Joint ventures in the United States: overview

A Q&A guide to joint ventures law in United States.

The Q&A gives a high level overview of joint ventures law, including regulation of joint ventures, types of joint ventures permitted in the jurisdiction, whether corporate joint ventures are subject to the corporate law, formalities for formation and registration of joint ventures, statutory limits on duration, anti-trust rules, termination, rules relating to joint ventures with foreign members, and incentives.

This Q&A is part of the Joint Ventures Law Global Guide.

Joseph J Dehner, Frost Brown Todd LLC

Domestic company joint ventures (JVs)


1. Are JVs expressly regulated?

Joint venture (JV) is not a defined legal term in the US. It's a phrase that applies to contractual and entity strategic alliances, including all sorts of arrangements that constitute strategic combinations or agreements between businesses or individuals. JV is neither a category of entity that state or federal codes address by that name, nor an expressly regulated type of contract. Black's Law Dictionary defines a JV as a "business undertaking by two or more persons engaged in a single defined project", but JVs can last many years and address a scope of business instead of one project. Given the wide variety of legal structures for such an undertaking, the regulation of JVs in the US depends on the choice of structure rather than on the fact that a "joint venture" exists between two or more parties (see Question 2).

The US is largely a freedom of contract jurisdiction, enabling domestic and foreign parties to collaborate freely with one another in a variety of business contexts. Foreign and domestic parties are free to make agreements about an almost unlimited number of subjects without forming an entity together. They are also free to form entities (mostly corporations or limited liability companies (LLCs) in the US) to conduct jointly agreed activities in a limited liability format. Federal and state laws and regulations generally do not regulate JVs as such, but instead regulate businesses, whether or not the ownership amounts to a JV mix. Therefore, corporations that involve US/foreign owners are regulated under the laws of the state of formation in the same way corporations that have only one owner or many owners, domestic or not. LLCs are likewise regulated under the LLC rules of individual states regardless of whether the members of the LLC are foreign or domestic.

Nonetheless, there are certain federal and state laws that regulate matters which often arise for a JV, including these important subjects:

  • Competition law. Federal and state anti-trust and competition laws restrict parties from agreeing to form relationships that violate US fair competition rules. This can:

    • impose pre-merger notification and waiting periods for sizeable transactions pursuant to the Hart-Scott-Rodino Anti-trust Improvements Act of 1976;

    • preclude price fixing and territorial carve-up arrangements when participants in a JV have dominant market power.

    See Questions 16 and 18.

  • Taxes. Tax considerations are important in devising an efficient JV. Careful pre-formation planning can avoid costly tax impacts.

  • Intellectual property. Patent, trade mark, copyright and other intellectual property (IP) matters are regulated country by country, with careful attention needed for any JV that will hold IP rights contributed by the participants.

  • US export and trade rules. The US has sanctions, Customs and other rules that restrict IP and business dealings with a variety of persons, entities and countries. If a JV involves technology transfer from the US of IP or products deemed sensitive to national security, including disclosure in pre-merger discussions, this can restrict JV formation.

  • Securities laws. US securities rules apply to securities issuance and transfer, and require consideration when a JV is formed or a participant wishes to transfer shares or units to a third party.

  • National security concerns. For businesses that raise national security concerns, there can be filings required under the Foreign Investment and National Security Act of 2007 and its underlying statute, the Exon-Florio Amendment to the Defense Procurement Act of 1950.


2. Which types of JV are allowed?

There is no express restriction on the type of JV allowed in the US. Generally, there are two kinds, contractual arrangements or entities (corporation or LLC mostly, but various partnership entities are also permitted and utilised in particular contexts such as real estate ventures). Contractual JVs can cover a wide variety of subjects such as:

  • Component parts supply.

  • Franchise.

  • Joint production.

  • Profit split.

  • Territorial coverage of sales and marketing.

3. Are corporate JVs subject to the corporate law?

Corporations are formed under the laws of a state or other US jurisdiction, not under federal law. Each state has a corporate code that governs corporations, including those that amount to a JV. Certain corporate matters are governed exclusively by the law of the formation state, while other inter-party matters can be subjected to the rules of other jurisdictions by the parties' agreement.

