Types of joint venture

What are the key types of joint venture in your jurisdiction? Is the ‘joint venture’ recognised as a distinct legal concept?

There are two main categories of joint ventures: first, where two entities enter into a contractual relationship to strategically pursue a common objective; and second, where the joint venture parties form a new, standalone legal entity that operates the alliance or joint venture. While almost any type of legal entity can be utilised for the second category of joint venture, these joint ventures are often structured as limited liability companies, which - depending on the jurisdiction - typically provide the most flexibility for management, as well as for tax purposes. However, the joint venture entity will be governed by the law of the state in which it is formed. No state has ‘joint venture’ as a distinct form of entity.

Common sectors

In what sectors are joint ventures most commonly used in your jurisdiction?

Joint ventures are widely used, and such use is not limited to a particular sector or geography. However, we are seeing a proliferation of joint ventures in the energy, oil and gas, technology, food and beverage and healthcare industries. Parties use joint ventures for a multitude of reasons, including sharing costs (and risk), developing new technology and entering new markets. As discussed above, joint ventures can take a variety of forms and can be creatively structured to fit the particular desires and goals of the parties. Additionally, while it is very different in nature, a joint venture transaction may be an attractive alternative to an M&A transaction where a party is seeking to expand its business and enter new markets or industries.


Rules for foreign parties

Are there rules that relate specifically to foreign joint venture parties?

There are no specific rules that apply to foreign joint venture parties, and in general parties are free to negotiate alliances and joint ventures in the United States. However, there are certain rules that should be considered when forming and operating joint ventures. Some of these rules include tax regulations (which could subject foreign persons to US taxes and regulation), competition regulations, securities laws and import/export regulations. In addition, depending on the parties and the nature of the transaction, the joint venture transaction may be subject to review by the Committee on Foreign Investment in the United States (CFIUS), a process that recently changed in 2018, and portions of such changes are still being implemented.

Ultimate beneficial ownership

What requirements are there to disclose the ultimate beneficial ownership of a joint venture entity?

In general, privately held entities in the US are not required to disclose their ultimate beneficial ownership. Of course, there are certain exceptions. There may be situations where joint venture parties are required to non-publicly disclose their identities or their ultimate beneficial ownership. Pursuant to the Beneficial Ownership Rule (a rule from the Financial Crimes Enforcement Network, under the Bank Secrecy Act), a legal entity seeking banking services must disclose identifying information of its owners or those persons who control the entity (for example, its officers) for ‘know your customer’ purposes. Entities to which the rule applies include corporations, limited liability companies and other entities formed by filing public documents with a Secretary of State (or similar office), general partnerships and any similar entities formed under the laws of a foreign jurisdiction. Disclosure of ownership may also be required for tax purposes, or if formation of the joint venture triggers an antitrust review. Additionally, public disclosure of a joint venture’s ultimate beneficial ownership will be required to comply with securities laws if the joint venture is a publicly traded entity.

Setting up and operating a joint venture


Are there any particular drivers in your jurisdiction that will determine how a joint venture is structured?

Two primary drivers in determining how a joint venture is structured (contractual versus legal entity) are tax regulation and accounting rules. Depending on the structure, the joint venture parties will need to address issues such as gain recognition in connection with contributions of assets, consolidation issues and the possibility of subjecting a foreign person to US taxes and jurisdiction. Additionally, if forming a legal entity, the type of legal entity chosen by the joint venture parties may have a significant impact on the tax implications for such parties. In general, a corporation will be subject to corporate income tax and its shareholders will be subject to a tax on the dividends they receive (ie, double taxation), whereas a partnership or limited liability company, in general, will not be subject to an entity-level tax and will pass through its tax attributes to the owners for their payment (ie, a single level of tax). See question 6 for a more detailed discussion of tax considerations in connection with creating and operating joint ventures.

Other drivers in determining how a joint venture is structured include governance and operational control. The parties should expect to spend considerable time discussing how the joint venture will be managed. In comparison to M&A transactions, where one party will emerge as the controlling entity, in a joint venture, the joint venture parties will need to define governance control (ie, board-type decisions) and operational control (ie, day-to-day operational activities) of the joint venture. These discussions will play a large role in determining how to structure a joint venture. It is important to understand that joint venture parties often have competing interests and agendas, and in a long-term relationship, it is imperative that the joint venture structure and documents appropriately address how decisions are made.

