WHAT IS A 'JOINT VENTURE - JV'

A Joint Venture (JV) is a cooperative enterprises entered into by two or more business

entities for the purpose of a specific project or other business activity.

New firm formed to achieve specific objectives of a partnership like temporary arrangement
between two or more firms. JVs are advantageous as a risk reducing mechanism in new-market
penetration, and in pooling of resource for large projects. They, however, present unique
problems in equity ownership, operational control, and distribution of profits (or losses).
Research indicates that two out of five JV arrangements last less than four years, and are
dissolved in acrimony. See also strategic alliance.

A joint venture (JV) is a business arrangement in which two or more parties agree to pool their
resources for the purpose of accomplishing a specific task. This task can be a new project or any
other business activity. In a joint venture (JV), each of the participants is responsible for profits,
losses and costs associated with it. However, the venture is its own entity, separate and apart
from the participants' other business interests.
The individual entities retain their individuality and they operate under a joint venture
agreement. In any case, the parties in the JV share in the management, profits, and losses,
according to a joint venture agreement (contract).

Although they are a partnership in the colloquial sense of the word, joint ventures can take on
any legal structure. Corporations, partnerships, limited liability companies (LLCs) and other
business entities can all be used to form a JV. Despite the fact that the purpose of JVs are
typically for production or for research, they can also be formed for a continuing purpose.

Joint ventures can combine a large and smaller companies to take on one or several big and little
projects or deals.

Regardless of the legal structure used for the JV, the most important document will be the JV
agreement that sets out all of the partners' rights and obligations. The objectives of the JV, the
initial contributions of the partners, the day-to-day operations, and the right to the profits and/or
the responsibility for losses of the JV are all set out in this document. It is important to draft it
with care, to avoid litigation down the road.

The key elements to a joint venture may include (but are not limited to): 

1. The number of parties involved

2. The scope in which the JV will operate (geography, product, technology)
3. What and how much each party will contribute to the JV
4. The structure of the JV itself
5. Initial contributions and ownership split of each party
6. The kind of arrangements to be made once the deal is complete
7. How the JV is controlled and managed
8. How the JV will be staffed 

Once the JV has reached its goal, it can be liquidated like any other business or sold. For
example, in 2016, Microsoft Corporation sold its 50 percent stake in Caradigm, a JV it had
created in 2011 with General Electric Company (GE) to integrate Microsoft’s Amalga enterprise
healthcare data and intelligence system, along with a variety of technologies from GE
Healthcare. Microsoft has now sold its stake to GE, effectively ending the JV. GE is now the sole
owner of the company and is free to carry on the business as it pleases.

Sony Ericsson is another famous example of a JV between two large companies. In this case,
they partnered in the early 2000s with the aim of being a world leader in mobile phones. After
several years of operating as a JV, the venture eventually became solely owned by Sony.

ADVANTAGES

1 – New insights and expertise

Starting a joint venture provides the opportunity to gain new insights and expertise. Think about
it; the market is now way easier for you to understand given the short-term partnership that you
have forged.
2 – Better resources

Forming a joint venture will give you access to better resources, such as specialized staff and
technology. All the equipment and capital that you needed for your project can now be used.

3 – It is only temporary

A joint venture is only a temporary arrangement between your company and another. By
definition, you won’t be committing to it long term.

4 – Both parties share the risks and costs

In case the joint-group project fails, you are not alone when bearing the costs of its failure.
Because you two had volunteered to share the expenses, you both will also support the losses.

5 – Joint ventures can be flexible

According to assignment writing service writers, an example of this is that a joint venture can
have a limited lifespan and can only cover only a fraction of what you do, thereby limiting your
commitment as well as your business’s exposure.

6 – There are ways to exit a joint venture

In the timeline of divestiture and consolidation, a joint venture offers a creative way for
companies to escape non-core businesses.

7 – You will know what’s yours and will be able to sell it

Gradually, firms can separate their business from the rest of the organization, and then later, sell
it to the other parent company. Approximately 80% of all joint ventures end in a sale, from one
partner to the other.

8 – You are more likely to succeed

Your chances of success will become higher as you are already riding with a renowned brand. As
a result of this, your credibility will also vastly improve.

9 – You will build relationships and networks

Even though your partnership is only for a specific goal, this move will enable you to create
long-lasting business relationships.

10 – Your potential will virtually be limitless

Despite having little to no money at your disposal, you can create more venture deals in the
process. You will create momentum and have partners with you.