Formation and registration

4. Is the use of foreign language in a JV's founding documents (both corporate and contractual) restricted?

Entity JVs

Company formation and registration are largely done through the websites of the Secretaries of State, whose job it is to issue corporate charters and make public certain limited information about that state's corporations (see box,The regulatory authorities). These forms are all in English, and the articles of incorporation and statutory agent registration required generally in all states to form a corporation and keep it in good standing are provided in the English language. Nonetheless, shareholders can draft their governing documents in a foreign language, as long as they file the required information with the state authorities, which can be done through a valid translation from a foreign language.

Contractual JVs

Parties are generally free to create agreements in any language they choose, and can specify whether one language version will be binding in the event of a dispute. State law determines whether a written agreement is a valid expression of the parties' intentions and is therefore enforceable. If there was no meeting of the minds or if there was a mistake between contracting parties when they entered into a written agreement, it is generally considered throughout the US that this can give a party a reason to escape the result of plain or arguably ambiguous contractual language. As a general rule, however, there is a strong principle throughout the US that parties should be bound by written and signed agreements when they are clear on their face. For this reason, it may be advisable to have contracts worded in more than one language when parties are from different linguistic backgrounds, with a clear statement in the agreement as to which language version is binding in case of a dispute.

5. Are public officers (for example, public notaries) involved in a JV's formation procedure?

Entities are formed generally through the Secretary of State of a particular jurisdiction, with modest fees and disclosures involved. Except for ensuring that a proposed name is available (that is, it is different from existing entity names in that state) and that the required information is provided on prescribed forms, the Secretary of State procedures are ministerial (that is, formal in nature and do not depend on individual discretion).

Notaries are not involved in entity formation, unlike in many other jurisdictions. For contractual joint ventures, there are no public officers involved, with extremely rare exceptions. Many lawyers are also notaries, but the role of a notary is extremely limited in the US, restricted generally to attesting that someone who signs a document is actually that person and is sworn to tell the truth in statements made.

6. Are JVs registered with any local registries? Are public sector bodies' authorisations required for a JV's establishment?

Local registries

Corporations, LLCs and most other types of entity are created and registered on websites of Secretaries of State. There is no commercial register as exists in many countries in Europe. Local counsel in particular jurisdictions can advise on whether any county or other jurisdiction more local than the state level requires any type of registration, for licensing or otherwise (for example, the JV itself may need to obtain local or state licences, depending on its line of business, whether an engineering firm, or an establishment serving alcoholic beverages). This can, however, follow establishment of the JV entity itself, which usually is authorised in its public formation documents to conduct all forms of lawful business.

Public sector bodies

A state officer's website or office (Secretary of State) authorises creation of entities as corporations and LLCs, and can register various forms of partnerships as entities, whether they are JVs or not. With the exception of a limited number of sensitive industries (for example, a telecommunications JV may need approval from the Federal Communications Commission), public bodies generally do not approve formation of an entity or contractual JV. Instead, if the business of the JV is in a regulated industry, the JV would then seek such approvals as needed to obtain needed licences and approvals. For example, if foreign and domestic persons or entities wanted to form a securities broker-dealer to operate in the US, the entity (before or after establishment) would seek approval from the US Securities and Exchange Commission and conform with capital and other requirements that apply to that type of business.

If a combination of parties is involved in an acquisition that meets the monetary threshold of the Hart-Scott-Rodino Act, the parties would need to notify the Federal Trade Commission and Department of Justice, wait for at least 30 days before consummating a JV formation and otherwise satisfy any objection by federal authorities to a claim that the combination would be anti-competitive. The potential parties to a JV can assess themselves whether there is the likelihood of an anti-trust challenge by discussing this in advance with their counsel and professional advisers. Sharing of sensitive price information between two companies that would constitute a monopoly or near-monopoly, for example, could raise an anti-trust issue even if the JV does not proceed. The parties' self-assessment, however, would not bar the Government's independent review of a potential JV that has anti-trust implications.