Tax considerations

When establishing a joint venture, what tax considerations arise for the joint venture parties and the joint venture entity? How can tax charges be lawfully mitigated?

As noted above, tax considerations will play a major role in determining how to structure a joint venture. Accordingly, parties will want to engage tax counsel and accountants very early in the process. The ultimate structure of the joint venture will want to address each of the following:

  • tax consequences of forming the joint venture;
  • what is the most efficient structure during the operations of the joint venture to achieve the most tax-efficient flow of earnings for the joint venture parties; and
  • what type of structure will achieve the most tax efficient exit or termination at the end of the alliance.

It is important for the joint venture parties to consider tax consequences over the life of the joint venture at the onset. Additionally, foreign investors may prefer a corporate joint venture structure to avoid falling into the US tax net for the operational life of the joint venture.

Asset contribution restriction

Are there any restrictions on the contribution of assets to a joint venture entity?

Generally, there are no restrictions on the contribution of assets to a joint venture entity. However, there are some consequences of contributing assets that should be considered when determining how and what types of assets are contributed. For example, an investor in a joint venture that contributes services in return for an ownership interest in the joint venture may have to include the value of such ownership interest received as taxable income. Additionally, there may be regulatory restrictions that are triggered by the contribution of assets to a joint venture. For example, if two entities that are otherwise competitors in a market contribute specialised assets to the joint venture that previously enabled them to compete, such contribution may raise antitrust issues if it inhibits competition going forward and may require regulatory approval. And depending on the applicable industry in which the joint venture participates (eg, energy, healthcare, etc), there may be restrictions based on applicable industry-related regulations.

Interaction between constitution and agreement

What is the interaction between the constitution of the joint venture entity and the agreement between the joint venture parties?

While the laws of each state vary, in general, most statutory governance requirements may be waived by the joint venture parties in their governing agreement. These even typically include the ability of joint venture parties to waive certain fiduciary duties that may otherwise be imposed by state law. In most states, including under Delaware limited liability company law, the members of a limited liability company have substantial freedom to determine the business and legal relationship of the members. Accordingly, the joint venture agreement will typically take precedence over the controlling state statute. In most states, when a joint venture entity is formed, a charter document must be filed with the state. The charter document may include - but is typically not required to include - the particular terms of the parties’ agreement regarding governance of the entity. However, an entity is generally not required to publicly file the document, which typically contains most of the relevant provisions regarding how an entity is managed (for a limited liability company, this is often referred to as the LLC agreement or operating agreement).

Party interaction

How may the joint venture parties interact with the joint venture entity? Are there any restrictions?

Depending on the form of the joint venture entity and the specific state whose laws govern the joint venture entity, the joint venture parties are typically free to contractually establish the parameters governing how they interact with the joint venture entity. However, the joint venture parties should consider the statutory framework that governs the joint venture entity. For example, if the parties choose to form a limited partnership, the statutory code of the jurisdiction of formation may restrict the limited partner’s interaction with the joint venture entity, and if the parties choose to form a corporation and officers or employees of the joint venture parties serve as directors of the joint venture entity, such individuals will owe certain fiduciary duties to the joint venture, unless such duties are waived. If the joint venture parties choose to establish a joint venture contractually - rather than via the formation of a new legal entity - in many cases, there will not be an underlying legal framework setting forth how the parties may interact and, unless contractually established, the joint venture parties will not owe fiduciary duties to each other.

Exercising control

How may the joint venture parties exercise control over the joint venture entity’s decision-making?

Parties to a joint venture can allocate control over the joint venture entity through negotiating provisions in the entity’s governance documents. For instance, the structure of a board of directors or board of managers can be established, including which joint venture parties are empowered to appoint individuals to those board seats. This can be especially beneficial to minority investors, as provisions in the governance documents can ensure that minority investors have control over the joint venture’s decision-making or, at least, with regard to certain major decisions. In addition, it is common for joint venture agreements to include certain routine decisions that may be made by the controlling members of the joint venture, as well as provisions that require certain material and fundamental decisions (ie, large investments or capital expenditures, acquisitions, dissolutions, etc) to be made by a super-majority or by all members of the joint venture in order to protect the interests of minority investors.

