WHAT IS A JOINT VENTURE (JV)?
A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity.
In a joint venture (JV), each of the participants is responsible for profits, losses, and costs associated with it. However, the venture is its own entity, separate from the participants' other business interests.
Joint Venture (JV) vs. Partnerships and Consortium
A joint venture (JV) is not a partnership. That term is reserved for a single business entity that is formed by two or more people. Joint ventures join two or more different entities into a new one, which may or may not be a partnership.
The term "consortium" may be used to describe a joint venture. However, a consortium is a more informal agreement between a bunch of different businesses, rather than creating a new one. A consortium of travel agencies can negotiate and give members special rates on hotels and airfares, but it does not create a whole new entity.
Requirements for Joint Ventures
The key elements to a joint venture may include (but are not limited to):
- • The number of parties involved
- • The scope in which the JV will operate (geography, product, technology)
- • What and how much each party will contribute to the JV
- • The structure of the JV itself
- • Initial contributions and ownership split of each party
- • The kind of arrangements to be made once the deal is complete
- • How the JV is controlled and managed
- • How the JV will be staffed
Two companies or parties forming a joint venture might each have unique backgrounds, skillsets, and expertise. When combined through a JV, each company can benefit from the other's expertise and talent within their company.
Regardless of the legal structure used for the JV, the most important document will be the JV agreement that sets out all of the partners' rights and obligations. The objectives of the JV, the initial contributions of the partners, the day-to-day operations, the right to the profits, and the responsibility for losses of the JV are all set out in this document. It is important to draft it with care, to avoid litigation down the road.
We can assist you in several sectors of a Joint Venture.