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Business Types: Joint Venture

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What is a Joint Venture?

Joint ventures are similar to partnerships, however, they involve a more limited business purpose than partnerships. A joint venture could perhaps be considered a partnership for a single transaction. Most partnership rules are applicable to joint ventures. The major difference between a joint venture and a partnership, however, is the scope of actual authority and apparent authority that each joint venturer possesses to bind the venture.

Actual authority, also known as express authority, arises from the manifestation of the venture to a venturer that the venturer has the power to deal with others as a representative of the venture. In other words, a venturer has actual authority if a reasonable person in the venturer's position would believe that the venture has authorized him to so act. Therefore, when a venturer has actual authority to act, his actions are binding upon the venture and the venture is liable for obligations incurred by the venturer.

Apparent authority arises from a manifestation of the venture to a third party that the venturers are authorized to act in a particular manner for the venture. In other words, a venturer has apparent authority in relation to a third party if the words or conduct of the venture would lead a reasonable person in the third party's position to believe the venturer is authorized by the venture to so act.

These two types of authority are very broad in a partnership situation since the partnership engages in many different types of business and transactions. In a joint venture, however, the scope of authority is quite limited since the venture is limited to one business purpose or transaction. Therefore, the acts of one joint venturer are binding upon the joint venture if those acts pertain to matters within the scope of the joint venture and the joint venturer had authority to act. If the joint venturer does not have authority to act on behalf of the joint venture, then he is personally liable for his actions or obligations. It is important to note, however, that the rights of a party to a joint venture agreement are subject to any agreements between the parties of the venture. Thus, joint venturers can make an agreement as to what the joint venture will be liable for and what it will not be liable for. The scope of authority of a joint venturer, as similar to a general partner in a partnership, is often an issue. Apparent authority flows from the impression created by the joint venture in the mind of a third party. In other words, actions taken by the joint venture or a joint venturer can lead a third party to believe that the joint venturer is acting within his authority, thereby creating apparent authority.