A great number of small and huge businesses alike are getting involved in joint ventures. First and foremost, what is joint venture and how do businesses gain advantage over this strategic plan? To begin with, this is defined as a mechanism where two or even more entities or businesses can combine their businesses without even requiring a formal commitment with regard to partnership or any other method similar in nature. Aside from the fact that many businesses can afford this method, they do not have to worry about a lot of liabilities and experience all the benefits of a good partnership.
Joint ventures are usually short term business opportunities, where all the entities involved have one purpose with regard to their partnership. This is most often done by establishments or companies so that they can accomplish their business’ goals, without taking too much risks.
Generally speaking, forming a joint venture, other parties or entities involved will have to contribute shares, goods, funds or any other equipment during the beginning of the informal partnership. The amounts that each party has to contribute may be equally or unequally divided, depending on the proposal and on the agreement, which includes the terms and conditions, duties and obligations of each party.
But why do businesses prefer joint ventures over mergers? As mentioned earlier, a joint venture has smaller risks to take, and it is not permanent, or no lock-in period to be followed. With mergers or other forms of partnerships, each party has to create different types of duties and responsibilities which they are forced to do. On the other hand, with joint ventures, parties can choose which duties and responsibilities they prefer, which will eventually be written in the agreement.
Although it is not a permanent partnership, a written contract is still required over the verbal agreement, since businesses are still talking about the sales and revenues, and even the confidentiality that all entities have to protect.
Most of the time, these types of partnerships only last for a couple of years or even less, which makes it even preferable by most businesses since there are no commitments and they can terminate the agreement anytime that they feel that they are not acquiring the benefits as expected, or as soon as they have reached the company’s goals.
Another obvious advantage of this type of partnership is the mere fact that all entities can share their experiences and expertise with regard to targeting new markets, increasing sales and even developing new services and / or products that can benefit all the parties involved. This is a method which benefits not just one company or party, but the agreements as well as the duties and responsibilities, expertise and methodologies will benefit everyone included in the partnership equally.
Before even making the final decision, you and the other parties involved has to work on the purpose of the agreement, contribution, the distribution of profits (this is usually computed depending on the contribution that each party has done), management and the term. Even though joint ventures, as mentioned earlier, can be short-term, all parties involved should still discuss the terms with regard to duration, and for it to be considered valid, everyone has to agree with it.