A joint venture abbreviated as JV is a type of business arrangement in which more than two or two parties agree to pool their resources for the purpose of fulfilling a specific task which can be a new project or any business activity.
All the participants in this venture are responsible for the profits and losses. Joint ventures, which actually run on a partnership basis can take the form of any legal structure. Henceforth, in this section, we shall talk about the JV business, its types, characteristics, and further move on to its advantages and disadvantages.
Types of Joint Venture
In this section we are going to talk about a few, most common types of joint ventures:
-
Limited Co-Operation Type JV
Collaboration is done with another business in a specific way like when a small business with a new product wants to sell it through a larger company’s distribution network this leads to the merging of business. The two partners agree on a contract of setting out the terms and conditions of how these function.
-
Separate Joint Venture Business
When a separate joint venture business is set up by a new company by handling a contract, a separate joint venture business is formed. The partners each own shares individually in the company and agree on how they should manage it.
-
Business Partnerships
Joining a business partnership or a limited liability partnership is a type of merger of two businesses.
Corporations, Partnerships, and Limited Liability Companies and also other business entities can survive as a JV.
Characteristics of a Joint Venture
The characteristics of a Joint Venture are as follows –
A joint venture is entered between two or more parties to merge each other’s qualitative features. The company possesses a special characteristic which another company might lack.
Joint venture agreement between two or more organizations which might be of the same country or two different countries who diversifies in culture and ethics, different technology, have a chance to endure the possibility of inheriting one another’s characteristic need for each one’s requirement thus developing the target audience in their own hemisphere.
For a joint venture, there is no separate governing body that regulates or refines the activities of the venture. While they are into a corporate structure, the Ministry of Corporate Affairs like any other corporate check also keeps a check on this structure as well.
Advantages of Joint Venture
The most important joint venture advantages can help businesses to grow faster, increase their productivity and generate profits. Benefits of joint ventures include:
-
Access to new markets and enlarge their audience.
-
Increased the capacity.
-
Sharing of risks and costs on a wide surface basis.
-
Access to new knowledge and expertise in business which includes specialized staffing necessity.
-
Access to higher resources, for example, the technology and the finance.
-
Joint venture partners help in providing a huge pool of resources together.
Disadvantages of Joint Venture
Joint ventures can pose significant risks, the disadvantages are like the follows:
-
The communication between partners is not great as they belong to different societal classes.
-
The partners expect different things from the joint venture, their interests may clash.
-
The expertise and investment level may not match well.
-
Work and Resources are not distributed equally.
-
Different cultures and management styles may create barriers to the organization.
-
The contractual limitations may pose risk to a partner’s core business operations.