Governance issues

What are the most common governance issues that arise in connection with joint ventures? How are these dealt with?

Some of the most common governance issues include:

  • who will govern the joint venture entity or the contractual alliance (ie, manager or board, etc);
  • how decisions affecting the joint venture will be made;
  • what fiduciary (or similar) duties apply to the governing members or other controlling persons; and
  • how the joint venture parties address a situation where a mutual decision cannot be made (ie, deadlock).

Each of these issues is related and must be carefully and deliberately discussed by the joint venture parties; in many ways, this is what makes a joint venture unique. How these issues are decided will depend greatly on the types of parties involved, the extent of their investment in the joint venture, the expertise each party brings to the joint venture, and the nature and purpose of the joint venture. The governance issues are typically one of the most discussed topics in forming a joint venture.

In 50/50 joint ventures, the parties will often form a board of directors or managers that include equal board seats. With equal board seats, so long as the parties’ interests are aligned, the decision-making process is frequently not an issue. However, if interests are not aligned, the parties will need to have provisions that address deadlock situations. See question 21 for a more detailed discussion of deadlock provisions commonly used in joint ventures in the US.

For joint ventures that are not 50/50 and include minority investors, the joint venture parties will most likely be discussing minority investor protections, such as providing board seats for minority investors or different approval thresholds for certain decisions by the joint venture, as discussed above.

Nominee directors

With an incorporated joint venture, what controls exist in your jurisdiction in relation to nominee directors? How should a nominee director balance the potentially conflicting interests of the joint venture company and the appointing shareholder?

In an incorporated joint venture, the joint venture parties (eg, the shareholders) may generally establish the framework by which directors of the corporation are nominated and elected via the bylaws or other organisational documents of the corporation. Generally, the directors of a corporation owe certain fiduciary duties to the corporation that may be incongruent with the responsibilities or duties the director owes to the joint venture party. If the parties desire that certain individuals serve as directors of the corporation and such individuals have conflicting duties, the joint venture parties should consider forming the corporation in a jurisdiction that permits the modification or waiver of such duties, or forming a different type of entity that would not require such individuals to comply with certain typical fiduciary duties. For instance, the General Corporation Law of Delaware permits corporations to waive the director’s fiduciary duty of loyalty. In addition, certain types of entities - in particular, limited liability companies - do not require their members or managers to observe the same fiduciary duties as directors of corporations. In addition, under many state statutes that govern limited liability companies, members may expressly agree that they may compete against the joint venture.

Competition law

What competition law considerations are engaged by the formation and operation of the joint venture? Is approval needed?

US competition or antitrust law is governed by several sources, including federal and state statutes, case law interpreting and applying these laws, and various agency regulations. The most important federal antitrust statutes are the Sherman Act and Clayton Act, which generally promote competition and aim to protect consumers from anticompetitive business practices. The Hart-Scott-Rodino Act (the HSR Act), which Congress passed in 1976 and which amends the Clayton Act, is particularly relevant to parties looking to form a joint venture. The HSR Act’s requirements to file notifications with the Federal Trade Commission and the Antitrust Division of the Justice Department for certain transactions may apply to joint ventures, depending on the size and structure of the transaction and the joint venture parties themselves. If a filing is required, the HSR Act establishes waiting periods that must elapse before such a transaction may be consummated, and authorises the enforcement agencies to stay those periods until the joint venture entities provide certain additional information about the likelihood that the proposed transaction would substantially lessen competition in violation of section 7 of the Clayton Act.

Provision of services

What are the key considerations in your jurisdiction in structuring the provision of services to the joint venture entity by joint venture parties?

There are several key considerations in structuring the provision of services to the joint venture entity. One consideration is determining what expertise and skills the joint venture parties bring to the joint venture. For example, joint ventures often form based on one party being the industry expert (eg, a developer of energy projects) and another party providing the funding for the purpose of the joint venture (eg, an investor providing capital to support the development and construction of new energy projects). In these scenarios, each party’s role in the joint venture will govern how the services to the joint venture are provided.

