A joint venture occurs when two or more parties (individuals and/or businesses) join forces by combining business information, assets, markets, and control to form an alliance. The partners within the joint venture will then share profits. This is different from a merger, in which ownership transfers, but is instead a type of partnership. These partnerships may exist between large corporations or small businesses who believe that combining forces will increase revenue.
Sometimes, one company will not have enough money or resources to reach out to certain markets that other companies are able to penetrate. By engaging in a joint venture with another business that may have similar, or even identical, products, this company will be able to expand their market.
Although a joint venture is a type of partnership, there are certain differences that will make joint ventures unique. A partnership usually refers to a business relationship between two or more parties that will exist for a long period of time. Joint ventures, on the other hand, may exist only for a short period of time. An equity-based joint venture will often form only to complete a specific business transaction and then dissolve after a period of time.
There are many reasons why parties may choose to form a joint venture:
Combining assets in order to reduce the risk of investing;
Access to resources;
Access to foreign technology;
Acquiring certain skills that one company may be lacking;
Building strength or recognition;
All parties involved will enter into a legally binding contract that specifies the obligations and duties of each partner. Joint ventures will almost always involve the combination of assets, which is why it is especially important to have a written contract. Contracts will detail exactly how much is invested by each party, and whether or not these investments will be returned.
Sometimes parties will have differing business ideas, which can lead to conflict within the joint venture. It is generally beneficial if each party invests a reasonably equal amount into the joint venture because this will ensure that both parties will receive approximately the same gain.
Due to the fact that joint ventures are sometimes formed between business partners in different countries, cultural differences may result in conflict. Many times within the contract, there will be a specific date in which the joint venture comes to an end. The partnership will be dissolved at this point. If there is a dispute that is brought to court, a judge may order that the joint venture be dissolved.