When running a business, one of your main goals is to maximise your profits. Your business can expand in many different ways depending on the methods that you use. A great way to expand your business is by entering into a joint venture or a strategic alliance.
A joint venture is when two or more businesses enter into a temporary alliance for a particular project. This alliance is generally set in stone by a specific contract or product that is mutually beneficial for both entities.
The term strategic alliance effectively refers to joint ventures; the terms are used interchangeably although strategic alliance may be more common in some consulting contexts.
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What is a Joint Venture?
A joint venture (JV) refers to a business arrangement that involves two or more parties that collaborate to carry out a specific project or task.
In joint ventures, the parties involved combine their resources. Joint ventures can be between the following:
Parties can enter into a joint venture agreement for either short- or long-term projects. Before you enter into a joint venture, you should be aware that everyone involved shares responsibility in regard to its costs, losses, and profits. Nevertheless, joint ventures exist as a separate entity from the other business interests of their participants.
There are two types of joint ventures:
- Incorporated Joint Venture: There is a separate legal personality. Therefore, it can enter into contracts and hold property under its own name.
- Unincorporated Joint Venture: Parties hold specific shares in the joint venture depending on the agreement but do not hold a separate legal existence.
When parties enter into a joint venture, they usually sign a joint venture agreement. If you want to enter into a joint venture, you should use Lawpath’s joint venture agreement template to get started.
What are the advantages of a Joint Venture?
- Joint ventures provide businesses with growth opportunities
- Joint ventures are available to businesses of all sizes
- Joint ventures are temporary agreements
- Joint ventures provide businesses with the chance to work together and pool resources and expertise
- Joint ventures allow businesses to save money as funding and resources from several businesses will be utilized
What are the disadvantages of a Joint Venture?
- There may be differences in the management styles of the parties involved, which could influence their expectations.
- In order for a joint venture to succeed, due diligence must be performed beforehand, including feasibility studies, analysis, and research.
- There could be unequal contributions that are made towards the joint venture that could lead to conflict between the parties involved