Advantages of a Joint Venture

Businessmen all round the world are known to be very ambitious and eager to take their businesses to higher levels. But, in some cases, a lot of capital investment is required for undertaking a particular project.

Many times, it so happens that a single person or a company falls short of the requisite capital requirements and manpower to complete the projects.

This hampers the process of increasing the company turnover. In these cases, two or more people can come together and form an alliance to meet the financial, technical, and manpower needs of the project. This is known as a joint venture. Such a venture is possible only after the signing of a legal agreement between the partner companies.

The first step in starting a joint venture is to ensure that you have similar ways of thinking and analyzing a situation as your prospective partner. You should form an alliance with like-minded people. This will definitely help minimize the chances of conflict and differences of opinions in the later stages.

You should also decide the mission, vision, and aim of the company, to ensure its success.

Two types of contracts that could be drawn are Incorporated Joint Venture Contract and Contractual Joint Venture Contract. In case the former is signed between the two companies, a new company is created which contains individual shares or holdings of the members of the joint venture.

In case the latter is opted for, the companies involved in the joint venture assist each other in their businesses, without the formation of an independent company.

There are many advantages of entering into such an agreement. To begin with, joint ventures help the two partners in expanding their customer base. The companies can sell their products in locations where they did not have any previous established business.

Consider this simple example - a cosmetic company in Asia signs a joint venture with a Europe-based cosmetic giant and they mutually decide to manufacture products together and market them in both the continents.

In this case, the Asian company will get the advantage of the already-built reputation of the European company to sell its products in Europe and vice versa. This will help both the companies in increasing their turnover and ultimately their profits.

The advantages also include improved production and marketing strategies. Companies in a joint venture can get access to new and latest technologies for production by working together. Many times, a company can obtain raw materials and resources for increasing its production from its joint venture company.

The companies can always retain their individual properties, assets and holdings, which is a great plus point.

Meeting the needs of finance and manpower, and at the same time, reducing the risk of huge capital losses are some other advantages. If two real estate developers come together for a construction project, they can share the investment costs involved in buying land, the construction costs, as well as manpower costs.

Along with profit sharing, the risks in the business also get considerably reduced as the losses are divided among both the companies.

Though the advantages are plenty, it is advisable to consult legal experts before you go ahead with the plans.