Why Joint Ventures Are Formed

A joint venture can last a long time or only exist until a short-term goal is achieved. You may expose yourself to additional liability and other legal risks by working with another company (especially if you do not create a separate entity for the joint venture). Original document, Joint Ventures and Partnerships, Crown Copyright 2009 Source: Business Link UK (now GOV.UK/Business) Adapted for Quebec by info entrepreneurs Both parties contribute resources, © share ownership of the assets and liabilities of the joint venture and participate in the implementation of the project. Unlike a merger or business acquisition, a joint venture is a fixed-term contract between participating companies that dissolves on a specific future date or after the completion of the project. Companies entering into a joint venture are not required to create a new business unit under which the project will then be completed, providing a level of flexibility not found in more sustainable business strategies. In addition, participating companies do not have to transfer control of their business to another company, or cease their ongoing business activities while the joint venture is in progress. Each company is able to retain its own identity and can easily resume normal business activities once the joint venture is completed. For example, suppose two real estate developers form a joint venture to build an apartment building. A passerby is injured by the construction rubble left by one of the developers.

Under the law of each state, both developers are fully involved in liability if the viewer sues, even if only one was responsible for the accident. You can designate a specific part of your business to work on a joint venture project with another company without having to completely combine your organizations. Two or more individuals or companies join forces in a joint venture for a specific purpose. However, the parties have no legal liability to each other beyond the scope of the joint venture. A joint venture offers its participants several advantages. It can help a business grow faster, increase productivity, and generate additional profits. Joint ventures can be beneficial, even crucial, in making a business idea a reality if you need someone else`s resources, market knowledge, or skills to carry out a particular project. However, a joint venture also exposes you to risk and liability, especially if you do not establish a separate legal entity for it. These examples are all inspired by real-world joint ventures. Before starting a joint venture, the parties involved need to understand what they each expect from the relationship. The only way to eliminate this joint responsibility is to form a legally separate entity for the joint venture (which we will explain below). While a joint venture doesn`t require you to form a separate entity, many companies choose this path.

The fastest and most cost-effective option is to start with a simple contractual agreement. In this case, the joint venture does not report its own profits and does not pay taxes itself. Profits are included in the tax returns of the respective parties. A joint venture may result in the creation of a new separate business unit or operate solely on the basis of an agreement between existing undertakings without the creation of a new legal entity. The latter is classified as a joint venture without legal capacity. However, there are some similarities between joint ventures and partnerships, the most important of which is responsibility. Just like starting a joint venture itself, both structural options have both advantages and disadvantages. A joint venture is an agreement between two or more people or companies to jointly achieve a specific business objective. A joint venture can be structured as a separate business unit or simply emerge from a contract between the parties.

Unlike a partnership, a joint venture is usually temporary and dissolves once the task is completed. Key elements of a joint venture can include (but are not limited to): As you can see, there are both pros and cons to forming a joint venture, and you should weigh these points against each other before deciding whether this type of deal is good for your business. The project or goal you undertook through the joint venture could end up failing. In short, there are two parties to consider before accepting a joint venture with another company or individual. Let`s start with the potential benefits: two companies or parties forming a joint venture may each have unique backgrounds, skills, and expertise. When combined by a joint venture, each company can benefit from the expertise and talent of the other in its business. For example, suppose Company A can own the manufacturing production equipment and technology that Company B needs to develop and ultimately distribute a new product. A joint venture between the two companies gives Company B access to the equipment without buying or leasing it, while Company A is able to participate in the production of a product whose development has not entailed any cost. Each company benefits if the joint venture is successful, and none of them is alone to carry out the project. Typically, a franchise is a long-term contract, and the franchisee pays the franchisor an upfront fee for the right to operate the business. In addition, the franchisor exercises a certain degree of control over the franchisee`s business decisions. In a joint venture, neither party has “control” and both contribute to a common goal.

First, finding a joint venture partner (or more than one partner for larger joint ventures) starts with a clear definition of your goal. For example, you may have developed a new product, but you don`t have broad distribution channels to introduce it to stores. You can ask other business owners what distributors they use and conduct independent market research. Then, contact different distributors to determine their interest in a joint venture. Companies form joint ventures for many different reasons, including the following: Ultimately, entrepreneurs enter into joint ventures to enter new markets, exploit complementary capabilities, or combine resources. The concept of a joint venture can be confusing because there is a certain level of collaboration and independence. In a joint venture, two companies with different areas of expertise can work together to develop a new product or offer a new service. Or a company looking to enter a new geographic market could form a joint venture with a company based in the country or region or having an established presence in the country or region. For example, BMW Group and Brilliance China Automotive Holdings Ltd. have formed a joint venture called BMW Brilliance Automotive Ltd. .