How Is a Commercial Joint Venture Dissolved After Project Completion?

Introduction

Commercial joint ventures are often created for a specific construction, infrastructure, technology, or development project. Once the project is completed, the parties must decide whether to continue their relationship, terminate the joint venture, sell or transfer its assets, settle liabilities, and distribute the remaining proceeds.

The proper exit process depends first on the legal form of the venture. An unincorporated joint venture is generally governed by its joint venture agreement and, where the agreement is silent, by applicable principles of partnership law. An incorporated joint venture corporation, however, is governed by the Revised Corporation Code of the Philippines.

What Legal Form Does the Joint Venture Have?

The parties should determine whether they created an unincorporated joint venture or a separate corporation. The distinction affects the procedure for dissolution, the treatment of assets, the settlement of liabilities, and the authority of the parties to act after the project has ended.

The Supreme Court has described a joint venture as an arrangement involving a community of interest, sharing of profits and losses, and mutual control. Under Philippine law, a joint venture is generally treated as a form of partnership, although corporations may enter into joint ventures without creating a partnership.

In Valdes, et al. v. La Colina Development Corporation, et al., G.R. No. 208140, July 12, 2021, the Supreme Court explained that a joint venture is generally similar to a partnership but is commonly associated with a specific or temporary undertaking. The Court also emphasized that the parties’ actual agreement and intent determine the relationship.

SEC-OGC Opinion No. 25-12 distinguishes between an ordinary joint venture and an incorporated joint venture corporation. Where the venture is incorporated, the corporation is formed under and governed by the Revised Corporation Code of the Philippines, regardless of a contractual provision attempting to apply partnership law or foreign law.

What Happens When an Unincorporated Joint Venture Ends?

Completion of the project ordinarily results in the accomplishment of the venture’s purpose. This may cause dissolution if the joint venture agreement provides that the venture ends upon completion, acceptance, sale, turnover, or commercial operation of the project.

Dissolution does not immediately terminate the legal relationship for all purposes. It changes the relationship among the participants and begins the winding-up stage. During winding up, the venture continues only to the extent necessary to settle its affairs.

In Idos v. Court of Appeals, et al., G.R. No. 110782, March 20, 1998, the Supreme Court distinguished the stages of dissolution, winding up, and termination. Dissolution is the change in the partners’ relationship; winding up involves settling the venture’s business affairs; and termination occurs only after the affairs have been fully wound up.

Similarly, in Primelink Properties and Development Corporation, et al. v. Lazatin, et al., G.R. No. 167379, June 6, 2006, the Court held that dissolution does not itself terminate the partnership. The entity continues until its assets, obligations, and remaining business affairs have been settled.

What Is the First Step in Liquidation?

The parties should review the joint venture agreement before taking action. The agreement should be examined for provisions on project completion, termination, sale of assets, valuation, distribution of profits, treatment of losses, dispute resolution, bank accounts, intellectual property, warranties, and post-completion obligations.

The parties should then adopt a written resolution or closing agreement confirming that the project has been completed and that the venture will proceed to winding up. The document should identify the date of dissolution, the persons authorized to complete the remaining transactions, and the method for preparing the final accounting.

Unless the agreement provides otherwise, authority to act for the venture after dissolution should be limited to acts reasonably necessary to wind up its affairs or complete transactions that began before dissolution.

What Must Be Included in the Final Accounting?

A proper final accounting should identify all project receipts, expenses, liabilities, advances, capital contributions, retained funds, taxes, claims, and distributable assets. Each participant should receive supporting records, including contracts, invoices, bank statements, progress billings, payroll records, tax filings, and settlement documents.

The accounting should distinguish between capital contributions, reimbursable advances, loans, project expenses, and profit distributions. The classification of an advance may affect whether it is repaid as a debt or treated as part of a participant’s capital interest.

In Philex Mining Corporation v. Commissioner of Internal Revenue, G.R. No. 148187, April 16, 2008, the Supreme Court held that an arrangement displaying the elements of a partnership may be treated as such despite the label used by the parties. The Court considered mutual contribution, profit sharing, and joint control in determining the relationship.

How Are Venture Assets Distributed?

Assets should not be distributed merely because the project has been completed. The venture must first determine its outstanding obligations and reserve sufficient funds for liabilities that may arise after completion.

Distribution ordinarily follows this order:

• Payment of project creditors, employees, taxes, suppliers, contractors, lenders, and other valid obligations;
• Settlement of approved reimbursements, advances, and other amounts properly payable to the participants;
• Return of capital or payment of the participants’ agreed interests, subject to the venture agreement and final accounting; and
• Distribution of remaining profits or surplus according to the agreed sharing ratio.

The parties should execute deeds, bills of sale, assignment documents, releases, or other transfer instruments for assets distributed in kind. Real property transfers may require proper conveyancing documents, taxes, registration, and compliance with applicable land and corporate rules.

What If the Joint Venture Is Incorporated?

An incorporated joint venture is a corporation, not merely a contractual partnership. Its project completion and exit must therefore comply with the Revised Corporation Code of the Philippines.

Under SEC-OGC Opinion No. 25-12, an incorporated joint venture corporation is governed exclusively by the Revised Corporation Code of the Philippines. Its shareholders’ agreement cannot change the corporation’s legal personality or displace statutory corporate requirements.

