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A joint venture allows
businesses to grow and gain access to markets or expertise beyond their existing capability. By teaming up with another company, many small businesses use joint venture agreements to share specialised expertise, such as technical skills or intellectual property opens in new window, as well as spread the risks and costs of developing a new market
or product. Joint ventures are usually formed by two businesses with complementary strengths. For example, a technology company may create a partnership opens in new window with a marketing company opens in
new window to bring an innovative product to market. An overseas business could join forces with a local distribution company in order to sell its products in that local market opens in new window. Joint ventures can dramatically increase the reach and scale of both businesses while reducing the risk. However, they aren’t
without their pitfalls and poorly conceived partnerships can harm both parties. It pays to understand what joint ventures are, as well as their advantages and disadvantages. What is a joint venture?At its most basic, a joint venture is when two or more businesses agree to work together. It’s effectively a commercial agreement between two or more participants, usually entered into in order to achieve specific business goals such as launching a new type of business or selling products into a new market. Each company maintains their separate business structure and legal status opens in new window, with joint ventures creating a new, jointly-owned child entity that is effectively at arms reach from the parent companies. Joint ventures aren’t restricted to limited companies opens in new window, either. Any number of companies or individuals may collaborate on a joint venture, and these agreements can involve all types of business structures including sole traders opens in new window and self-employed individuals opens in new window, limited companies and limited partnerships. Joint ventures don’t need to be equally split between partners, either, with different partners able to hold differing stakes. Joint ventures usually have a defined timeframe or outcome, such as a one-off project – although they can also encompass long-term partnerships. They should ideally benefit all parties, growing businesses or providing additional revenue streams that would be impossible without partnering with another business. Why form a joint venture?There are lots of reasons why your business may consider entering into a joint venture with other business partners, including:
Joint venture advantages and disadvantagesJoint ventures can be complicated arrangements. While they offer strong advantages to businesses, they can be fraught with risk – from a lack of transparency and trust to culture clashes than can be a drain on resources and harm operations for both parent companies. Advantages
Disadvantages Businesses aren’t natural bedfellows. Most companies are geared towards competition, which can make working together a challenge.
Joint venture agreementsThere are no laws specifying how joint ventures should be agreed. They can take whatever is best suited to the circumstances – though a clear legal agreement opens in new window should be put in place prior to any joint venture being created. Get legal and financial advice opens in new window before entering into a joint venture agreement. Have a written agreement in place that sets out the objective of the venture and the expectations and management of the project. It should also outline what happens if there is a dispute between partners. If you want something more definite then consider setting up a separate limited company or a limited liability partnership. If the joint venture fails with debts or it’s the fault of your partner, your business won’t be liable. Exiting a joint ventureSome joint ventures continue as long-term relationships, but in most cases they have defined timeframes. Once the project’s objective is achieved the joint venture agreement comes to an end with mutual consent. However, to ensure a smooth end to the agreement, it’s essential to have an exit strategy in place. A exit strategy can form part of the legal agreement, and includes how assets would be sold or how one partner in the joint venture can buy out the other partner. It’s vital to draw up a legal agreement that includes details such as notice period one partner has to give to another if they want to exit, how issues and disputes are resolved, and giving either party right of first refusal to buy the other partner out. Which form of ownership has an advantage by having skills and abilities pooled?The pooling of talent and knowledge is an advantage that partnerships have over sole proprietorships.
Which of the following is an advantage of a sole proprietorship?4 advantages of a sole proprietorship
Sole proprietorships are easy to establish and get started. The owner retains complete control of the business. There are no corporate income tax payments. They are less expensive than other business types.
Which of the following is an advantage of partnerships?Advantages of a partnership include that: two heads (or more) are better than one. your business is easy to establish and start-up costs are low. more capital is available for the business.
Which of the following is considered an advantage of corporations?Advantages of a corporation include personal liability protection, business security and continuity, and easier access to capital. Disadvantages of a corporation include it being time-consuming and subject to double taxation, as well as having rigid formalities and protocols to follow.
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