11 – You get to save money by sharing advertising and marketing costs

And that works for a lot of other types of costs. Starting a joint venture is a great way to save
money and/or split costs.

12- International joint venture eradicates the risk of discrimination.

International joint ventures are very common nowadays. This is a great opportunity to cooperate
with people from different countries and combine our strengths!

DISADVANTAGES

1 – Vague objectives

The objectives of a joint venture are not 100 percent clear and rarely communicated clearly to all
people involved.

2 – Flexibility can be restricted

There are times when flexibility is restricted in a joint venture. When that happens, participants
have to focus on the joint venture, and their individual businesses suffer in the process.

3 – There is no such thing as an equal involvement.

An equal pay may be possible, but it is extremely unlikely for all the companies working
together to share the same involvement and responsibilities.

For example, Company A is working on the production process, whereas Company B is

responsible for the production, and Company C is in charge of planning and implementing
market strategies. Since Company A is not directly involved in the production and promotion
process, the pressure is on the latter companies. It will also affect individual businesses.

4 – Great imbalance

Because different companies are working together, there is a great imbalance of expertise, assets,
and investment. This can have a negative impact on the effectiveness of the joint venture.

5 – Clash of cultures

A clash of cultures and management styles may result in poor co-operation and integration.
People with different beliefs, tastes, and preferences can get in the way big time if left
unchecked.

6- Limited outside opportunities

It is very common for joint venture contracts to restrict outside activities of participant
companies while working on a venture project. You need to make sure you understand what you
are getting into if you don’t want to negatively impact your entire business.

7 – A lot of research and planning are necessary

The success of a joint venture highly depends on thorough research and analysis of the
objectives.

8 – It may be hard for you to exit the partnership as there is a contract involved

Once again, even though a joint venture is temporary, it is crucial that you know what you are
getting into if you don’t want to be locked in a partnership.
9 – You might be tempted to leave the joint venture

You will get enough leadership and support in the early stages of a joint venture and might be
tempted to leave.

10 – Lack of clear communication

As a joint venture involves different companies from different horizons with different goals,
there is often a severe lack of communication between partners.

11 – Unreliable partners

Because of the separate nature of a joint venture, it is possible that the partners do not devote
100% of their attention to the project and become unreliable.

12 – Unclear and unrealistic objectives

Unrealistic and unclear objectives may be set up. To avoid this, it is necessary that you and your
partners do a lot of research before starting your joint venture.

JVs Vs. PARTNERSHIPS AND CONSORTIUMS

It is quite normal to think of joint venture and partnership business as one. However, they are
two entities, which have very clear-cut differences.

Joint venture involves two or more companies joining together in business. In partnership, it is
individuals who join together for a combined venture. Two or more companies, which are listed
in the stock market often, engage in a joint venture to overcome business competition. While
engaging in partnership, the individuals involved become partners in an organisation for the sake
of profit.

A Joint Venture can be termed as a contractual arrangement between two companies, which aims
to undertake a specific task. Where as partnership involves an agreement between two parties
wherein they agree to share the profits as well as take the burden of loss incurred.
In partnership, the persons involved are co-owners of a business venture, aimed at making profit.
But in joint venture, it is not just profit that binds the parties together. Joint ventures can be
formed for specific purposes. For example, companies may join together and fund for the
development of a particular thing that could be of use to their respective business. Normally the
companies engage in joint ventures, as sometimes it could be quite expensive for undertaking
certain ventures like research and development individually.

While partnership can last for many years till the parties involved have no differences,
companies involve in a joint venture for only a limited period till their goal has been achieved. In
a joint venture, the members have come together for some specific purpose, while in a
partnership the members have joined together for only business.

Another difference that the joint venture and partnership have is with regard to tax. One of the
main differences is regarding the Capital Cost Allowance. The members in a partnership can
claim CCA as per the partnership rules. Joint ventures on the other hand can use as much or as
little of the CCA as they wish. There is no need to file returns in a joint venture but it has to be
filed in partnership.

In Partnership, the members cannot act as per their wishes and they do not have any individual
identity; they belong to a group. However, a member of the joint venture can retain the identity
of his firm or property.

A joint venture may have some similarity to a partnership, but it's not. A partnership is a single
business entity formed by two or more people. A joint venture joins several different business
entities (each of which may be any type of legal entity) into a new entity, which may or may not
be a partnership. Partnership income taxes are paid by the owners individually. 

