What is a Joint Venture (JV)?
In a scenario, when two or more individuals/parties come together to accomplish a specific task is known as a joint venture (JV) business. The task can be a fresh project or an existing business activity in which the participants define the profit, losses and cost sharing between them. Apart from the individual interest, entity or business, the joint venture is considered as a separate legal entity.
Details of Joint Venture
Even if the two or more parties partner with each other to jointly commence the business, the JVs can become a legal structure as corporate, partnership firm, Limited Liability Company or other business entity.
No matter what form of JV is formed, the most important legal document that is required is the JV agreement which defines the rights & obligations of the partners. The document is primarily created to define the roles & responsibilities of the partner involved in the JV, profit & loss sharing, daily operations, and any additional information that needs to be included. The document helps in avoiding any kind of disputes and litigations in the future.
Using a JV to Enter Foreign Markets
Most commonly a JV is incorporated when the common business interest is to expand the business reach across the international markets. With the help of JV agreement, businesses interested in expanding their reach and services to foreign market can invest in joint ventures. With the help of this setup, the distribution of products to local services can be simplified and benefitted using the existing retailer and distributor networks. Certain countries have pre-defined conditions or restrictions in allowing foreigners to enter in their business markets. In such scenarios, the JV plays a vital role in enabling the business to enter into country’s business market in partnership with the local company.
Closure of Joint Venture
If the joint venture has completed its goal then selling or liquidating it is the best option just like other business firms. For example, the Microsoft Corporation had created a JV with GE (General Electric Company) in 2011 named Caradigm, in order to integrate the Microsoft’s Amalga healthcare data with the GE’s technologies. Microsoft sold 50% of the stake of the JV – Caradigm in 2016 to GE in order to end the JV. With the end of the JV, GE becomes the full owner of the company and it has the freedom to carry on the operations as per its business requirements.
Another example to refer is Sony Ericsson which created a JV between two large firms. The partnership came into existence in the starting of year 2000s for becoming the leading mobile phone brand in the world. After operating as a joint venture for several years, the JV was dissolved and Sony became the sole owner.