7. What other formal requirements must be complied with to validly constitute a JV?

Documentation must be filed with anti-trust authorities (see Question 6). In addition, for regulated industries, JV formation documents may need to be filed and reviewed in advance by the applicable regulators. A contractual JV may, by contrast, not require regulatory approval before becoming valid and effective between the parties. Therefore, if the business of a JV depends on later regulatory approval, the parties should provide in their agreement that this approval is a condition precedent or subsequent to the JV becoming effective as between the parties.

Permitted markets

8. Can the JV instrument be used in every market? Are there any restrictions to be considered and carefully assessed before investing?

JVs can be used in virtually all sectors of the US economy. If a non-US party is to have a controlling or material role of ownership or control of a sensitive business, however, approval or non-objection may be needed in advance of an investment. For example, if a US/foreign combination of airlines seeks landing rights at a particular US airport, approval of the Federal Aviation Administration would be required. The background or other characteristics of a proposed party to a JV may preclude the JV from carrying out its business. For example, if a non-lawyer wanted to own part of a law firm, that would not be approved under the current rules of any US jurisdiction.


9. Can a JV be established with any purpose?

JVs can be established with a purpose. Entity JVs are usually formed with a purpose clause providing that the entity may engage in any lawful purpose and often without any description at all of the major intended purpose of the business. Certain businesses are isolated in what they can do, therefore requiring particular description of the intended scope of business (for example, a bank). A contractual JV almost always has definition around its intended purpose, including a description of the respective duties and rights of each party to the agreement, though in theory a general purpose clause would be acceptable for a contractual JV.

Share capital and participation

10. What possible forms of participation are there in a JV's share capital? How can a JV member contribute and are there statutory limits on the possibility to make contributions in kind?

Forms of participation

Corporate JVs are governed by state corporate law. Owners of a corporation hold shares to evidence their ownership interests. These can be voting shares (usually called Class A), or can be assigned preferences or other differences from ordinary voting shares, and can address the needs and desires of lenders, management, key employee groups and others who would be issued different classes of shares. There are other types of non-equity instruments that can be used to involve JV members, such as debt (which could be convertible into equity), "phantom stock", incentive compensation plans, profit splits and other devices separate from participation in share capital.

LLC JVs are governed by state LLC rules. LLCs provide greater flexibility to JV participants than share ownership in corporations. Unit holders, called "members" of an LLC, can be allocated different rights and duties in the LLC Operating Agreement. Tax allocations can be adjusted in different proportion to capital contributions. Some participants can contribute their time and effort, while others can be financial investors. Units in an LLC can carry differing rights concerning transfer or sale.


In general, both corporate shares and LLC units can be purchased through contributions of cash, non-cash assets or services. LLCs represent a more flexible means for JV owners to contribute a variety of substance (time, effort, IP, money, tangible property) than is generally possible through a purchase of corporate shares. State law should be consulted to determine the extent to which non-cash capital can be contributed to fulfil share subscription requirements. When using non-cash assets, furthermore, it is advisable for tax reasons to have a documented, reasonable basis for declaring the value of the property contributed by a purchaser of equity interests. If a party wishes not to contribute outright ownership of a non-cash asset, it is possible to consider contribution of lease or other rights to the JV, though that will have tax implications. Beyond the financial contributions, parties to a JV can contribute services to the success of the JV. Services can take the form of director-level participation, which may not require payment from the JV itself, or may be a provision of administrative or other services that should be documented and priced on an arm's-length basis to meet transfer pricing requirements.

11. Can a corporate JV's share capital be indicated by making reference to a foreign currency?

Most states do not require any specific reference to currency in forming a corporation. With some exceptions, the information that must be provided to a Secretary of State to form a corporation does not specify a US$ figure, and "no par" shares are broadly allowed and used. Corporate articles of incorporation can, if the owners wish, state an amount of stated initial capital, but unless the website or required form of a particular state insist upon stating this in US$, the use of a foreign currency may be allowed. Nonetheless, it is practical to state cash amounts contributed in exchange for corporate shares in US$ terms, which will be useful in preparing tax returns and financial statements under domestic accounting practices and standards.

