A joint venture is a legal agreement involving parties interested in engaging in a particular business purpose. This agreement results to the sharing of all profits and losses in relation to the business undertaking.
This legal relationship between two or more parties is different from a partnership. A partnership involves the agreement of individuals to form a business or organization with the interest of making profits.
A successful joint venture requires that the parties involved combine resources and their expertise to attain the goals set for the undertaking.
They have the full knowledge that all the risks and rewards associated with the venture will be faced by the agreeing parties.
These ventures can be for the purposes of expanding businesses, developing new products or testing and moving to new markets, locally or abroad. If you have a business that is already doing well, you may think that there is no need to enter into a joint venture, but there are advantages of doing this: with a joint venture in place, you will have a better and stronger potential for fast growth because of better resources, ideas, access to established distribution channels and markets and higher level of expertise in the area.
The collaboration of two or more companies can mean better results. There are risks involved in ventures but with careful study and having a risk management program in place, the risk levels can be managed well.
There are different options in implementing a joint venture. The more limited option is to co-operate with a partner or partners in a limited undertaking. An example would be engaging in the release of a new product that can be sold in a bigger distribution network.
In this case, one company can be in charge of manufacturing while the other one will be involved in the distribution, whoever has the bigger channel where potential profits will be possible. Another option is to enter into a separate business and assign the specific undertaking to the business with all the details threshed out, like management and other areas. These can be stated in the agreement that the two parties will enter into.
For the best implementation of a joint venture, it is important to seek the advice of business or commercial law experts and have the two parties be guided and assisted from the first phase to the final signing of the contract, or even in some parts of the implementation, when necessary. With the presence of legal personalities to take care of the legal details of the joint venture, all the specific agreements will be clearly stipulated in the document with consideration on the protection of the parties involved.
This document is the heart of the shared undertaking. Everything that needs to be defined should be presented to a commercial law service to translate them to the legal agreement that the parties will enter into.
If the details are addressed and presented to legal experts, nothing should prevent the joint venture from meeting the business and financial objectives of the transaction.
10 March 2012