JOINT VENTURE: What Is It and Why Firms Form Joint Ventures

A firm can gain a lot from joint ventures. They enable collaboration amongst enterprises so that a common objective can be achieved. It’s crucial to understand how joint ventures operate and how to establish one on your own if you want to implement these advantages into your own company. The list of things you need to know about managing your own joint venture/ venture companies and some agreement examples are covered in this article.

Joint Venture

An agreement between two or more business entities to accomplish a single objective is known as a joint venture. A joint venture’s participants will pool their resources in an effort to complete a certain job. These agreements may thus be formalized by written paperwork or unofficially through a handshake. Where they have no effect on the members’ other commercial interests, joint ventures frequently separate into their own distinct business companies. In other situations, the parties concerned may merely work under a joint venture arrangement. Each participant in a joint venture will consequently share in the venture’s gains, losses, and expenses.

Prospects for A Joint Venture

A joint venture has a lot of flexibility and can adapt to the needs of the company. The terms and conditions of the agreement between the companies should be specific with regard to the activities that will be performed by them. This promotes clarity and prevents ambiguity among the stakeholders. The agreement also aids in defining the precise scope of work that each party is required to do.

A joint venture between two organizations from different nations is another option for conducting business. Before beginning any joint venture, the rules set forth by the different governments must be complied with. These standards aid governments in monitoring the actions of businesses and guarantee that joint venture partners are engaging in lawful activity.

Characteristics of A Joint Venture

#1. Builds Synergy

To benefit from one another’s strengths, two or more parties participate in a joint venture. One company might have a unique quality that another company might not have. Similar to this, the other company has a benefit that another company cannot match.

#2. Rewards and Risks Can Be Shared

There are several diversifications in culture, technology, geographical advantage, and disadvantage, target audience, and many other difficulties to overcome in a normal joint venture agreement between two or more organizations, whether they are from the same country or different countries.

#3. No Distinct Laws

Regarding joint ventures, there isn’t a distinct governing body that oversees their operations. Companies are monitored by the Ministry of Corporate Affairs in collaboration with the Registrar of Companies once they have adopted a corporate structure. Other than that, there is no specific law that regulates joint ventures.

Benefits of A Joint Venture

The following are the benefits of having JV business:

#1. Scale Economies

Joint ventures assist businesses in expanding despite their restricted resources. One organization’s strength can benefit the other. This gives both firms a competitive edge to produce economies of scale.

2. Availability of Fresh Markets and Distribution Systems

A huge market with the potential to expand and prosper is opened up when one organization forms a joint venture with another organization. For instance, when a corporation from the United States of America forms a joint venture with a company from India, the joint venture gives the American company access to the enormous Indian market, which has a variety of paying options and a wide range of product options.

#3. Low Production Cost

When two or more businesses collaborate, the primary goal is to offer the items at the most competitive price. And this is possible if production costs can be lowered or service costs can be controlled. The only goal of a true joint venture is to offer its customers the greatest goods and services.

#4. Trademark

The JV may have its own unique brand name. This aids in providing the brand with a distinctive appearance and awareness. When two parties form a JV, the established brand name of one company in the market can be used by another organization to acquire a competitive edge over other market participants.

#5. Technology Availability

Technology is a compelling motive for businesses to form a JV. The use of advanced technology by one company to make items of the highest caliber results in significant time, energy, and resource savings.

List of Joint Venture Companies Examples

Joint ventures can be used for a variety of things, such as researching a new market or area, carrying out expensive projects, developing new products, etc. These endeavors may take the form of a partnership, a distinct legal body, or a binding contract. JV may be subject to different laws and regulations depending on the business, but there is no specific authority in charge of regulating their operations. Here are a few list examples of joint venture companies’ projects:

#1. Verily and GlaxoSmithKline

Verily, the life sciences division of Alphabet Inc. (Google’s parent company), and GlaxoSmithKline (GSK), a British pharmaceutical corporation, have formed a joint venture to create bioelectric drugs. The goal of the research was to develop tiny electronic implants that can be used to cure a number of ailments, such as diabetes and asthma. The project was expected to cost $715 million. According to the terms of the arrangement, GSK will control a 55% majority and a 45% minority of the JV, respectively.

#2. Volvo and Uber

A collaborative venture to develop self-driving automobiles was announced by heavy vehicle maker Volvo and taxi giant Uber. Together, the two businesses intended to put $300 million into the project, each putting in $150 million. As a result, the ownership split between the two businesses was 50/50. The joint company planned to create self-driving cars suitable for ride-hailing services. Volvo offered its expertise in car design and manufacture, while Uber contributed its ride-hailing services and expertise in autonomous technology.

#3. Sony and Ericsson, third

In 2001, the Swedish telecommunications company Ericsson and the Japanese electronics giant Sony Corporation formed a JV, Sony Ericsson. The JV sought to produce mobile phones and other devices under the “Sony Ericsson” brand. It also grew to be one of the biggest mobile phone producers in the world and was renowned for creating some of the most cutting-edge products, including the Walkman. The joint venture’s ownership by Ericsson was acquired by Sony in 2012, and Sony Mobile Communications was created as a result.

