A joint venture or JV is a business arrangement involving two or more parties willing to combine their resources in order to accomplish a specific task. It can be created towards the completion of a new project or any business-related activity.
All parties involved in a joint venture are each responsible for profits and losses, along with all the costs associated with it. A joint venture is considered its own entity and is not related to any of the partners’ other business interests.
Although a joint venture is a partnership at its core, it can utilize any legal structure. Corporations, limited liability companies (LLCs), partnerships, and other types of entities can form a joint venture. While a joint venture’s primary purpose is typically for research or production, they can be created towards fulfilling a continuing purpose.
In certain situations, a large company or organization may opt to enter into a joint venture with smaller companies in order to swiftly obtain technology, resources, or intellectual property that might otherwise be difficult for them to acquire, even if they have the financial means to do so.
Setting up a joint venture
In creating a joint venture, one of the most critical aspects lies in its execution, rather than the process itself. All parties know what they need to accomplish, which is to create a fruitful partnership. However, many companies tend to look past many integral factors due to the excitement over forming a new business relationship.
It’s important to remember that all mergers, whether large or small, require meticulous planning and need to be executed under a well-designed strategy in order to increase the chances of success.
All factors need to be covered by a legal agreement which should contain a detailed list of which party provides which tangible and intangible assets to the partnership, along with all the specific objectives of the new partnership. While one can obtain legal agreement templates for joint ventures through the internet, seeking appropriate legal advice is still recommended to ensure a smooth and problem-free business relationship.
What are some of the risks involved when starting a joint venture?
Strategic partnerships are built on trust and common objectives, so potential problems can occur if partners involved in a joint venture come from different backgrounds or cultures. There may be differences in how each party operates, or they may have divergent objectives. Even if all parties have similar strategic goals, if a lack of trust exists between the partners, there may be unwillingness to reciprocate.
The key to a successful joint venture lies in willingness from all parties to give and take, a sharing principle that should be present in the entire process. A significant percentage of potential joint ventures have failed to get off the ground due to selfish motives and divergent objectives, which have no place in a joint venture.
Keep in mind that a joint venture can only accomplish its purpose if there is a true willingness between all parties to work and move forward together. If there is no mutual trust and acceptance and motives from another party are always put into question by other involved parties, than a joint venture project might not be an ideal option.
If you need assistance in setting up a joint venture, get in touch with the attorneys at Duran & Duran-Schulze here