Corporations may engage in non-US$ denominations for contributions, dividends, other distributions and other payments from a JV, in which case the exchange rate basis should be agreed in advance as best practice. Many states have adopted the Uniform Foreign-Money Claims Act, which addresses how a US court would establish a US$ amount when foreign currency is material to the resolution of a dispute; the Act serves as a back-up mechanism for determining currency exchange issues when parties have not agreed in advance on a specific exchange conversion feature.

Duration and limits on membership

12. Are there statutory limits on a JV's duration?

Nearly all states allow corporations and LLCs to have perpetual duration, and offer the option to allow owners to limit the duration by agreement. Perpetual duration is usually the default option. The parties to an entity or contractual JV can specify in their private documentation whether the entity will have a stated termination date or otherwise provide for buyout rights or other exit mechanisms.

13. Are there statutory limits on the number of members participating in a JV?

Contractual JVs can have as many participating persons as is feasible.

Both corporations and LLCs can have an unlimited number of owners (shareholders for corporations, members for LLCs), although some state statutes limit the number of members permitted for an LLC. Corporations and LLCs may also have only one owner, with others to be added later (although a single owner entity is, of course, not a JV). There are securities law restrictions on the number of owners of an entity before registration or other securities law requirements will be triggered.

Public sector bodies

14. Can a public sector body enter into a JV agreement? Subject to what conditions? In particular, do public private partnerships (PPP) laws and regulations apply?

Whether a public body can form a JV with another entity, governmental or private, depends on the governing law of the jurisdiction. In general, the federal government does not directly form a public private partnership where it owns some of a private entity, although this sometimes occurs (for example, in the wake of the 2008 economic crisis, the US Government acquired holdings in private financial institutions in exchange for its financial support). State governments may be limited by their constitution so as to prohibit state investment into specific public/private partnerships (for example, Ohio enacted a constitutional prohibition of this type after failures of the canal system in the 19th century).

Generally, however, there are a variety of public/private partnerships in the US of a federal, state and local nature (see website of the National Council for Public-Private, Many public/private partnerships or JVs involve the Government granting the rights to a private party to operate a public enterprise, such as a highway, toll bridge or other infrastructure element. Sometimes this takes the form of an entity JV, and other times it is a matter of contract. It is essential to consult state and local experts familiar with the rules that apply to such vehicles and arrangements, as the specific conditions and requirements vary greatly from state to state and among localities.

Non-competition and anti-trust clauses

15. Are there statutory constraints on the use of non-competition or anti-trust clauses in a JV agreement?

During period of effectiveness

It is generally permissible to restrict the JV participants from competing against the JV itself, but instead concentrating on making the JV successful. However, a JV must not allocate duties, territories or other activities between two JV participants in a manner that does not constitute per se anti-trust violations that affect US commerce as a whole, for example:

  • Price-fixing.

  • Changing dominant competitors into a monopolistic arrangement.

Nonetheless, under many state statutes that govern LLCs, competitors can expressly agree that they may individually compete against a JV to which they are a party, even though if there is no such express agreement it would be either implied as a matter of law or fact that no such competition is permitted during the existence of the JV. Under most corporate law statutes and binding case law, substantial shareholders of a corporation may owe a fiduciary duty not to compete against the corporation they serve. This principle varies from state to state but at a minimum applies to corporate directors and officers, even if not to shareholders as such. If JV participants are natural persons, they may generally and almost universally are forbidden in JV agreements from competing against the JVs they serve during employment or holding a position as an officer, manager or director.

Following termination

States generally permit business enterprises to agree between them that they will not compete in specified ways following termination of their JV agreement. If a JV terminates by one party buying out the other, for example, it would be broadly permissible for the buyer to prevent the seller from competing against the JV for some stated and reasonable period. This cannot be done in circumstances that would constitute a violation of the anti-trust laws that protect the national market (see above, During period of effectiveness).