Another consideration, if applicable, will be where the employees performing the services for or on behalf of the joint venture are employed. The parties will need to decide if the joint venture will have its own employees or if employees of one of the joint venture parties will provide services to the joint venture entity (often through a separate services agreement with the joint venture entity).

Third, there are tax considerations that will be implicated in deciding how services by the members are provided to the joint venture entity. For tax purposes, careful attention will need to be given in determining how funds generated by the joint venture entity flow to the joint venture parties (ie, as distributions from the joint venture entity or as compensation for services by a joint venture party). These decisions may have a significant impact on the overall tax consequences to the joint venture parties.

Employment rights

What impact do statutory employment rights have in joint ventures?

As discussed above, statutory employment rights will generally apply to a joint venture entity only if it has its own employees. As noted above, the joint venture parties often enter into a services agreement with the joint venture entity to provide certain services that would otherwise typically be provided by an entity’s employees. If a joint venture entity has its own employees, the joint venture entity will need to comply with applicable statutory employment rules, such as rules relating to hiring and firing employees, safe workplace environments and any applicable employee benefits and reporting obligations. If a joint venture is formed contractually, rather than via forming a new entity, the joint venture parties should be clear in such documentation how employment obligations, etc, are allocated and can contractually agree to have the intended employer protect the other joint venture party if it becomes statutorily liable to an employee of the intended employer.

Intellectual property rights

How are intellectual property rights generally dealt with on the creation, operation and termination of a joint venture in your jurisdiction?

Typically, certain intellectual property (IP) rights are licensed to the joint venture entity by the joint venture parties upon the creation of the joint venture entity. However, parties must be careful to specifically state what they are licensing to the joint venture, the terms and conditions governing such a licence and what they are not licensing or contributing to the joint venture. In addition, at the creation of the joint venture, the joint venture parties typically determine how the joint venture will treat jointly developed IP, derivative IP and the ownership thereof. In particular, joint venture parties are often particularly focused on jointly owned IP, as joint ownership can result in future conflicts with regard to enforcement and commercialisation of such IP and with regard to the exit of the joint venture.

Funding the joint venture

Typical funding

How are joint ventures generally funded in your jurisdiction? Are there any particular requirements relating to funding and security packages?

In general, joint venture entities are funded through a contribution of capital to the joint venture entity in exchange for interests in the entity. These contributions are what establish a participant’s basis in the joint venture for tax purposes. In addition, these contributions often impact how the joint venture parties decide to allocate distributions. Contractual joint ventures are funded similarly: joint venture parties contract to provide a portion of the necessary capital for a correlative portion of the return.

When a joint venture entity is formed, the joint venture parties making capital investments will want to ensure that they comply with federal and state securities regulations. The joint venture parties and the joint venture entity itself will often retain counsel to prepare information memorandums and subscription agreements that describe the joint venture entity’s business and the possible risks associated with investing in the joint venture.

In addition to making capital contributions to the joint venture entity, the parties may, in some cases, loan capital to the joint venture entity. The loan arrangements may include standard credit terms such as interest payments, maturity dates and default provisions. In addition, such loan arrangements may provide for such debt to be converted to additional equity in the joint venture entity.

Depending on the purpose of the joint venture and the nature of the parties forming the alliance, a joint venture party may contribute assets or services to the joint venture rather than capital. For example, a 50/50 joint venture may include one joint venture member who provides the skills and expertise in operating the joint venture business (eg, a developer of energy projects) and a second joint venture member who is a passive investor in the business (eg, an investor who provides the capital to support the development of new energy projects). In these situations, the parties will need to determine a method for valuing the assets or services being provided. In addition, these types of joint ventures often highlight the issues discussed in this chapter regarding misalignment of interests between the joint venture parties and where particular attention must be given in addressing governance and decision-making in the joint venture.

Capital injection restrictions

Are there any legal or regulatory restrictions on the injection of capital into, or the distribution of profits or the extraction of cash by other means from, the joint venture entity?

While there are generally no restrictions on injecting capital into a joint venture entity, or the making of distributions from the joint venture entity’s profits, the joint venture parties will want to be aware of applicable tax regulations and how and when capital contributions and distributions are made. In most jurisdictions, there are statutory requirements that limit the amount of distributions that may be made to the parties if the joint venture entity would be sufficiently undercapitalised after the making of such distributions.

