What is a Joint Venture?
The entrepreneur always looks for an opportunity for the expansion of their revenue channels which helps them to generate more market shares, profits, and growth of their company. They look forward to an efficient business strategy so that they can achieve the quick success in business growth. And, the joint venture is that business strategy or arrangement.
When two or more parties create a business entity and generally characterized by shared governance, shared returns, and ownership and risks for a specific task is known as a joint venture.
Key Elements of a Joint Venture
A joint venture is another business entity which is formed by the association of two or more stabilized businesses, agree to combine their respective talents and resources to achieve a specific goal. It usually takes a limited period to accomplish a particular task.
There is no federal filing or a formal state required for a joint venture. One has to sign a contract to create a joint venture with another party. As per the agreement each party has to give a contribution to the business venture in the form of cash, resources, properties, and assets. The parties divide the control and management, profits and losses of the joint venture as per the contract signed.
Though a joint venture is similar to some of the characteristics of the partnership, there is a crucial difference between the two. The partners of the business have to be involved in a long-term relationship whereas a joint venture is for a limited period and based on the single business transaction.
Types of the joint venture
To set up a joint venture one needs to decide the specific goal a business tends to achieve. We have mentioned below the different types of joint ventures.
1. Limited co-operation
When a company or business entity wants to collaborate with other business entity for a specific reason and in a limited way, then it is said to be a Limited co-operation joint venture. Both the companies should agree on the terms and conditions of the agreement before the joint venture.
As an example, let’s say that you are a small business entity and have launched a new product, but you want to sell the product through a more extensive network. So, you will approach the desired business entity with such a distribution network and collaborates as per the terms and conditions agreement for both the parties.
2. The separate joint venture business
The separate joint venture business is possibly a new entity which is formed to handle a specific contract. This kind of business venture is a very flexible option. Each partner owns some shares in the company and agrees to the terms and conditions of the agreement.
3. Business partnerships
Sometimes, a limited company may not be a right option. Hence, one could form a limited liability partnership(LLP) or a business partnership. You could even merge the two businesses.
Benefits of a joint venture
A joint venture can help your business to generate higher profits, increased productivity and to grow faster. The benefits include:
- access to greater resources like technology and finance, specialized staff.
- access to distribution networks and new markets
- sharing of liabilities with a partner
- increased capacity
Joint ventures even don’t require outside investors. You may be able to:
- Partner’s services and products can be offered to your existing customers.
- Forces in research and development and purchasing.
- To market your product you can use your joint venture partner’s customer database.
The joint venture is very flexible. As an example, a joint venture can have a limited lifespan, thus limiting the commitment for both parties. For the businesses being operated in different countries, like within the transport and travel industries, joint ventures are very popular.
Risks of a joint venture
If the business entities who are looking forward to a joint venture and differs in resources then a venture or partnering may be severe.
For building a business relationship, the business entities require to have time and efforts. After putting all so much time and efforts, it is still possible to have joint venture risks. The problems will occur for sure if:
- The joint venture has different objectives than the partners.
- The venture objectives are not clear and communicated to everyone involved.
- The partners bring in different levels of assets into the venture and expertise them.
- Indifferent cultures and management styles result in poor management.
- The partners do not provide enough support and leadership in the starting stage of the venture.
A detailed analysis of aims and objectives is required for a joint venture’s success. The business plan should be efficiently clear to everyone involved in it.
Tips for Success
Here are some tips for successful joint venture:
- Identify and understand the culture and working style of the partner’s business entities.
- Both the parties must agree to the venture’s goal and expectations.
- The investments contributed by the different parties should be expertise.
- In the early stages of the joint venture, every employee and the partners of the business should be provided proper guidance. The vision and mission of the venture must be clear to both the parties involved.
Joint Venture Agreement
The terms and conditions is the most important key to a joint venture. These should be written on a legal paper as a contract which includes:
- The joint venture’s business aim and objective
- Defining the type of the joint venture, based on the business structure,either it is a limited corporation, separate or a partnership type venture
- The contribution of both the parties investments in the form of cash, assets, technology or even liabilities.
- Rules for the management of the joint venture
- Distribution strategy of profits and losses and even the liabilities.
- Defining and allocating the roles of every employee who is involved in the joint venture.
- Intellectual properties which will be created after the joint venture must be appropriately managed, so defining a rule for that too.
- How the disputes will be handled on the joint venture plan execution.
- Deciding its duration of the termination of the joint venture, and putting a confidential clause so that commercial secrets can be protected.
A formal agreement is a must for all the party members, partners and employees so that any confusion would be eliminated in the future basis the contract.
How can IncParadise help you?
For a quick growth in business, a joint venture is the best opportunity. You might have identified and analyzed the right business entity for the future joint venture, but before that, you need to start and register your business. And the IncParadise can assist you through the whole process of registration and incorporation of your company. We also provide the other services like mail-forwarding, or so. You can check out the details on the website and choose the package that is best suitable for you.