What is a Joint Venture?

A joint venture is a business agreement in which two or more parties agree to develop, usually for a limited period of time or scope of work, a new business entity with its own assets, usually through the financial contributions of the joint venturers. The joint venturers control the new business entity and share both the expenses and the revenues of the enterprise. Joint ventures can be between people, businesses, or a combination of the two. While joint ventures are usually small projects, major corporations also use this method in order to diversify.

Duration of the Venture

Although often proposed for a limited purpose, joint ventures can also have an indefinite duration. Famous examples of such ongoing joint ventures include Dow Corning, Sony Ericsson, and Owens-Corning. Because the cost of starting many projects can be prohibitively high, a joint venture allows the joint venturers to pool their collective resources in order to achieve the project aims without having to undertake potentially insurmountable or crippling financial obstacles to do so.

Challenges of Joint Ventures

Although joint ventures are a great way to pool capital and expertise while simultaneously reducing the risk of loss to all involved, they create some unique challenges as well. For example, if one party to the joint venture independently develops an idea that allows the joint venture entity to make a substantial profit, should the resulting profits of the joint venture be split evenly or should the inventing entity receive a larger portion of the profits? Problems such as these, often not considered at the inception of a joint venture, may be one reason that nearly half of all joint ventures last less than four years and typically end in a legal battle.

For that reason, it is important to understand what a joint venture is, anticipate potential problems, and account for those possible eventualities in a joint venture agreement. You will find additional resources on joint ventures below, but any person or entity considering a joint venture should have the assistance of legal counsel in preparing any agreements related to their project. For a list of attorneys in your area, you may click on the Law Firms tab on the menu bar, above.

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