Tax considerations

What tax considerations should be taken into account in the operation of the joint venture?

There are numerous tax considerations that must be considered in the operation of a joint venture. As previously discussed, the joint venture parties will need to decide the most tax-efficient means to inject capital into the joint venture. In the scenario where a joint venture entity is formed, this is typically handled by the parties making capital contributions into the joint venture entity. However, the parties may determine to contribute all or a portion of such capital as a loan to the joint venture entity. Also, the parties to the joint venture may elect to leave operational cashflows in the joint venture rather than making distributions to the parties. This capital growth could have different tax treatment depending on whether the joint venture is set up as a corporation or as a partnership. The parties might also prefer a US corporation structure to preserve certain tax credits that might not be available to foreign investors. These ‘blocker’ corporations could be a valuable tax-planning tool for any joint venture with a foreign partner. Finally, the parties will want to address exiting or terminating a joint venture at the end of the life of the purpose of such joint venture to ensure that the most tax-efficient steps and mechanics have been included in the structuring and operation of the joint venture.

Accounting and reporting issues

Are there any noteworthy accounting or reporting issues for the joint venture parties regarding their investment in the joint venture?

A joint venture may choose its method of accounting for its investment in a joint venture. These methods include the equity method and the proportional consolidation method. Under the equity method, an investor reports its income earned through the joint venture on its income statement in proportion to its investment in the joint venture. Adjustments are then made based on the valuation of the joint venture as it fluctuates. Under the proportional consolidation method, an investor accounts for the assets and liabilities of the joint venture in proportion to its investment. Generally, the type of accounting used by joint venture parties will depend on the joint venture party’s existing operations and accounting practices. It is advisable that joint venture parties individually consult with their tax and accounting advisors in connection with investing and engaging in a joint venture.

Deadlock, exit and termination

Deadlock provisions

What deadlock provisions are commonly included in joint venture agreements in your jurisdiction?

As discussed above, one of the unique issues with joint ventures involves governance and decision-making issues. In 50/50 joint ventures, the possibility of a deadlock on making such decisions is very possible, especially in joint ventures where the parties’ interests are not aligned. Parties can use a myriad of deadlock provisions to both avoid and resolve disputes between them. In order to avoid disputes, joint venture parties may, for example, agree to allocate responsibility between parties so that entities that are strategically positioned to manage certain aspects of the joint venture have agency to do so without the consent of the other party, or have disproportionate ownership (or risk) in the joint venture and provide the minority party with less approval or control rights over the actions of the joint venture. However, disputes may nevertheless occur. If disputes occur, parties typically provide for escalation mechanics, where issues are raised to senior management for resolution prior to any drastic deadlock provisions coming into effect. Then, if such escalation is fruitless, joint venture parties often include one of the following mechanisms to resolve or get past the dispute:

  • parameters by which an independent mediator may resolve the dispute;
  • the ability for a party to state a price at which it will either:
    • sell its equity interests in a joint venture entity; or
    • purchase all the equity interests in the joint venture entity and then require the other party to choose to purchase the equity held by the other or sell its own equity interests (the shotgun clause, also known as the Russian roulette provision);
  • the ability for parties to compete to be the higher bidder for the other parties’ equity interests in the joint venture entity whereby the highest bidder is obligated to buy out the other party (sometimes referred to as the Texas shootout provision); or
  • the ability for a party to force a sale of all of the equity interests in the joint venture entity to a third party, typically via an auction run by a financial advisor or bank (the drag-along provision).

However, note that in order to provide stability and predictability for the joint venture, parties typically limit the instances where a party can declare a deadlock to only certain material and persistent disagreements.

Exit provisions

What exit provisions are commonly included? Does the law restrict any forms of mandatory transfer provision or any basis of calculation?

Joint ventures - whether formed via contract or by forming a joint venture entity - often have unique exit provisions tailored by the joint venture parties to fit their particular needs and circumstances. However, depending on the facts at hand, applicable bankruptcy or regulatory laws may preclude certain exits from a joint venture or transfers of equity interests.

