Small business owners need a united and dedicated team to succeed. Strong bonds with other people, namely colleagues, partners, or investors, is the basis on which the entire small business venture is built because sometimes you just can’t do without the help of these or those people. You may have a brilliant business idea, but for its implementation, you may not have enough experience or resources. In this case, you can create a joint venture with an individual or a company.
What is a joint venture?
A joint venture is an agreement between two individuals or companies to work together to achieve a joint business goal. This venture can exist as an actual physical backdrop or simply be in existence, certified by an official document. But a joint venture does not amount to a partnership, because it is temporary; once the goal is achieved, the contract is canceled.
How does a joint venture work?
The concept of a joint venture most often arises in the real estate, technology, and media industries. When this process takes off, business leaders create a joint venture that helps them discover opportunities to access new markets, pool their resources, and leverage additional skills. The phenomenon of the joint venture can sometimes be confusing because it has degrees of collaboration and independence. Even though two parties come together to form something, they are legally obligated to each other only in a joint venture.
The main characteristics of a joint venture are:
- As mentioned above, the parties are not legally obligated to each other outside of a joint venture
- The parties are working toward a definite mutually beneficial goal
- Both parties equally contribute their valuable resources and assets and have the same responsibilities and powers as a joint venture
- Although the joint venture takes time, it is provisional and dissolves as soon as the objective is achieved
The key to the success of such a contract is to ensure that all activities, duties, and risks are shared equally between the parties. But the contributions are still not equal. The amount of the company’s contribution depends on each party’s activities, and no matter how you divide the contributions and profits, all the possibilities and risks between the companies are completely equal.
To make a joint venture official, the parties must enter into a legally certified contract. This contract will specify each party’s contributions and profits, as well as their rights and responsibilities.
Advantages and risks of a joint venture
A collaboration such as a joint venture may seem quite simple at first glance, but you must see two sides of the coin before you conclude. So, the benefits of a joint venture are:
- Your business can gain access to resources it couldn’t before, which brings new opportunities
- It helps reduce competition, especially if you have an agreement with your competitor
- Working together is much more efficient, and will lead to a rapid increase in profits
-If your partner company in the joint venture agreement has already passed regulatory requirements and has the necessary business licenses while you don’t, you don’t have to worry about it
The risks of a joint venture are:
- The possibility of disagreements and disputes with new partners cannot be ruled out
- Under certain circumstances, the deal can only go south and lead to a loss of time, capital, and other resources
- The objective you achieved in collaboration with another company may turn out to be a failure in the marketplace
- You may find yourself subject to additional legal liability, especially if you do not create a separate organization when working together