Joint Venture

A Joint Venture is a partnership formed by two or more investment partners. They may be individuals or corporate investors.

What Is a Joint Venture and What Is an Example of a Joint Venture?

A joint venture is a partnership between two or more organizations who collaborate their resources to achieve a specific goal. Usually, these companies form a partnership to start a new project or expand their business. The participants of a joint venture sign an agreement that details the share of profits, losses and cost that each participant is accountable for. 

A famous example of a joint venture is Caradigm which was created through  a joint venture formed by Microsoft and General Electric. Back in 2012, the two companies joined forces to create a healthcare analytics company. Microsoft brought in their expertise in the field of software and technology while General Electric leveraged their expertise in the healthcare industry to form a software that helps hospitals globally. 

What Is the Difference Between a Partnership and a Joint Venture?

There’s a significant difference between a partnership and a joint venture. A partnership is formed when two or more people form an agreement to start and operate a business. These people then become partners. 

On the other hand, a joint venture is formed between two or more entities coming together to form an alliance for a particular project or goal. 

In a partnership, the people who partner up aim to run a business together and exercise control over the business. Partnerships are usually formed for the life of a business and just for a specific goal achievement. However, a joint venture is made to work on a project together but the people or entities who team up for the venture have only specific rights to operate. 

‍What Are the Advantages and Disadvantages of Joint Ventures?

Joint ventures are a great option for businesses to grow and generate profit. Having said that, there are also certain disadvantages of this type of agreement. Here are the advantages and disadvantages of joint ventures.

Advantages

• With multiple parties bringing in the funds for capital, the entire burden to expand the business never falls on just one party. 
• Each party brings their expertise in different fields such as financial and technological knowledge which helps the joint venture prosper. They also bring different resources that increase the chances of success. 
• A joint venture formed between companies in different countries allows them to enter and establish themselves in a new marketplace.
• Small businesses can diversify their revenue streams by forming a joint venture with a bigger company. This will also help small businesses grow quickly and gain larger profits. 
• Joint ventures are a great way to overcome competition barriers and pricing pressures. 

Disadvantages

• Management is a difficult task as the partners may have differences of opinion from time to time and it is important to come to a decision that keeps everyone’s interest in mind. 
• The percentage of resources shared by each party will differ. This may lead to one party feeling that they are obligated to provide more of the work than the other party. 
• Cultural differences and management styles of parties involved may lead to disagreements and pose a barrier in the joint venture’s success.
• Lack of communication and unreliable partners can make it difficult for the venture to succeed. Additionally, this can also make exiting the venture troublesome due to the contract in place.

How Can a Joint Venture Be Set Up?‍

A joint venture can be set up through a financial agreement or contract that details the cost that each party would bear, the profit share and the loss share, along with other agreements that the parties agree to. Furthermore, the contract would also hold the rights of each of the parties, their day-to-day obligations, their initial contribution and more such details. 

Conclusion‍

A joint venture can open up many opportunities for all the parties involved. It can provide the much needed entrance in local markets of other countries and helps in establishing a brand new voice. As there are some limitations as well, it is important for all the entities to discuss everything beforehand and understand each other's differences before the contract is drawn up and signed. 

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