Many joint ventures include certain provisions to restrict exits or transfers of interests in the joint venture, as often the counterparty to the joint venture is a key aspect of the venture. In particular, parties use a permitted transferee mechanism (eg, no transfer permitted other than transfers to pre-approved transferees) or provide the non-transferring party with rights of first refusal in order to reduce a party’s incentives to exit the joint venture or transfer its interests therein. In addition, many joint ventures provide:

  • a non-transferring party with a right of first offer with regard to the transferring party’s interests;
  • a non-transferring party with tag-along rights; or
  • a transferring party with drag-along rights.

Another common option is to require the sale of the joint venture interests (or portions thereof) to an unaffiliated third party, either via an initial public offering or an auction process.

Rarely, joint ventures include the option of the parties to unwind the joint venture and partition the assets of such venture to the parties. Typically, this type of exit is rife with conflict and it is often difficult to detangle the assets contributed by the parties and split the assets obtained or developed by the joint venture.

Tax considerations following termination

What are the tax considerations on termination of the joint venture?

As previously discussed, there are several tax considerations that must be planned for in advance by the joint venture parties to ensure for a tax-efficient exit or termination of the joint venture at the time the purpose of the joint venture ends. At the conclusion of the joint venture, the joint venture entity will liquidate its assets (including distributing assets and capital to the joint venture parties) and dissolve under applicable state law. Such an event will have different tax treatment depending upon whether the joint venture is structured as a corporation or a partnership for US federal income tax purposes. The tax consequences of termination could have a significant tax impact on the parties to the joint venture and should be taken into consideration at the onset of the joint venture.


Choice of law and resolution methods

In your jurisdiction, are there constraints on the choice of law or the method of dispute resolution provided for in joint venture agreements?

For contractual joint ventures, there are almost no constraints on parties’ ability to choose the governing law. However, a court may decide not to enforce a choice of law provision that selects the law of a state unrelated to the parties or the contract, or if the chosen law would lead to a result repugnant to public policy. For joint ventures that create a separate legal entity, the law of the state of the entity’s formation will govern.

Mandatorily applicable local law

What mandatory provisions of local law will apply irrespective of the choice of governing law?

A court in one jurisdiction of the US will honour a choice of law clause and apply the substantive law of another jurisdiction. However, the court will always apply its jurisdiction’s own procedural law, and will use its jurisdiction’s law to determine the distinction between what is substantive and what is procedural.

In most states, parties have the ability to waive most statutory provisions that govern the operation of the joint venture entity. However, one notable example of a statutory requirement that may, in some states, not be waived is a joint venture party’s fiduciary duty of good faith and fair dealing. In addition, certain local laws will apply to the operations of the joint venture regardless of the jurisdiction under which the joint venture entity has been formed (eg, licensing, zoning, registration and qualification with the applicable state, etc).

Remedy restrictions

Are there any restrictions on the remedies a tribunal can grant that would have a bearing on the arbitration of joint venture disputes? Are there any restrictions on the arbitration of shareholder claims?

There are no statutory restrictions on remedies available to a tribunal in adjudicating a joint venture dispute. However, the parties to a joint venture have wide latitude to contractually agree to restrict their available remedies. For example, it is common for parties in a joint venture to waive their right to recover consequential or indirect damages from the other party in the event of a dispute between them. Other than joint venture parties agreeing among one another to limit available claims or remedies, very few restrictions exist and courts have wide latitude to award equitable relief.

Minority investor protection

Are there any statutory protections for minority investors that would apply to joint ventures?

Some jurisdictions have in place statutory protections for minority investors, and the type of joint venture entity chosen will determine a fair amount of the applicable statutory protections. Minority investor protections may include:

  • a limitation on directors’ actions imposed by fiduciary duties owed to the joint venture entity;
  • the right of a minority shareholder or minority member to bring a derivative claim in the name of the joint venture entity;
  • a shareholder’s right to petition a court for an order on the basis of unfair prejudice;
  • the right to apply for the joint venture entity to be wound up and dissolved; and
  • observer rights (by which a minority investor may designate an observer to attend board meetings despite having no voting rights).

