Joint Venture: Everything You Need to Know
A joint venture (JV) is a business agreement entered into by two or more business entities to complete a new project or other business action3 min read
What Is a Joint Venture?
A joint venture (JV) is a business agreement entered into by two or more business entities to complete a new project or other business action. Usually, the three-way partnership creates a separate entity, in which the proprietors have equity, contribute assets, and agree on how this entity will be managed. The JV is its own entity, separate and different from the members' various business pursuits. The new entity can be an organization, limited liability company, or partnership.
In some circumstances, individual companies retain their individuality and operate under a joint venture agreement. In any case, the participants in the JV share in the profits, losses, and management according to a joint venture agreement.
Joint ventures are sometimes entered into for a single objective – a manufacturing or research task. However, they might also be formed for a continuing purpose.
A JV is much like a business partnership, with one key distinction: a partnership typically includes an ongoing, long-term enterprise relationship, whereas a JV relies on a single business transaction. People or corporations choose to enter joint ventures to share strengths, reduce risks, and improve advantages in the market. The joint venture agreement is essential for avoiding hassle later; the events particularly relate to the intent of the JV in addition to the consciousness of its limitations. All joint ventures additionally contain certain rights and duties.
Each joint venturer has a fiduciary duty, owes a level of care to the other members, and has the responsibility to behave in good faith on issues that concern the common interest of the business. A fiduciary duty is an obligation to behave in the interest of another person's profit while subordinating one's private pursuits to those of the opposite person.
A JV can terminate at a time specified within the contract, upon the accomplishment of its objective, upon the loss of life of a member, or if a court decides that critical disagreements between the members make its continuation impractical.
Forming a Joint Venture
All that is needed to form a joint venture is a written agreement between the participants. Even when it is between two small companies, such a partnership should have at least this type of written agreement.
Benefits of Joint Ventures
Joint ventures give smaller corporations the chance to work with bigger ones to develop, manufacture, and market new merchandise. Joint ventures additionally give corporations of all sizes the chance to extend sales, achieve entry to larger markets, and improve technological capabilities by way of research and development backed by a couple of contributors.
Examples of Joint Ventures
Joint ventures can include large and small corporations on both big and small initiatives. Listed here are some examples:
- MillerCoors is a JV between SABMiller and Molson Coors Brewing Company to see all their beer brands available in the U.S. and Puerto Rico.
- In 2011, Ford and Toyota agreed to work collectively to develop hybrid trucks.
- Mining and drilling are costly endeavors, and sometimes two corporations in these industries will enter into a JV to mine or drill in a selected area.
Legal Structure of Joint Ventures
Joint ventures are ruled completely by the legal agreements that introduced them into existence. Some joint ventures might seek to formalize the enterprise by creating a new JV firm. Joint ventures may be very versatile entities, wherein partners share and agree on how they will manage it. More frequent are joint venture agreements that don't embrace the formation of a new entity. As an alternative, the enterprise is operated by way of the present legal standing of the business partners, or co-venturers.
Since joint ventures aren’t legal entities, it doesn't enter into contracts, rent staff, or have personal tax liabilities. These actions and obligations are dealt with by the co-venturers and are ruled by contract law. Corporate legislation, partnership legislation, and the legislation of sole proprietorship don't govern joint ventures. Since the JV ends at the conclusion of a specific project, there is no need to address issues of continuity of life and free transferability, unless a JV company has been created.
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