Joint Venture

What Are the Main Characteristics of a Joint Venture?

Here, you will learn about the characteristics of the joint venture and how this type of business will be helpful for you to get a lot of benefits and expand your business.

Businesses must keep their edge in the highly competitive environment of today. Companies must decide whether to diversify their revenue sources and product lines, offer consumers something new, or enter a new market to achieve this. However, during such times, the businesses may experience financial or technological limitations or have trouble advancing in the new market.

It is common for two or more businesses to work together to solve such challenges through temporary arrangements that enable them to pool their resources for a competitive advantage and financial support. Such arrangements are known as joint Ventures or JVs.In India, it has become more common now to have a joint venture with several foreign companies which are geographically more sparse and technically more developed. Furthermore, the characteristics of the joint venture are such that every person is trying now to have a business with the joint venture. In India, the major sectors involved in joint ventures are banking, insurance, defence, IT, Commercial Transport Vehicles etc.  

Categories of Joint Venture

There are mainly three most common types of the joint venture, which are as: 

  • Separate JV Business

When a new company sets up a separate joint venture business by dealing with a contract, a separate JV business gets created. In this company, every individual has shared and acknowledged how they would organise it. 

  • Limited Co-Operation Type JV

Affiliation is done with another business in a particular way. When a small business has a new product and wants to sell it via a larger company’s network, this governs the merging of business. The two partners agree to note down the terms and conditions of how these things will function. 

  • Business Partnerships

A sort of merging of two businesses is joining a limited liability partnership or business partnership. A Joint venture agreement can be sustained by partnerships, corporations, limited liability corporations, and other business commodities. 

Examples

There are some examples of joint ventures in India.

  • Vodafone and Idea network companies get under joint venture to provide their best network facilities to their customers. 
  • NASA and Google company to formulate Google earth.
  • Suzuki Ltd. Of Japan and Maruti Ltd. Company of India do a joint venture to initiate Maruti Suzuki India Ltd. In the Indian demand. 
  • Tata Global Beverages and Starbucks corporation developed a joint venture to develop TATA Starbucks Pvt. Ltd. Outlets in India. 
  • A joint venture between Bharti AXA General Insurance and Mahindra Renault Ltd. 

Characteristics of Joint Venture

There are various characteristics of the joint venture. Some of them are listed below: 

1. Agreement

The terms and conditions of the joint ventures are enforced on a written treaty having the signature of all the parties involved. The main things discussed in the agreement are that all the persons are willing to work with each other, duration of this agreement, liabilities, model of association, financial share etc. 

2. Parties

Those individuals included in the joint venture are known as co-venturer. Their number varies from two to more than two. These are the individuals who will do this business under the joint venture. 

3. No Separate Laws

There is no independent regulating body which governs the activities of the joint venture. However, the Ministry of Corporate Affairs, in association with the Registrar of Companies, keep an eye on companies in case the parties enter into a corporate structure. Besides that, there is no separate law or governing bodies which can take part in the joint venture.  

4. Duration

Joint ventures are for a short period and are not permanent. The duration depends upon the choices of all parties involved in joint ventures. Here two or more companies join hands to conquer various issues. These federations are temporary and terminate when the set goal is achieved. 

5. Create Synergies

The persons and companies involved in joint ventures have various and different skills and experiences. Joining hands with each other can be beneficial for all parties in a way to extract the skills and abilities of each other. One company can have some particular skills that may not be present in another company. Similarly, the other company may have such experiences that may be absent in another if these companies enter into a joint venture to give rise to synergies between them for a greater cause. 

6. No Special Name for the Venture

Since the federation is for a short period, any special and unique name is not required. The companies or parties can utilise their already used name, and the venture could be named based on the opinion of all parties. 

7. Shared Control Over the Venture

All the parties involved in a joint venture have shared control over it. All the important decisions and factors will be enforced only after the agreement or per the terms and conditions quoted in an agreement. 

8. New Innovation

As the parties use their technologies and human resources for the newly formed joint venture, there is the possibility of innovating new technology which was not in their mind. Maybe that innovation will be helpful for them as well as the customers of their brand. 

9. Shared Resources

All the companies involved in the joint venture have to share their possessions, whether physical, workforce or any other possession, to move their planned project ahead. Since all the parties share their resources and financial burden, this step will be beneficial for all the parties involved, and collaborative learning and understanding will be achieved. 

10. Sharing of Risk and Profits

This feature is a very important consideration in the joint venture. All types of businesses can face risk sometimes, but a newly set up business is prone to risk associated with it. The profit from the business can not be predicted, but the losses and risks can be examined in advance. 

The joint venture agreement between two companies may be of different countries. It can have culture and technology diversification, geographical benefits and losses, target audience and many more considerations to overcome. 

In this agreement, the joined parties are well familiar with the risk. Since they mutually share all the financial burdens, the risk will be shared as decided. In case of joint venture failure, this cushions each party for big losses. Accordingly, if they get profit from the business, that will be shared as per the signed agreement. 

11. Flexibility 

A joint venture has a lot of flexibility and can adapt to the company’s needs. The terms and conditions of the agreement between the companies should be specific concerning their activities. This promotes clarity and prevents ambiguity among the parties. The agreement also aids in defining the precise scope of work that each party must do. 

12. No illegal activities 

A joint venture between two companies or parties from different nations is another option for conducting business. Before beginning any such joint venture, the rules and regulations set forth by the different governments must be compiled. These standards aid the government in monitoring the actions of businesses and guarantee that joint venture partners are engaging in lawful and legal activities. 

Conclusion

In India, where unemployment touches the sky, everyone thinks about business. But what type of business one can do is a very important step in initiating the business. Vakilsearch will help you to understand the different businesses and will guide you at every point in your business. Based on the characteristics of the joint venture, you should think about this kind of business. 

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