If you think about it, entrepreneurial spirit has always been America’s lifeblood. Throughout US history, ambitious men and women have pooled their ideas, knowledge, talents and resources to create businesses and spark the technological advances that have fueled the economy for centuries. That tradition of American innovation and progress continues to this day.

In the context of 21st century business, this type of arrangement – in which two or more people or businesses pool their resources to conduct business, from which they all profit – is legally classified as a joint venture. In this article, we’ll share some advice for avoiding some of the potential pitfalls associated with joint ventures.

Whether you’re thinking about engaging in a joint venture in Miami, Fort Lauderdale, or elsewhere in the state of Florida, it’s important to conduct your due diligence at the outset. Although you’re not legally required to do so, drafting a joint venture agreement or “JVA” as part of this process may help prevent costly and unpleasant litigation in the future.

If you aren’t easily convinced, don’t just take our word for it. Instead, consider a case publicized in the South Florida Business Journal that illustrates exactly why this type of agreement is so important. The parties involved were three “very close friends” who engaged in several real estate joint ventures over the course of a few years, but did not draft any JVAs. When things didn’t work out, one of the partners sued the others.  Only one of the defendants settled before the case went to trial, and it took five years for the plaintiff to obtain a multi-million dollar judgment (totaling one-third of the total profits from the three joint ventures) against the other.

In the end, the Florida court determined that the “defendant partner” cheated the plaintiff out of millions in profits by engaging in self-dealing and fraud. Specifically, the court determined that the defendant partner:

  • Failed to disclose to the plaintiff that the partner’s company had taken commissions and fees for services it hadn’t provided to facilitate the first joint venture;
  • Tricked the plaintiff into selling a one-sixth interest in the first joint venture and ultimately conned him out of more than $10 million in profits;
  • Concealed relevant information from the plaintiff in the second joint venture that cost him more than half-a-million dollars in profits;
  • Falsely informed the plaintiff that no profits had been in a third joint venture and omitted him from his one-third share of more than $7.5 million in profits from that joint venture.

Even though Florida law stipulates that each partner in a joint venture owes a fiduciary duty of the “finest and highest loyalty” to every other partner, the lesson to be learned from the case we just summarized is that you shouldn’t just expect your business partner(s) to act accordingly.  By enlisting an experienced business lawyer to help you draft an effective JVA, you can help ensure that partners (including friends and relatives) understand their roles and duties, as they relate to the joint venture, while helping to minimize disagreements and disputes.  Furthermore, if one of your partners does do something wrong, you should be able to identify methods for resolution in the JVA.

hile it can be rewarding and profitable, engaging in a joint venture in Florida can also be risky if you don’t take the proper precautions. To learn more about how you can protect yourself in this type of business arrangement, contact the experienced lawyers at Eskander Loshak LLP, today.

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