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. Read more to know about the characteristics of a joint venture.
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 a 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:
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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.
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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.
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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 a Joint Venture
There are various characteristics of a joint venture. Some of them are listed below:
1. Agreement
The terms and conditions of the Characteristics of a 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, the 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 Characteristics of a Joint Venture.
3. No Separate Laws
There is no independent regulating body that 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 Characteristics of a 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 Characteristics of 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 utilize 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 Characteristics of 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 the 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 Characteristics of a 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 Characteristics of a 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 Characteristics of a 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 a Joint Venture, you should think about this kind of business.
FAQ’s on Characteristics of a Joint Venture
What is a Joint Venture, and how is it defined in the business context?
A Joint Venture is a business collaboration where two or more entities pool resources and expertise to undertake a specific project or business activity, sharing both risks and rewards.
What are the key characteristics that distinguish a Joint Venture from other forms of business collaboration?
Key characteristics include shared control, mutual contribution, shared risks, and a distinct entity formed for the specific venture, setting it apart from other business collaborations.
How do parties typically decide on the structure and terms of a Joint Venture agreement?
Parties negotiate and decide on the structure, contributions, responsibilities, and terms through a Joint Venture agreement, outlining the framework for their collaboration.
Is there a specific duration or timeline associated with Joint Ventures, and how are they terminated or extended?
The duration of a Joint Venture is outlined in the agreement. Termination or extension is typically decided based on mutual agreement, project completion, or specific milestones.
What is the legal and financial independence of the parties involved in a Joint Venture?
Parties maintain legal independence, contributing assets or capital, while the Joint Venture entity is financially independent, separate from the partners' individual finances.
Are there different types of Joint Ventures, and how does the nature of the venture influence its characteristics?
Joint Ventures vary, including equity, contractual, and cooperative ventures. Nature influences characteristics, determining control, risk-sharing, and profit distribution.
How are profits and losses shared among the partners in a Joint Venture, and what factors determine the distribution?
Profit and loss sharing is determined by the agreement. Factors include capital contribution, roles, and responsibilities, influencing the distribution among partners.
What role do the partners play in the day-to-day operations and decision-making of a Joint Venture?
Partners contribute to day-to-day operations and decision-making, with roles specified in the agreement, ensuring collaborative governance and effective management.
How does risk-sharing work in a Joint Venture, and what mechanisms are in place to handle disputes or disagreements?
Risk-sharing is outlined in the agreement, with partners jointly facing risks. Dispute resolution mechanisms, such as arbitration clauses, help address disagreements amicably.
What are the common industries or sectors where Joint Ventures are frequently established, and what benefits do they offer to the participating entities?
Common industries include technology, manufacturing, and energy. Joint Ventures offer benefits like shared resources, risk mitigation, access to new markets, and enhanced expertise, fostering mutual growth.
