A joint venture , or JV, refers to an agreement whereby two companies, or businesspeople, channel equity, time and human resources into a partnership, and share any profits or rewards it provides.
The duration of a JV depends on the partners involved; it can cover anything from a one-off project to a fully fledged, long-term relationship. Some of the world’s most prominent brands, including Sony Ericsson, have been forged through joint ventures, so there’s no reason why your partnership can’t go on indefinitely.
Why do people create joint ventures?
Many people choose to create a JV because they are expanding into a new territory, and lack the local knowledge to go alone. If you are unfamiliar with the customs, business etiquette and market constraints of the region or country you’re entering, a partnership with a local firm can really help your cause.
Alternatively, you may lack resources in a particular area, and wish to enlist someone to fill in the gaps, or wish to use the kudos and contacts of a larger company; if you’ve just launched a product and want to reach a wider audience, you may be able to do so by using the distribution network of a more established company.
What are the drawbacks of joint ventures?
First of all, you run the risk of your company’s secrets getting out. A JV inevitably involves an element of knowledge share, and you could put your personal hard work and ideas at risk if you’re not careful.
Furthermore, a JV venture could dilute your existing brand identity, and, if it ends acrimoniously, could ruin your relationship with your partner – and even turn a friend into a competitor.
What are the main types of joint venture?
There are several different ways you can set up a joint venture. Here are the three most common models.
If you’re not looking for a long-term or permanent partnership, you could arrange a one-off partnership covering a specific project or period. As long as you ensure you are very clear in how long the joint venture will last for, and what each side’s responsibilities are, this sort of arrangement offers relatively low risk.
However, if you want something more permanent, you could set up a separate joint venture business. This can really bring clarity to your arrangement, but be warned: you’ll have to be meticulous in structuring the new operation. It’s vital that you and your JV partner work out exactly how much of the business each company owns, how much money and resources each party is going to provide, and where each side’s responsibilities begin and end.
Finally, you could think about setting up a limited liability partnership; in such an arrangement, if the venture fails and it’s your partner’s fault, you won’t be liable, and you can’t lose more than you invest.
How do I set up a joint venture?
Once you’ve worked out who you want to partner with, you need to check that they’re sound and stable. This involves serious research on the company’s management structure, client base, financial reports and market reputation.
When you’re happy to go ahead, you can start sounding out the company about going into partnership. It’s vital that you’re clear about why you want to set up the JV, what you hope to get out of it and how much resource you’re prepared to put into it. Make sure you maintain clear and formal correspondence.
Then, if the other company is willing to set up a JV, you need to draw up an agreement. This document must contain a number of details, including:
- The precise length of the JV
- The equity to be provided by both sides
- The names of the JV’s board and management team
- The responsibility for PR, marketing and business development
- The branding of the new venture (name, logo, slogan, URL etc)
- The distribution of profits
- The ownership of any new products or intellectual property which arise from the JV
- The end date
Finally, before you put the seal on the partnership, you need to make sure it’s not going to infringe competition law. If you think your JV may create a monopoly, you need to contact the Office of Fair Trading and seek approval for the partnership. Once you’ve passed this stage, you’re good to go!