Common use of Joint Operations Clause in Contracts

Joint Operations. A joint operation (JO) is defined as two or more sole proprietors working together. How closely these proprietors work together is at their discretion. They may benefit financially by exchanging excess capacity in one aspect of an operation for the use of resources that otherwise might be inaccessible. No filings or public disclo- sure are required, but it is best to have a written operating agreement that defines the joint nature of the operation and explicitly states that no partnership exists or is implied. Control of man- agement is retained by each individual to the extent that their decisions are not contrary to the operating agreement. Each proprietor maintains his own assets and depreciation schedule, and new capital purchases are made individually. For income tax management, each member of a JO has the same flexibility and options available to any sole proprietor. The financial resources of each proprietor of a JO are limited to his own debt or equity capital. Because there is no joint ownership of any property, the accounting and termination of a JO is relatively simple. Generally, there are no tax consequences to terminating a JO. Each proprietor is able to leave the JO with his assets. However, the JO agreement should specify the methods that will be used to terminate the JO. Each proprietor in a JO is subject to unlimited liability like any sole proprietor. Working with another individual without any kind of writ- ten agreement could be risky because the lack of a written joint operating agreement could be construed to imply a partnership arrangement. This may expose one individual financially to the financial problems of the other.