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Setting Up a Joint Venture

Currently, World’s economy is growing very fast. But for the first time, stepping in any country the most preferable form is the Joint Venture for setting up a business entity

Setting Up a Joint Venture

Wednesday September 27, 2017,

3 min Read

Currently, World’s economy is growing very fast. But for the first time, stepping in any country the most preferable form is the Joint Venture for setting up a business entity. Also, in case the business and legal environment is not known, it is advised to form a Joint Venture. A Joint Venture is joint agreements among two or more parties come together and form business or contractual relationship for executing specific business model. There are two types of Joint Ventures: Contractual Joint Venture and Equity Based Joint Venture.

Contractual Joint Venture

Wherein two or more individual or companies comes together and forms an agreement/contract for working jointly but no individual entity is build for executing the business contract. The main features of contractual joint ventures are described below:

· Two or more organizations comes together into an agreement with a similar intention of project execution

· Each organization or individual brings its own roles, shares and responsibilities are accordingly decided to depending upon each one’s field of expertise

Equity Based Joint Venture

In this an individual legal entity is formed which is owned by two or more individuals who are working jointly with a similar intention. And also decides to equally participate in the equity of entity that is newly formed. This newly incorporated entity may be in the form of LLP, Partnership firm, Company etc. In general, in this type of joint venture, the benefits as well as losses of entity that is owned together are distributed among the all the individuals or parties based on the capital ratio contributions made by them. The key features of equity-based joint ventures are as follows:

· Shared rights by the individuals/companies involved

· Shared management of together owned entity

· Shared benefits and losses based on the agreement

Benefits of a Joint Venture

Two or more individual’s ownership in an organization and each and every person contribute different aspects having long-term profits in their mind. Fundamentally, everyone has found it essential to have a business partner. Likewise, in the US, business partnerships must be done legally along with proper government documentation. This process includes registration and building of a partnership agreement, describing business objectives, responsibilities, and legal liabilities of an individual. Often, business associates always want to be exposed themselves with the liabilities and risks associated with an unlimited general partnership. A limited partnership agreement might mitigate such kind of issues. Also, in limited partner’s case, both individual don’t have same no. of control over a business practices, and also don't have same level of debt exposure of the business. The specific rights along with business responsibilities of these partners should be laid out in the agreement of partnership. However, the business formation laws having limited partnerships, varies state to state.

Joint Venture- A Good Fit for Successful Business

Joint ventures combine two or more separate business entities for undergoing on a business idea or specific project with mutual decision for successful functioning of both the businesses. In this way, both the entities only give their daily business operations rather giving whole control over their business. Both the business entities continue to function independent of each other, except the specific idea or project they have decided to run together. Every member does capital investments and put their resources, and takes the risk involved in that process. On the whole, a partnership which is in general form couples two or more persons in a permanent business relationship. In this venture, there is no operation or functioning separation neither there is any kind of limitations on the any activities or projects taken together to work for.