If no creditor is affected, Section 134 of the Revised Corporation Code permits voluntary dissolution through the required action of the board and stockholders or members. The provision requires notice to the shareholders or members, publication of the meeting notice, and the filing of a verified request for dissolution with the Securities and Exchange Commission containing the required details.

Where creditors may be affected, the corporation must use the applicable dissolution procedure under the Revised Corporation Code. The parties should not distribute corporate assets before creditor claims and corporate liabilities have been properly addressed.

Section 139 of the Revised Corporation Code provides that a dissolved corporation generally remains as a body corporate for three years for the purpose of prosecuting and defending suits, settling and closing its affairs, conveying property, and distributing assets. It may not continue the business for which it was established during this period.

What Is the Three-Year Corporate Survival Period?

The three-year period is not a license to continue the completed project as an operating business. It exists to permit the corporation to wind up its affairs, including collecting receivables, defending claims, paying obligations, disposing of property, and distributing assets.

During this period, the corporation may convey its property to trustees for the benefit of stockholders, members, creditors, and other persons in interest. The transfer should be documented carefully and should not prejudice valid creditor claims.

Section 139 also provides that, except as otherwise allowed by law, corporate assets may not be distributed except upon lawful dissolution and after payment of all debts and liabilities.

How Should Construction Joint Ventures Handle Completion?

A construction joint venture should not treat physical completion as the only closing event. The parties should also address final acceptance, retention money, warranties, defects, liquidated damages, punch-list work, contractor claims, unpaid subcontractors, insurance, performance bonds, and government or owner approvals.

Amounts retained by the project owner should be recorded separately from funds available for immediate distribution. The venture should maintain reserves for warranty obligations, unresolved claims, taxes, and indemnity commitments until the relevant exposure has expired or been settled.

Before distribution, the parties should obtain written confirmation of the status of major project contracts and should reconcile all joint venture bank accounts. Any remaining equipment, materials, permits, software, designs, or intellectual property should be assigned or sold under written instruments.

How Should Technology Joint Ventures Handle Completion?

A technology joint venture should identify who owns the source code, applications, databases, documentation, domain names, customer information, trademarks, patents, algorithms, and other project deliverables after completion.

The parties should also address continuing hosting, maintenance, cybersecurity, data-protection, licensing, service-level, and technical-support obligations. If the venture’s purpose has been completed but the product continues to operate, the parties should distinguish between project completion and continuing commercial exploitation.

Ownership and licensing rights should be resolved before dissolution. A failure to document these rights may leave the participants with conflicting claims even after the venture’s financial accounts have been closed.

What If the Parties Disagree on Liquidation?

The joint venture agreement should control the agreed procedure for deadlock, valuation, sale of assets, appointment of a liquidator, and dispute resolution. If the agreement is silent, the parties may need to rely on applicable partnership principles or seek relief from the proper court or administrative authority, depending on the venture’s legal form.

One participant should not unilaterally sell, appropriate, or distribute venture property without authority. In Primelink Properties and Development Corporation, et al. v. Lazatin, et al., the Supreme Court recognized that the winding-up process includes administration of partnership assets for the settlement of obligations and termination of the business.

Where a dispute concerns whether the arrangement was a sale, partnership, joint venture, or corporation, the court may examine the contract and the parties’ conduct. Clear contractual language generally controls when it leaves no doubt regarding the parties’ intent, as recognized in Valdes, et al. v. La Colina Development Corporation, et al.

Recommended Closing Documents

The closing file should ordinarily contain the following documents, as applicable:

• Board, shareholder, or participant resolutions approving project completion and dissolution;
• Project completion certificate, final acceptance document, or turnover certificate;
• Final statement of account and schedule of assets and liabilities;
• Settlement agreements with creditors, contractors, employees, and service providers;
• Deeds of sale, assignment, transfer, or distribution for remaining assets;
• Tax, licensing, registration, and regulatory closing documents;
• Intellectual-property ownership and licensing documents;
• Participant releases and quitclaims, subject to applicable law; and
• Records identifying the persons authorized to handle post-dissolution claims.

Common Errors to Avoid

The parties should avoid distributing funds before completing the accounting or reserving amounts for contingent liabilities. They should also avoid treating a corporate joint venture as if it were an ordinary partnership, because corporate dissolution requires compliance with the Revised Corporation Code.

Other common errors include failing to document asset transfers, overlooking retention money and warranty claims, ignoring intellectual-property ownership, closing bank accounts too early, and allowing one participant to continue using venture assets without a written agreement.

Conclusion

Dissolving a commercial joint venture after project completion requires more than a declaration that the project is finished. The parties must identify the venture’s legal form, follow the applicable dissolution procedure, complete a transparent accounting, settle liabilities, protect against contingent claims, and distribute assets only in accordance with the agreement and governing law.

For an unincorporated venture, the joint venture agreement and partnership principles generally govern the winding-up process. For an incorporated joint venture corporation, the Revised Corporation Code controls, including its requirements on dissolution and post-dissolution liquidation. The parties should obtain final approvals, preserve adequate reserves, document every transfer, and secure releases only after all material obligations have been addressed.

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