Published — February 8, 2018
The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.
Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
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In conducting the affairs of the business, there are instances when certain activities have to be undertaken in order to accomplish particular business purposes, but cannot be commenced due to the limitations in resources, expertise, technology, etc. When that happens, businesses get stuck with their plans and their goals remain unachieved. Because of these various and varied limitations, it is sometimes necessary for an enterprise to team up with other enterprises with common objectives for purposes of helping each other overcome their respective business obstacles. Thus, the concept of joint venture is created.
What is a joint venture?
Joint venture is an association of persons or companies jointly undertaking some commercial enterprise. Generally, all co-venturers contribute assets and share risks. A joint venture requires a community of interest in the performance of the subject undertaking, a right to direct and govern the policy in connection with such undertaking, and duty which may be altered by agreement to share both in profit and losses [See: G.R. No. 113375]. Joint ventures are more common in corporations because they are prohibited from entering into a contract of partnership with an individual or another corporation [See: SEC-OGC Opinion No. 16-22].
Joint venture has been generally understood to mean an organization formed for some temporary purpose. It is in fact hardly distinguishable from a partnership since their elements are similar: community of interest in the business, sharing of profits and losses, and a mutual right of control. The main distinction is that the partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the execution of a single transaction, and is thus of a temporary nature [See: G.R. No. 75875].
Law on contracts govern joint ventures
In the Philippines, there is no specific law that governs joint ventures. Thus, the parties are free to stipulate their terms and conditions, which will define their relationship, their respective rights and obligations, and other provisions that the co-venturers may deem fit, so long as the agreement is not contrary to law, morals, good customs, public order and public policy [Art. 1306, Civil Code].
Such joint venture agreements shall then be governed by the general law on contracts, particularly on their intrinsic and extrinsic validity, and on the capacity of the parties to enter into such agreements.
Joint venture as a species of partnership
In the Philippines, the prevailing school of thought is that a joint venture is a species of partnerships. Since joint venture is a species or a special type of partnership, it is said to have the following characteristics of partnership:
- It would have a juridical personality separate and distinct from that of each of the joint-venturers;
- Each of the co-venturers would be liable with their private property to the creditors of the joint venture beyond their contributions to the joint venture;
- Even if a co-venturer transfers his interest to another, the transferee does not become a co-venturer to the others in the joint venture unless all the other co-venturers consent. This is in consonance with the delectus personarum principle applicable to partnerships;
- Generally, the co-venturers acting on behalf of the joint venture are agents thereof as to bind the joint venture; and
- Death, retirement, insolvency, civil interdiction or dissolution of a co-venturer dissolves the joint venture [See: G.R. No. 159139 (Concurring Opinion of Sandoval-Gutierrez, J.)].
Corporations allowed to enter into joint ventures
Notwithstanding its similarities to a partnership, corporations are allowed to enter into a joint venture agreement provided it complies with certain conditions, to wit:
- The authority to enter into a partnership relation is expressly conferred by the charter or articles of incorporation of the corporation, and the nature of the business venture to be undertaken by the partnership is in line with the business authorized by the charter or articles of incorporation.
- If it is a foreign corporation, it must obtain a license to transact business in the country in accordance with the Corporation Code of the Philippines [SEC-OGC Opinion No. 16-22].
Thus, a joint venture is essentially a partnership arrangement, although of a special type, since it pertains to a particular project or undertaking. What determines an agreement as a “joint venture” where corporations are allowed to enter into is not the name or the nomenclature attached therein but the nature and essence of the undertaking between the corporations. The agreement between corporations become a joint venture when it is limited to a particular project that will allow the Boards of the co-venturers to anticipate and evaluate their respective corporations’ responsibilities and liabilities [Ibid].
Given the foregoing, it is clear that corporations may join forces with other corporations through joint venture agreements in order to overcome their limitations and accomplish their common legitimate business goals. Certainly, having a better understanding of the nature of joint ventures will give business owners the knowledge that they need for them to take full advantage of this special kind of partnership, which will, in turn, enable them to open more doors of opportunity through shared resources and expertise.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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Good morning! Can i ask something about joint venture agreement? Thank you
Dear Ms. Rosemarie,
Good day!
If you have any questions and/or concern, we can set you a legal consultation appointment with one of our lawyers. Kindly contact us thru Viber or text message: 09778050015.
Thank you!