Temporary Joint Venture: Everything You Need to Know
A temporary joint venture is a type of partnership that two entities enter into for the benefit of both.3 min read
A temporary joint venture is a type of partnership that two entities enter into for the benefit of both. Collaboration is usually part of the arrangement between the parties because the goal is to successfully complete a business activity. This type of arrangement helps the involved parties combine their resources to achieve more efficiency when marketing products, producing products, or selling services. It's possible to enter this type of agreement using a verbal contract; however, a written contract is ideal because it gives both parties involved a record of the contract terms.
Benefits of Business Partnerships
There are a number of benefits in this type of business partnership, such as:
- The opportunity to share customers and clients
- Extra opportunities for each party to earn commissions and make referrals
- A reduction in manufacturing effort for both parties
- The ability to share services
- Networking opportunities
- Opportunities to increase distribution channels
The law can prohibit some types of commissions that might be earned, and the law can prohibit some types of referrals between professionals if a fee is exchanged.
An example of a temporary joint venture would be, when one company chooses to do a promotional campaign with another company that sells a complementary product, such as one that's used with their product. This provides a chance for each company to increase their exposure to that other company's set of customers. It also leaves room for each partner to use some of the promotional logos, equipment, or tools that are used in producing a product. If one or both companies are producing new packaging or new products, forming a partnership is also a helpful technique.
A temporary joint venture can also be called a temporary business partnership, a joint venture, or a joint enterprise. The term joint venture is the most specific of these because it's whole point is to achieve a certain goal. The term enterprise is less specific, not as formal, and it refers more to a general sharing between the businesses.
Temporary in Nature
With the temporary nature of a joint venture, involved parties can form a partnership with the goal of promoting a certain type of product, then when the marketing campaign is finished, the joint venture expires. It can be renewed later if the companies feel that's needed.
Another example of a joint venture or enterprise comes into play when two companies join forces to research the market desire for a specific product. The partnership might not have a specific goal, but it can end for other reasons too. An enterprise can end this if the partners decide they're done researching something and it can end when they decide they have enough information to move ahead with other business activities without one another.
Sharing Distribution Channels
When a business partnership is established on a temporary basis for the partners to share distribution channels or for one to sell the other partners products, both benefit. One receives commissions from the sales but doesn't have to spend any of the resources to produce a product. The other company comes out ahead because it can just produce the product and doesn't have to set up channels for distribution.
Sharing Manufacturing Facilities
When one company wants to produce something but doesn't have the manufacturing facilities to do that, and another company has unused space or has manufacturing lines that are in downtime, a joint venture between the companies can help both of them. The manufacturer that has downtime is able to keep the employees working and keep the equipment working full-time. The company that doesn't have facilities can still manufacture a product without having to invest in equipment or a building.
When two smaller companies don't have enough resources individually to catch the interest of a large service firm, like a big PR company, they can put their funds together in the hope of creating a budget big enough to get the service firm to come on board. This strategy is especially effective when the involved companies have complementary services, or they can be in the same industry. Some types of services that might be more likely to take on these small businesses if they partner up in a joint venture are research firms, search engine optimization firms, and ghostwriting firms.
If you need help with a temporary joint venture, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.