A joint venture is formed when two businesses or companies join forces to participate in a specific business activity. The parties in a joint venture may contribute assets, experience, capital, labor or other resources needed for a particular project. A joint venture has numerous benefits, including increasing market power, discovering or gaining access to new markets and sharing resources.
Forming a joint venture requires critical planning to avoid potential legal disputes down the road or ensure the venture meets its business goals. Below are some vital things to consider when forming a joint venture.
Assess whether your business requires a business venture
Creating a joint venture is a vital step for your business, and it is essential to evaluate if partnering will generate more profit or help your business grow. A joint venture should also help you fill any gaps in your business. This means that the decision to join a joint venture should be business-oriented and not only driven by emotions.
One way to learn the benefits of a joint venture in your industry is through conducting competitor research. Check the performance of other companies after forming a joint venture relationship. Was it beneficial to them? Joint ventures have worked for multiple famous companies, and thus there is a high chance that a business will succeed after forming one.
Select a joint venture partner that matches your business goals
The main aim of a joint venture is to accomplish your set business goals. Therefore, choosing a partner who is a good fit and complements your business is essential. You should be prepared to conduct research and learn more about your venture partners.
Some vital things to learn about potential joint venture partners include:
- Their attitude towards working together
- Whether the key players in each company share your level of commitment
- Their financial status, especially if they are the venture capitalists
- Their performance in the industry
- Their corporate cultures
- Their loyalty and trustworthiness
Create a joint venture agreement
Even if you have established your venture through a contractual relationship, it is still vital to draft a venture agreement. A joint venture agreement lists the business objectives, type of business venture, details on how to share profit, losses and liabilities, the terms and conditions of the business relationship, the roles of each partner and details regarding exit strategy.
This makes it easy for the business partners to remain committed to their duties and helps prevent future disputes. In some cases, joint venture agreements might be complicated and lengthy, and it is wise to seek help from legal specialists and accountants during the drafting.