A joint venture is a partnership program between a couple of businesses. The purpose is to start a new business activity.
The member parties achieve this goal by utilizing the collective resources and capabilities.
What will I learn?
Each entity is agreed by means of a legal contract on how to equally share all the benefits and losses.
Every partner in the program keeps its separate identity in a legal contract.
What Is Joint Venture – A Complete OverviewÂ
In this article, we are going to discuss the working of Joint Venture, objectives of JV and reasons to start Joint Venture etc.
1. How Joint Venture Starts:
A joint venture starts when each partner discloses its resources it will be bringing to the venture. Each entity will be bringing their assets to the venture.
The contract also establishes how they will manage their duties. And also, how they will compensate for the profits and losses.
A joint venture consists of two entities having a different background.
It may be in the context of expertise to start up any new business or service. Also, a company who is thinking of entering to a new market place might form a joint venture.
The other company that has its roots in that region or is functioning there and knows much about the existing market proves helpful.
2. Working Of A Joint Venture:
Now we will discuss the working of a JV. If a new entity is formed due to the agreement of a joint venture.
We may term it as a limited liability company. Any corporation is a part of a joint venture.
For example, two already working organizations want to have some control over it, they will form a JV.
So that each partner company possesses an equal number of shares. As well as equal responsibilities and duties in the management.
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3. Objectives Of The Joint Venture:
A JV may last long or it may vanish as soon as they achieve some short-term goal.
We will discuss some core reasons of why a company prefers to form a joint venture:
To Benefit More Resources:
The JV entity may have a more powerful impact on the industry. Because of the presence of combined resources to make the venture successful.
To Combine Expertise:
Especially, for those businesses who offer services of some kind, a JV may prove very successful. Because it allows them to grab more of their potential customers.
For example, one company have a team who is expert in web and app development.
Another company is good at social media marketing. This will give a one-stop solution to your potential customers.
To Save Money:
Why spend more money when you can take advantage of a joint venture?
The businesses that have financial constrain will prefer to enter a joint venture. They can collectively benefit from each other resources.
It will help them reach more people in an affordable budget.
Two companies of different niches might find it useful to form a joint venture to save money and resources. And they will help each other in complementing their up-points.
It is quite an expensive process so by forming a joint venture both the parties can claim equal benefits.
See Also: 5 Most Important Role And Types Of A Stakeholder
4. Important Things To Keep In Mind While Signing A Joint Venture:
Now we will be discussing what things we should consider before signing a joint venture agreement.
Although, it is not compulsory to get recognition with the state or the federal government. But some things we should take care of while agreeing on forming a joint venture are
All the parties, who are signing the JV, should completely trust one another.
We can arrange a JV by simply agreeing verbally. But all partners usually form a contract and highlight all the resources and what each entity will be contributing.
All parties sign a contract with the legal help of a lawyer. A JV agreement should have the following essentials in it:
– All the parties interested to be a part of the JV.
– The JV responsibilities and duties of all the members.
– The percentile of ownership of all the signing parties.
– The share of each party and the percentage of profit or loss.
– The money collecting body the JV will use for transactions.
– A list of all the available resources.
– The members of the JV who will work on the venture.
– How we will form administrative reports and monetary bills.
– What business laws will be applicable to them.
5. How Joint Ventures Pay Taxes:
Another possible question is how the joint ventures will be paying their taxes.
If the JV has a unique identity it will be liable for paying all the taxes separately to the government.
Any profits that we gain from a joint venture flow through to the individual members of the venture.
The joint venture itself doesn’t have any tax file and the partners of the JV pay the taxes of their respective profits.
6. Public-Private Partnership:
When any public sector comes in a JV, it is often called a public-private partnership. And it involves financial support and expertise of the public sector.
In combination with a private-sector partner, it is easy to make any project successful.
Public-private partnerships may include many activities. They range from the building a research centre to help to start some mass transit program.
For example, in running a combined business. Although these types of partnerships have existed before.
They are now becoming important in the late 20th and early 21st centuries. Also, many advanced industrial countries depended on significant joint ventures.
Especially, with the private sector to construct hospitals and mass transport systems. Also, they prefer to invest in new technologies.
Joint ventures are very beneficial for the public sector. Private money and expertise help the public sector achieve their specific goals with more support.
7. Some Worth-Mentioning Joint Ventures:
Now we will go through some of the well-known examples of the JV.
Two well-known companies Microsoft and General Electric company set up a joint venture called Caradim. Its purpose was to help the health industries to keep online health records.
Google and Motorola also entered into a JV to become a stronger rival to the Apple company.
In the motor industries, Volkswagen Group and GM Motors have set up JV.
It was in corporations with other countries like China, Taiwan, and India, and others.
The purpose was to get a better market place in rivalry to its competitors. The scope included all the respective countries.
8. Criticism:
It has also a major disadvantage which is also important to mention here.
Sometimes the partners observe that the objectives are hard to achieve.
For example, a company is ready to accept any losses in the business and is ready to risk its resources.
It may be willing to spend more money on its advertising and marketing to build a better place in the market.
This would result in serious conflicts between the members and may not be helpful in producing the desired results.
So, it is better to form an alliance with your partner only when you feel that all the signing parties of the JV have the same goal.
Also, check if they are willing to compromise in case of any losses.
Conclusion:
Have a look at the key takeaways.
A JV is a mutual agreement and all the partners are to benefit from it
The JV may result to bring out a new organization with the same common goal but it not always the case
Companies may enter into a JV to gain more benefits on shared resources. They also use their resources to achieve a common goal.
It helps business to benefit from the experience of the other who is already of that place and knows all the ins and outs of a particular market.
Before going into a JV remember to test the compatibility. Because like-mindedness may prove more beneficial results.
Do not forget to mention your feedback in a comment.
Last Updated on 2 years by Shahzaib Arshad
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