#4. Apple and Unicom

In 2009, Apple and China Unicom thus formed a JV to market the iPhone in China’s enormous and rapidly expanding market. According to the contract, China Unicom was designated as the iPhone’s sole carrier in China and promised to buy a specific number of iPhones from Apple over a three-year period. This marked Apple’s official entry into China’s telecom market. However, Apple faced significant challenges in China, including ferocious rivalry from regional smartphone producers and restrictive government regulations that limited the company’s ability to fully penetrate the Chinese market.

#5. Disney and NBC

A JV between NBC Universal Television Group, a Comcast company, and Disney ABC Television Group, a Walt Disney Company subsidiary, was formed in 2008 with the goal of developing the new online video streaming service “Hulu.” A high-quality streaming service was also intended to be made available, enabling users to watch TV shows, movies, and other content on desktops, laptops, and mobile devices. Hulu will have more than 48 million customers in 2022, worth more than $25 billion.

#6. ExxonMobil and Indian Oil Corporation

A joint venture to construct a virtual pipeline project in India has been agreed upon by ExxonMobil, Indian Oil Corporation, and Chart Industries. The goal is thus to provide liquefied natural gas (LNG) to regions of the nation without pipelines by land, rail, and water. ExxonMobil and Indian Oil Corporation are both developing cutting-edge supply-chain strategies to also improve gas access across the country.

Joint Venture Agreement

A contract between two or more parties to pursue a common commercial initiative is known as a joint venture agreement. In order to safeguard the company partners in the event of a joint venture disagreement, the parties might specify each other’s obligations and lay out the ground rules in a joint venture agreement. Although verbal agreements can be used to form joint ventures, it is highly recommended that you get professional legal counsel and have a thorough agreement prepared that spells out each party’s obligations and rights as well as how those rights can be modified.

Who Can Enter A Joint Venture Agreement?

Agreements for joint ventures can be made by any entrepreneurs or companies. The people or companies don’t have to be in the same industry or be the same size. There is no maximum number of partners in the JV, but as more parties are involved, the arrangement becomes more complex and the likelihood of disagreements rises.

Does A Joint Venture Agreement Need To be in Writing?

A joint venture agreement does not need to be in writing by law. However, when the arrangements between the parties aren’t made clear in writing, it can be difficult to know what has been agreed upon, which increases the potential for disagreements and legal action. It is generally suggested that everything pertaining to the duties of the parties, cost and profit sharing, management, and funding of the JV be spelled out in a formal written agreement signed by all parties, as these can be particularly contentious.

What Should Be Included in A Joint Venture Agreement?

An agreement for a joint venture should contain:

Cost and profit sharing refers to how the parties will divide the earnings and costs.
Describes what each party is contributing to the agreement under the section titled “Parties’ Responsibilities.” Contributions may come in the form of cash, goods, services, or intellectual property.
Responsibility: How the parties divide responsibility and risk.
The mechanism for resolving disputes: If there is a disagreement between the parties, a mechanism can also be inserted that each party must abide by in an effort to settle it.
Because the parties to a joint venture are pooling resources and, in some situations, giving the other party access to commercially sensitive business information, secrecy undertakings – non-disclosure or confidentiality provisions are usually included in a joint venture agreement.
Non-competition clauses are frequently included in joint venture agreements. This is because they forbid partners from conducting business in a manner that would be in direct competition with the joint venture project.
Term and exit clause: These terms describe how long the joint venture will last and what will happen if one party decides to leave the business early.
Termination: A joint venture agreement often provides for termination by mutual consent, expiration, project completion, material breach, or insolvency.
Intellectual property clause – Because joint ventures frequently result in the creation of new intellectual property, it is crucial that the contract clearly establish who will be the owner of the new intellectual property and how the rights and interests in it will be shared among the other partners both during and after the joint venture.

How Joint Venture Agreements Work

Joint venture contracts are flexible and can also be written to combine businesses of any size on certain projects. This enables the delivery of targeted outcomes in a more effective and efficient manner. The contract thus makes sure that each party is aware of their obligations, rights, and restrictions. The procedures for joint-venture agreements are thus described below:

Step 1: Consult with possible partners about opportunities
Step 2: Engage company attorneys to provide legal counsel
Step 3: Determine the right kind of joint venture.
Steps 4 and 5 involve drafting the initial version of your joint venture agreement and paying your taxes on time and accurately.
Step 6: Continue to seek guidance to ensure legal compliance.
Step 7: Add any necessary JV agreement revisions.

Even though JV agreements and partnership agreements are similar, there are still a number of variances. For a specific amount of time, a joint venture agreement is utilized in the commission for a single activity. Partnership contracts signify an enduring, protracted partnership.

Who Owns a Joint Venture?

A JV is a company formed by two or more people that is typically distinguished by shared ownership, returns and risks, and governance.

What Is the Difference Between Joint Venture and Co Venture?

A partnership typically lasts for a long time (and involves numerous projects), whereas a JV is created to finish a specific task or project.

What Are the Three 3 Objectives of a Joint Venture?

To penetrate a foreign market, especially a brand-new or developing one. to lower the risk of making a large investment. to use resources as efficiently as possible.