovative products and ideas but lack enough resources. Such a business could get more resources by forming a joint venture with another business. A joint venture could also offer greater capacity, access to established markets, access to established distribution channels, and increased technical expertise. However, entering a joint venture is a major decision. Contacting a business lawyer when considering forming a joint venture is advisable.

It is also a good idea to contact a business lawyer if you are involved in a joint venture that is about to be dissolved. Dissolution of a joint venture can be just as complex as formation. Below, we discuss more on joint venture dissolution.

Reason for Dissolving a Joint Venture

Just as there are many reasons why businesses form joint ventures, there are many reasons why parties may end up dissolving such a venture. When a joint venture is dissolved, it ceases to be in operation. Dissolution of a joint venture will depend on the specific case and applicable facts, but below are some of the reasons a joint venture may be dissolved:

  • The project may be complete
  • The objectives of the venture have not been met
  • There could be clashing management styles
  • Because a court decree ordered it
  • The goals of the venture have become impossible to achieve
  • The market circumstances have rendered the joint venture unprofitable, nonessential, or unsuitable
  • Financial difficulties have occurred
  • Legal problems have taken place

How to Dissolve a Joint Venture

Usually, if there is a written agreement, the agreement will detail the process of dissolving the joint venture. If there is no written agreement, state law will dictate how the joint venture will be terminated. Suppose a joint venture was characterized as a limited liability company. In such a case, the parties must follow the formal procedures to terminate the joint venture. If a joint venture is not characterized as a separate legal entity, the parties will proceed like they were terminating a general partnership. Among the most crucial steps parties must take is informing third parties and any relevant taxing and licensing authorities. Failure to notify third parties of the dissolution of a joint venture could result in parties to the venture being held responsible for debts accrued by third parties.

What Happens When a Joint Venture is Dissolved?

Upon dissolution of a joint venture, each party is usually entitled to returns proportional to the amount of contribution they provided. Similarly, the written agreement may dictate how allocations are to be made. In case parties do not repossess certain assets, the assets are sold. Debts are also split among members upon the dissolution of a joint venture.

It is crucial to note that if a party has an unpaid claim or liability, it will likely be subtracted from their allocations during the wind-up phase. Also, it is vital to note that a party to a joint venture can be removed from the entity before it is terminated if they have especially refused to fulfill their duties.

Contact a Business Attorney Serving Santa Clara and Silicon Valley

If you have questions about forming or dissolving a joint venture, contact an experienced and dedicated business attorney at SAC Attorneys LLP.

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