When a natural person terminates participation in a JV, by contrast, states vary in regard to post-termination competition restrictions. There are three categories of states in this respect:

  • Some forbid enforcement of post-termination restrictions on competitive employment.

  • Many permit only reasonable restrictions, as determined by courts on a case-by-case basis (for example, one or two year duration, or limited geographic or sector scope).

  • A minority apply the "blue-pencil" test, allowing a court to eliminate enforcement of express contractual terms deemed unreasonable, but not allowing the court to fashion relief of a more limited nature than the agreement states.

In states where restrictions on post-termination competition after participation in a JV are not permitted, the JV may effectively restrict ability to compete by requiring that the individual does not use confidential information gained during the individual's participation in the JV, or through other measures that do not expressly forbid competition as such. There are also some individual professions that do not permit non-competition restrictions after a party has left a firm (for example, attorneys are generally free to accept clients freely after departing a law firm, on the basis that individuals should be free to select counsel of their choice).

Post-termination restrictions require careful consideration and wording in JV agreements, and choice of law clauses become important to increase the likelihood that they can be successfully enforced if violated by a party.

De facto company/partnership

16. Must the contractual JV satisfy any conditions to avoid falling within the definition of de facto company/partnership?

Businesses and individuals can create a general partnership by accident. A general partnership means that each party is jointly and severally liable for the debts of the partnership, something not desired in virtually all JV circumstances. A contractual JV should therefore be drafted and the parties should operate in a manner that minimises a risk that a court would deem their relationship to be a general partnership de facto. State law, both statutory and case law precedent, differs on when a de facto partnership may be declared in a given case. The factors that generally support a conclusion that a de facto partnership exists in a given case include these:

  • Sharing of net income or profits.

  • Sharing of losses or expenses.

  • Whether the JV operates through a common set of books.

  • Whether the parties allow each to exercise full decision making.

  • Power that binds the other.

  • Whether the parties are obligated to contribute capital to the JV.

Careful drafting of the JV contract can usually avoid accidentally creating a de facto partnership.

There are separate considerations that arise from US tax law. If parties have a contractual agreement and do not wish to be treated as having formed an entity for tax purposes, they can address that as well in their JV contract, and would then separately report and file tax returns.

Limiting member liability

17. Can a JV agreement provide that a JV member can participate without incurring any risk, loss or reward?

Parties have broad scope to agree on what risk, loss and reward each participant to a JV may assume. For entity and contractual JVs, parties can state how much capital they are prepared to risk initially or over time, and absent unusual circumstances limit their financial liability to the agreed amounts. That is the essence of limited liability. In contrast, in general partnerships each general partner takes on unlimited potential liability for the obligations of the partnership. JV agreements generally include specific and carefully negotiated and worded provisions about which party:

  • Is responsible for what activities and contributions.

  • Bears what risks.

  • Will indemnify and hold the other harmless for specified claims or damages and other matters that allocate risks and rewards.

Nonetheless, there is a concept in the US of piercing the corporate veil. In certain limited situations, a court can hold the owners of a corporation or limited liability company liable for the enterprise's obligations if the enterprise is unable to pay its debts. A specific example arises for federal tax obligations, where the person responsible for IRS reporting may take on personal liability when failing to carry out that responsibility properly. In general, the corporate veil may be pierced when, under particular state law statute or precedent, the formalities required to create or maintain the enterprise properly have been ignored, such as when parties commingle assets or hold themselves out to third parties as being responsible in case the JV defaults.


18. Do any anti-trust rules, guidelines or policies apply to a JV agreement?

Anti-trust rules, both federal and state, apply to a contractual or entity JV. Parties cannot agree to do things that violate per se anti-trust rules, such as price-fixing. If a JV arrangement would amount to anti-competitive collusion or other such matters that infringe federal or state fair competition laws, it would not be valid, and its very formation would constitute an offence. Anti-trust counsel should be consulted during preparation of a JV agreement or formation of a JV entity. When IP rights, including patent matters, are involved, counsel familiar with the interplay of patent and competition law should review any provisions that raise competition concerns.

