The term joint venture refers to the coming together of a number of industrial factors with the intent of carrying out a seemingly larger project. A good example of a joint venture would be to collaborate in a large construction contract. Joint ventures come with a number of characteristics.
The very first and foremost feature of a joint venture is the time frame. Joint ventures are directed towards a specific project and in most cases are limited to certain duration of time. As a form of illustration, the government may advertise a contract whereby they may require the construction of a given modern road or railway. One company or several of them may realise that if given the job to carry out alone, it may be too heavy for them. As such therefore, they may seek fellow contractors in the same field to join hands and take over the contract together. Of course the coming together of the two or several contractors does not make them permanent business partners. The purpose of working together is simply to perform the contract at hand and then part ways, unless they join hands again and carry out another contract together. Otherwise, from the legal point of view, the joint venture comes to an end as the contract comes to an end too.
The other characteristic of a joint venture is the ability of both or several parties carrying out all administrative functions of the collaboration together. Of course before taking up the contract, the contractors involved will normally have a contractual agreement where they will outline the legalities involved in their activities. The procedure that would be taken has to be agreed upon in order to avoid any future disagreements. Without this the performance of the contract may be hampered by daily disagreements where one party may complain that they are either left out on major jobs or that they are being given a bigger workload as compared to the other. Many at times will resort to sharing responsibilities.
In some situations, a joint venture may have to be organised in the form of a private limited company. In this case, the contractors that will have come together will be recognised as shareholders. The amount or shareholding will vary depending on each company’s financial contribution to the venture. In some situations the shareholding will be exactly the same whereby the rights and responsibilities will be shared equally. In some cases, the participants may take the direction of a public limited company whereby the shareholders will still pool their efforts together for the sake of the limited-time venture.
The other more informal approach that may be taken by a joint venture as collaboration is the partnership. Some may choose to register the venture as such while others may simply take the approach but not really register it. Some legal jurisdictions will compel joint ventures to be registered however short the period of the venture may be. Of course this is for legal purposes in case of any future disagreements and for purposes of taxation. If registered as a partnership, the legal rules governing a partnership will come into play. The rights and obligations will be followed as set out in the partnership agreement.
Another characteristic of a joint venture that cannot be overlooked is the management. It may be necessary in some cases for the venture to appoint a management body that will cater for the management of the venture. The management body will definitely have to represent the participants involved. Management personnel may be brought in from all sides in a certain percentage. Some ventures will find it necessary to appoint an independent management body that is not composed of any of their employees. Of course they have to agree on which one to go for since they will have to pay for the body’s services.
Establishing a joint venture with a participant from a foreign platform has always had some advantages. It helps the local one to gain an international market and increase the prospects of getting newer and more customers. The strategy here is the business network creation.
Have you thought about collaborating or forming a JV (joint venture)? Care to share your experience and/or expertise?