Joint venture

Key Takeaways

• A joint venture is a contractual arrangement built around a single project or transaction, while a partnership is formed to carry on an ongoing business.
• Joint venturers pool money, property, skill, or labor and share control of the one deal they came together to do.
• Under RCW 25.05.055(1), two or more people who carry on as co-owners a business for profit form a partnership whether or not they intended to, which is how joint venturers pick up partnership liability.
• A passive investor with no practical control over management decisions may hold a security under RCW 21.20.005, even when the paperwork calls the deal a joint venture.

What It Means

A joint venture is two or more parties agreeing by contract to pool money, property, skill, or labor for one project, then going their separate ways when it is finished. The single-transaction focus is what sets it apart from a partnership, which is formed to carry on a business over time. Real estate produces joint ventures constantly. A broker with local knowledge teams up with an investor who has cash to buy, fix, and resell one building. Two developers combine adjoining lots to get one subdivision entitled. Coursework treats the joint venture as one of the business forms that can hold real property, alongside partnerships, Corporation ownership, cooperatives, Condominium ownership, syndicates, and real estate investment trusts. What matters practically is that a joint venture is not a filed entity. It is a contract, so it carries no automatic liability shield, and the venturers can take title in their own names or set up a separate entity to hold the deed for the life of the deal.

How It Works in Washington

The Washington statutes that reach a joint venture are partnership law and securities law. RCW 25.05.055(1) is blunt: the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership. Intent does not save a venture from the label. The statute does set limits. RCW 25.05.055(3)(a) says joint tenancy, Tenancy In Common, joint property, common property, or part ownership does not by itself establish a partnership even if the co-owners share profits from the use of the property, and (3)(b) says sharing gross returns alone does not either. If an arrangement does cross into partnership territory, RCW 25.05.125(1) makes all partners liable jointly and severally for all obligations of the partnership unless the claimant agrees otherwise or the law provides otherwise.

The second exposure catches people by surprise. Bring in a passive money partner and the interest may be a security. RCW 21.20.005(17)(a) defines a security to include an investment contract, and an investment of money or other consideration in the risk capital of a venture with the expectation of some valuable benefit to the investor where the investor does not receive the right to exercise practical and actual control over the managerial decisions of the venture. RCW 21.20.140 then makes it unlawful to offer or sell any security in this state unless it is registered, exempt, or a federal covered security. Read those two together before promising a friend a share of the profit on a flip, because investing alongside clients raises disclosure questions on top of them.

Example

Priya Raman and Dale Okafor agree in writing to buy, renovate, and resell one duplex in Everett, splitting profit and loss evenly. Each contributes $130,000, so the venture holds $260,000: $160,000 for the down payment on a $640,000 purchase, $95,000 for the renovation, and $5,000 for carrying costs. A lender funds the remaining $480,000. Nine months later the duplex sells for $845,000. After the $480,000 payoff and $55,000 of closing and carrying costs, $310,000 comes back. Subtract the $260,000 they put in and the venture cleared $50,000, or $25,000 each. The deed is signed, the accounts close, and the venture is over.

Now change one fact. Suppose Dale's cousin had put in $60,000 with no say on the purchase price, the contractor, or the list price. Under RCW 21.20.005(17)(a) that passive stake looks like risk capital in a venture without practical control, which makes it a security, and RCW 21.20.140 then asks whether it was registered or exempt before it was sold. The deal math was the easy part.

Common Mistakes and Exam Traps

• One project defines a joint venture and an ongoing business defines a partnership. That single-transaction line is the distinction most exams test.
• A joint venture is a contract, not a filed entity, so it carries no built-in liability shield the way a corporation or a limited liability company does.
• Sharing profits from co-owned property does not by itself prove a partnership. RCW 25.05.055(3)(a) says joint tenancy, tenancy in common, or part ownership is not enough on its own.
• A joint venture interest sold to a passive investor can be a security under Washington law. The label on the agreement does not decide it, the investor's lack of practical control does.