Governance and limits on directors

19. Can the parties to a JV freely regulate the JV or are they subject to certain restrictions?

For entity JVs, the statutes and case law concerning regulation of the particular type of entity apply to regulate the JV. Nonetheless, parties have broad discretion in expressing their agreement on how an entity should be operated. Both corporations and LLCs can have different classes of ownership, one with voting rights and another without. An LLC can designate a specific manager to make decisions on virtually all matters or a particular list of matters. Provisions can address the ability of members to lend funds rather than be subject to involuntary capital calls, and can provide for such loans to be convertible into equity on defined terms. So long as state governing statutes are honoured and the rules are observed, the parties have broad freedom to regulate their internal affairs.

State statutes generally provide the basis on which an entity may be dissolved, including when the parties are deadlocked about material decisions. The parties can, through their express agreement, provide for alternative means of avoiding or dealing with deadlock that could force involuntary dissolution of their arrangement. There are various commonly used devices for this purpose, including:

  • Buy-sell provisions.

  • "Russian roulette" (a form of deadlock mechanism), private arbitration or tie-breaking mechanisms.

  • Other measures that avoid destroying an entity when parties cannot agree on a particular matter but would prefer to keep the entity viable.

There are certain laws that regulate aspects of a JV beyond the governing rules for entities. Securities laws, for example, may prevent the sale of one party's interest in a venture, absent ability of the venture and seller to meet those requirements. Public policy on various matters may override the parties' express agreement on other matters, though such instances are limited in the US. If a corporation is treated as a "Sub-S" corporation for tax purposes, no non-US taxpayer can become a shareholder of the entity.

20. Are there limits or restrictions on the eligibility of an individual as a member of the board of directors/statutory auditor?

There are generally no restrictions on the ability of non-US citizens to serve as directors of a corporation or as manager of an LLC. Persons under the age of 18 are generally unable to serve. Parties to a JV can state their own requirements for persons to serve in particular capacities for the JV, such as professional credentials required for specific positions, though it is common not to do so but instead to retain flexibility concerning what individuals serve in which capacities. Statutory audits as such are not required in the US in the sense that exist in many other countries. If an audit is required or desired, as would be the case for public companies (which are not JVs), a professional firm or individual with the credentials to perform such public audits would be required.


21. What legal regime applies to a JV's termination? Can a JV be terminated for just cause on request of one party?


For contractual JVs, termination depends on what the parties have agreed in their contract about ending their relationship. This is why perhaps the most important aspect of a JV agreement is its termination section. If the parties have clearly defined what happens on what basis when any party to a JV wishes to end it, the courts are highly unlikely to interfere with the mechanism that is provided in the JV contract. However, if there is no termination provision included and if a court were to conclude that the JV is a de facto partnership, the general partnership termination rules will apply. In general partnerships, if one party decides to end it, the general partnership is immediately terminated, and the JV will be auctioned at a distress price unless some other exit is agreed. The most common termination of a JV is a buyout of the departing party's interest.

For entity JVs, the parties are generally free to provide for express termination provisions in their governing documents. The default rules for termination depend on the form of entity. Corporations, limited liability companies, limited partnership and other forms of entity each have statutory rules that govern termination if the parties have not otherwise stated how a termination will arise and be handled. In general, a shareholder of a corporation or a member of an LLC is not able to "withdraw" as such. Instead, a shareholder must either find a buyer for shares (if that is permitted by the shareholder agreement, if any exists, or by the securities laws). A member of an LLC will be limited to remedies provided in the LLCs operating agreement or in the particular state's LLC statute if the member wishes to withdraw from being a member of the LLC, and will not be able to force termination of the LLC as a matter of individual right.

