Vermont Joint Ventures

Back to Vermont

A joint venture is not a statutory entity or form of doing business in Vermont. Rather, it is a contractual arrangement whereby more than one person or entity join forces to operate a venture. Many joint ventures operate by agreement only; the participants do not have to create a separate entity as the vehicle for a joint venture. However, nonprofit corporations, for-profit corporations and LLCs can each function as the entity vehicle for joint ventures.  When liability protection and maximum flexibility are required and the number of participants/investors is small, the LLC is the preferred entity/vehicle for the joint venture. 

Thus, for example, a tax-exempt nonprofit corporation pursuing a social mission and a for-profit corporation operating a business can join together and form a joint venture using an LLC as the vehicle for the enterprise.  The operating agreement would spell out the rights and obligations of each member. However, each member would be bound by the laws and rules governing its own existence, so that the nonprofit may not confer an undue economic benefit on the for-profit co-venturer, nor may the business corporation use the joint venture to do something that it could not do directly.

The IRS has addressed the circumstances in which tax-exempt social and charitable enterprises may engage in joint ventures with for-profit entities, and has adopted rules that govern the kinds of benefits that tax-exempt enterprises can confer on for-profit entities in the context of joint ventures.  The IRS rules are extremely complicated. A tax-exempt social enterprise should not enter into a joint venture with a for-profit entity without first seeking advice from expert counsel.

Sanders, Michael I., Joint Ventures Involving Tax-Exempt Organizations (John Wiley & Sons, 3d revised ed 2007)    

Back to Vermont