However, many jurisdictions provide that default statutory protections may be limited or eliminated entirely by an entity’s governing documents. Therefore, it is important that minority investors negotiate during formation to ensure that they are afforded not only those protections sought that rise above statutory protections, but also to ensure default statutory protections are left in place.


How can joint venture parties have liabilities to each other beyond what is expressly agreed in the joint venture agreement?

If forming a joint venture entity, typically each party’s liabilities to each other will be limited as set forth in the entity’s organisational documents. However, as discussed above, in some scenarios certain directors, managers, officers, directors or employees of a party may owe fiduciary duties to the joint venture entity. In addition, certain courts may permit a party to pursue claims that a counterparty acted fraudulently despite contractual limitations restricting a party’s ability to bring such claims. In addition, for the sake of clarity, the joint venture parties may want to include a provision in a contractual joint venture that expressly states that the parties are not agents of each other and may not take actions that legally bind the other joint venture parties.

Disclosure of evidence

Are there any particular issues that can arise in joint venture disputes in your jurisdiction concerning disclosure of evidence?

Joint venture parties should be aware that, most often, information shared will not be protected from disclosure. For example, although US jurisdictions have adopted the common interest privilege, which may apply to joint venture parties represented by separate legal counsel, this privilege applies only when the parties have a common interest. If the joint venture parties are involved in a dispute with one another, they no longer share a common interest and such a privilege no longer applies. Generally, parties should be mindful regarding what information is shared, as it is most likely subject to disclosure in the event of a dispute.

Market overview

Jurisdictional advantages

What advantages does your jurisdiction offer for parties wishing to set up and operate joint ventures?

The US generally provides parties with the freedom and flexibility to structure joint ventures in a manner that best fits the goals and needs of the parties. In addition, joint venture parties typically enjoy the established history of joint ventures in the US and the variety of forms joint ventures may take. For instance, certain entities may provide limited liability protection to the joint venture parties that otherwise would not exist, thereby permitting such parties to cap their potential risk exposure at the value of their investment. Furthermore, certain structures may provide advantageous tax benefits to investors (eg, pass-through taxation, etc).

Requirements and restrictions

Are there any particular requirements or restrictions relating to joint ventures in your jurisdiction that could deter international investors?

Foreign investors should be sure that they have considered the US tax regime prior to entering into a joint venture in the US and should familiarise themselves with - and comply with, if applicable - the CFIUS review process. The CFIUS is an interagency committee that reviews certain investments by foreign investors to ensure that US national security is not at risk. The CFIUS review process and regime may change in 2019 due to the continued implementation of the Foreign Investment Risk Review Modernization Act of 2018.

In addition, joint venture entities should understand how their actions in the US may give rise to personal jurisdiction in its federal and state courts. Finally, foreign investment in US partnerships or limited liability companies could result in the foreign investor being required to file US tax returns with respect to its allocable share of tax items from the US partnership. In some instances, tax credits available to the joint venture could be lost due to a foreign investor’s participation in a pass-through entity. A foreign investor should consult with tax and accounting advisors in connection with investing and engaging in a joint venture transaction.

Updates & Trends

Key developments of the past year

What are the current trends affecting joint ventures in your jurisdiction? What recent developments in legislation and case law have had an impact on joint ventures?

Key developments of the past year32 What are the current trends affecting joint ventures in your jurisdiction? What recent developments in legislation and case law have had an impact on joint ventures?CFIUS

As noted in question 31, the CFIUS review process and regime is still being implemented. The new rules are expected to have a material impact on foreign investments.


Currently, China and the US are involved in a trade war. This trade war has resulted in numerous tariffs being imposed by both China and the US on imported goods. Parties to a US joint venture should pay particular attention to the outcome of this situation to understand the impact on any such joint venture.


The 2018 corporate tax rate cut to 21 per cent has generally eliminated the previous double-tax disparity between corporations and partnerships. This means corporations and partnerships (including limited liability companies) are generally on an equal footing regarding overall tax costs while conducting a joint venture. Nonetheless, the parties should take into consideration tax over the lifespan of their joint venture when choosing the type of entity that best fits their overall goals and objectives.

The authors wish to thank Chris Keegan, Emily Blair and Durham McCormick for their assistance with this chapter.