Joint Venture
A joint venture (JV) is a business arrangement between two or more parties whereby they combine their resources to perform a specific task or achieve a business objective.
Although there are no laws that expressly governs joint ventures, they are subject to various legislations that affect the way the joint ventures are run. Joint ventures abide by regulations set for businesses such as contract law, corporate law, taxation law, competition law, etc.
Parties generally try to classify their commercial relationships as joint ventures rather than partnerships to avoid the imposition of fiduciary obligations and restrictions/liabilities. There are two types of joint ventures:
- Incorporated – There is a separate legal personality. Therefore, it can enter into contracts and hold property under its own name.
- Unincorporated – Parties hold specific shares in the joint venture depending on the agreement but does not hold a separate legal existence.
Generally, in doing so, parties need to set up a shareholder agreement, trust deed, or a joint venture agreement.
To read more on joint ventures, you can visit this link.
Advantages of a Joint Venture
- Mutual Benefit – Joint venture partners enjoy mutual benefit from working together and the completion of the resulting business objective.
- Share Risks and Costs – Finances are shared equally among the parties or depending on the joint venture agreement.
- Temporary – The short-term characteristic of joint ventures means that there is no long-term commitment. Partners set out to complete a particular goal and finish once the goal is completed.
- Scale Efficiencies – Parties achieve scale efficiencies as a result of combining assets and operations together. This may result in increased productivity if the integration of operations between the two partners are effective.
- Access to Market – One partner may gain exposure and access to a completely unknown market by joint venturing with a local/domestic partner. For example, an Australian company joint venturing with an Indonesian company to gain exposure and expand their operations.
- Access to Expertise – Different partners may contribute different skillsets and expertises. For example, a joint venture between a pharmaceutical company and a tech company to make new products more efficiently through the use of different R&D methods employed by the tech company.
- Flexibility – Short-term nature allows flexibility. Furthermore, since it is not a separate legal entity, it is not as rigid and regulated as other forms of business arrangements.
Disadvantages of a Joint Venture
- Conflicting Work Cultures – Partners may have different managerial styles. This may lead to different expectations from the parties involved.
- Lots of Due-Diligence – Success of a joint venture will depend on the due-diligence performed beforehand. This includes prior research, analysis, and feasibility studies.
- Unclear Objectives – There may be unclear objectives throughout all levels of management, resulting in unclear communication to everyone involved.
- Imbalance – Imbalance may occur in two ways; imbalance in expertise level and imbalance in contributions. This may lead to unequal contributions by one party over the other.
- Unlimited Liability – Depending on the type of joint venture, there is unlimited liability for partners for the joint venture’s debts and obligations. This is because a joint venture may not be a separate legal entity. As a result, creditors may pursue personal possession of partners.
Examples of Joint Ventures
- Joint venture between Mirvac (Australian residential developer) and Ping An (Chinese insurance company).
- Qantas (Australian airline) and China Eastern (Chinese airline).
- Google and NASA to make Google Earth.
- Coca Cola Amatil and SABMiller to sell and distribute imported beer in Australia.
If you are unsure as to what business structure is beneficial for you, make sure you consult a business lawyer. You can visit this link for a list of 5 questions to ask your lawyer.
Get a fixed-fee quote from Australia's largest lawyer marketplace.