You may have heard the term "consortium" used to explain a joint venture. A consortium is a
looser arrangement between several different and distinct business entities. A consortium doesn't
create a new entity. In the travel industry, for example, a consortium of travel agencies allow
memberships with benefits. The consortium negotiates on behalf of its members for special rates
from hotels, resorts, and cruise lines. 
A JV is not a partnership. That term is reserved for a single business entity that is formed by two
or more people. Joint ventures join two or more different entities into a new one, which may or
may not be a partnership. 

The term “consortium” may be used to describe a joint venture. However, a consortium is a
looser agreement between a bunch of different businesses, rather than creating a new one. A
consortium of travel agencies can negotiate and give members special rates on hotels and
airfares, but it does not create a whole new entity. 

COMPARISON CHART
BASIS FOR
JOINT VENTURE PARTNERSHIP
COMPARISON

Meaning Joint Venture is a A business arrangement where

business formed by two
or more than two
persons for a limited
period and a specific
purpose.
two or more persons agree to
carry on business and have
mutual share in the profits and
losses, is known as Partnership.

Governing Act There is no such The partnership is governed by

specific act. the Indian Partnership Act, 1932.

Business carried Co-venturers Partners

on by

Status of Minor A minor cannot become A minor can become a partner to

a co-venturer. the benefits of the firms.

Basis of Liquidation Going Concern

Accounting

Trade Name No Yes

 BASIS FOR
JOINT VENTURE PARTNERSHIP
COMPARISON

Ascertainment of At the end of the Annually

Profit venture or on interim
basis as the case may
be.

Maintenance of Not necessary Mandatory

separate set of
books

Definition of Joint Venture

Joint Venture is defined as a business organisation where two or more parties come together for
completing a particular task, project or activity. The venture is formed for a limited period, also
known by the name temporary partnership. Here the parties to the venture are considered as Co-
venturers who agree to run the venture jointly by combining their resources like capital,
inventory, machinery, manpower, etc. and by sharing profits and losses in the specified ratio
without the use of the firm name.

The determination of profit and losses of the joint venture can be done as follows:

If the Venture is formed for short duration: At the end of the Venture

If the Venture is formed for a long duration: On Interim Basis

Some popular example of Joint Venture business is:

Sony Ericsson is a joint venture to make mobile phones where Sony is a Japanese electronics
company, and Ericsson is a Swedish telecommunication company.

Caradigm, a joint venture between Microsoft Corporation and General Electric Healthcare.

Hero Honda, a joint venture between Hero Cycles India and Honda Motor Company Japan to
manufacture two-wheeler vehicles.

Definition of Partnership

An agreement between two or more persons in which they agreed to carry on the business and to
share the profits and losses mutually is known as the Partnership. The members are individually
known as partners and collectively referred to as a firm. The following are the features of
partnership:

An association of two or more than two individuals. Agreement between the partners for
carrying on business. Business to be carried on by all or any one partner on behalf of all the
partners. The partners must share profits and losses in an agreed ratio. The liabilities of the
partners are unlimited.

KEY DIFFERENCES BETWEEN JOINT VENTURE AND PARTNERSHIP

The following are the major differences between the Joint Venture and Partnership:

A Joint Venture is a type of business arrangement which is formed for accomplishing a particular
project. The agreement between two or more than two persons for carrying business and sharing
the profits thereof is known as the Partnership.

The Indian Partnership Act governs the partnership, 1932 whereas there is no such statute in the
case of the joint venture.

The parties involved in the joint venture are known as co-venturers while the members of the
partnership are called partners.
A minor cannot become a party to Joint Venture. Conversely, a minor can become a partner to
the benefits of the partnership firm.

In Partnership, there is a specific trade name, which is not in the case of Joint Venture.

A Joint Venture is formed for a short duration, and that is why going concern concept does not
apply to it. On the other hand, the Partnership is based on going concern concept.

In Joint Venture, there is no specific requirement to maintain books of accounts, but in

partnership the maintenance of books of accounts is compulsory.

CONCLUSION

Joint Venture and Partnership are very famous business forms. Many big enterprises come
together for specific purposes to form a joint venture and when that purpose is accomplished the
venture also ceases to exist. Partnerships last longer because they are not formed with an
intention to complete a particular purpose, but the sole objective of the partnership is to
undertake business and share profits and losses mutually.

When we talk about profits, the profits are calculated at the end of the venture, for Joint Ventures
but the profits of partnerships are determined annually.