Just cause

Just cause may or may not be a basis to terminate a JV. If, for example, the parties have agreed to a long-term relationship to address a particular mutual business objective, and if the parties have specified only certain limited grounds that would permit a termination prior to a stated date of the JV's term, a party disappointed with how the JV is proceeding may not be able to terminate it, even if in the mind of the disappointed party there is just cause.

On the other hand, there are certain failures so material that courts are highly likely to consider them grounds for termination, even if the governing documents do not specify that they amount to just cause. For example, if one party to a JV is the custodian of funds and fails to pay another party what the JV clearly entitles it to receive, the failure to pay would generally be considered a material breach of the JV agreement, which could permit the non-breaching party to terminate the JV as of right.

22. Is the termination of a JV agreement subject to any public sector body's approval?

Contractual JVs generally do not require regulatory approval before termination, though this could be the case in isolated instances such as in highly regulated industries where governmental licences depend on who participates in the owners or managers.

For entity JVs, terminating the entity itself will require a liquidation, winding-up or other form of closing the business that ultimately must meet the requirements of the state's rules for closing the business and the entity. If a corporation, LLC or other entity is concluded with full payment of all debts, including taxes, other government charges and third party obligations, the business and entity can be closed without the ability of a public sector body to prevent it.

Choice of law and jurisdiction

23. Are there constraints on the choice of the law and the jurisdiction applicable to a JV?

Parties are very free in the US to specify the choice of law that governs their contracts. If the substantive law of a particular jurisdiction is desired by all parties to a contractual JV, that choice of law can be declared, along with wording that this is "without application of its choice of laws principles" or similar wording. Otherwise, applying one jurisdiction's law would include its choice of law rules, which could unintentionally lead to application of a different jurisdiction's substantive law. Nonetheless, if the governing law is declared to be a jurisdiction with no connection at all with the parties or the JV itself, a court could determine that there is no reasonable connection between the chosen jurisdiction and the subject matter of the JV, and a court might apply its own law or the law of a different jurisdiction in resolving a dispute. If the parties are choosing a "neutral" jurisdiction's rules because they are unable to agree on the laws of either of their own jurisdictions, that should be so stated in the JV agreement as a reason for choice of that substantive law, which would bolster the argument that this creates a reasonable relationship between that jurisdiction's laws and the JV's purpose.

By contrast, forum selection for disputes is generally honoured if the parties have chosen to arbitrate their disputes in a stated manner, including specific choices concerning the arbitration forum, the rules to be applied and other matters. However, if the parties specify that all disputes will be resolved in litigation in a jurisdiction that has no relationship to the JV or the parties, the courts of that jurisdiction may refuse to accept jurisdiction of the dispute, or may transfer the case to a different jurisdiction on venue grounds. A few states have adopted rules that allow their courts to accept jurisdiction of cases where the parties have expressly stated that those courts will be used as the exclusive place to resolve disputes. This should be carefully checked before specifying exclusive jurisdiction of a place that is not related to either party or to the subject matter of the JV.

For entity JVs, states generally insist on applying their own rules to entities that are formed under their codes. So, if termination of a New York corporation is in question, or if there is an issue whether one party is properly authorised to speak or act for an Idaho corporation, that question may be a matter that can only be answered in accordance with the law of the state where the corporation was formed, regardless of what the parties say in their JV agreement. For cross-border JVs, there is the additional issue of whether an arbitration award or court judgment will be enforceable in another country, especially when the public policy of that other country is contrary to the award or judgment.


JVs with foreign members

Validity and authorisation

24. What are the rules relating to validity and authorisation of JVs with foreign parties?


US parties are permitted to have JVs with foreign parties, both in the US and abroad. US parties are subject to US statutes and regulations forbidding financial relationships with terrorist and other organisations and persons, as well as other "denied persons" specified from time to time by the US Government, but otherwise are broadly free to enter into JVs with foreign parties. Likewise, with very few exceptions, foreign parties can enter into JVs engaged in US commerce on a national treatment basis, so that there is no discrimination or favouritism applied to whether a JV participant is US or foreign owned or based. There are restrictions that can apply to foreign participation in US-based JVs in certain industries, such as defence, commercial aviation, maritime industry, communications and certain other sensitive sectors.

