What are the risks of forming a joint venture?

Forming a joint venture in California comes with a variety of risks, both legal and financial. Legal risks include disagreements among the partners over control of the venture, potential breach of partnership agreement, and disagreements over how the profits are to be divided. Financial risks include potential losses due to a partner’s negligence, increased costs due to an unexpected need to hire outside professionals, and the potential of one partner shouldering more of the financial burden than another. Additionally, if the venture is not properly structured, it could be seen as a joint venture instead of as a partnership. This means that the venture may not be tax-efficient since the profits would be taxed as if it were a single entity rather than being split between the partners. Furthermore, undue control or restrictions placed upon the partners by one or more of them could result in legal or financial ramifications. Finally, a joint venture carries with it the risk of dilution of ownership interests. This occurs if one partner contributes more assets to the venture than the other, such as cash or property. This can result in a partner having a greater percentage of control over the venture than they would have if the proportion of assets stayed equal among the partners.

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What are the risks of forming a joint venture?

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