The Committee on Foreign Investment in the United States (CFIUS) is a US Government Cabinet level committee that may review acquisition or investment of a non-US entity in an existing US business that presents a threat to US national security (for example, operation of a major ocean port, or operation of a nuclear power plant). If a particular transaction implicates national security concerns, the parties can submit a voluntary notification of their intended JV, which triggers a maximum 30-day review. At this point the CFIUS staff either clears the transaction or begins a 45-day investigation to determine whether they should recommend to the President of the US blockage of the proposed transaction. If a foreign government is involved as a proposed JV participant that affects US national security, the 45-day investigation may be mandatory. The number of CFIUS matters that have moved to the 45-day investigation stage have been fewer than 100 per year, and the vast majority of transactions submitted to CFIUS for review have been approved without incident.


There is no specific limit on the number of JV participants who must be local to have a valid US JV contract or entity. It is proper for entirely non-US participants to form a US JV, which would be normal for any type of common business pursuit in the US market.


No specific governmental authorisation is required before a US JV is formed that includes a foreign party. If a foreign individual is involved and wishes to have work permission or receive funds directly for US-based employment, the individual will need visa approval or otherwise address restrictions on US-based employment income paid to non-US citizens or permanent residents.

Effect of foreign membership

25. Are any of the rules relating to domestic company JVs (see Questions 1 to23) different for JVs with members incorporated under, or governed by, the laws of a foreign country?

The rules that relate to entity JVs are generally the same whether a business is formed inside or outside the US. Foreign entities that invest in the US must provide information to the Census Bureau, which maintains data on the level of foreign investment in the US but does not share such information with any other governmental or other organisations. Such information gathering is only for statistical purposes of the Census Bureau (see Bureau of Economic Analysis,

Economic or financial incentives

26. Are there economic or financial incentives for foreign direct investments in a JV?

The federal government does not negotiate incentive arrangements with domestic or foreign businesses to invest in a JV or otherwise. Foreign businesses can generally compete equally with domestic businesses in seeking incentives from state and local governments, and there is active competition among regions of the US to induce foreign and domestic businesses to locate, retain and expand jobs in particular localities and states. If a JV is to become the employer of a business that will employ a significant number of people, incentives should be explored and obtained before the decision to locate in a particular jurisdiction is committed, as such incentives are generally awarded as an incentive for the decision to locate or expand. Incentives related to job retention and other matters can be available from state and local sources after a JV has established a business in a particular location.

Minimum investments/contributions

27. Are there mandatory minimum equity investments or contributions in kind thresholds for a foreign JV member?

The US is a jurisdiction that does not impose minimum levels of what is called "registered capital" in other jurisdictions, and the amount of initial paid-in capital for a business formed in the US is normally not even a matter of public record. There is no "commercial register" in the various states that publishes such details.


The regulatory authorities

Secretaries of State of individual states

Main activities. Responsible for approving formation of entities in a state

W Differs for each state. For example, Ohio:

Committee on Foreign Investment in the United States

Main activities. Determines impact of foreign persons' acquisition of control of US businesses with national security implications and recommends action by the President


Online resources



Description. This US Government site highlights information useful to non-US businesses looking to enter or expand in US markets.

Contributor profile

Joseph J Dehner, Chairman of International Services Group

Frost Brown Todd LLC

T +513 651 6949
F +513 651 6981

Professional qualifications. Ohio, US, 1973; Florida, US, 1986

Areas of practice. International business; securities/investment disputes.

Non-professional qualifications. AB, International Relations, Princeton University; JD Harvard Law School

Recent transactions

  • Foreign private equity firm representation in US acquisition.

  • Crowdfunding advice to foreign owner.

  • North American market entry plan for Nordic solution provider.

Professional associations/memberships. American Bar Association; Union Internationale des Advocats; LCIA Users Council.

Publications. Unlocking America; Equity-Based Crowdfunding Outside the USA; numerous posts on legal developments in China.

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