A joint venture is a temporary partnership or an agreement (contractual) that allows two or more parties to go into business or start an enterprise for a specific time period, reaping benefits and losses as agreed by involved parties, typically defined in a Joint Venture Agreement. Commonly referred to as JVs, joint ventures are great for small businesses that seek opportunities and a way to increase their profits. Joint ventures are different from partnerships in these ways. They are usually contracted for a particular project or enterprise. They are time bound. The only expenses shared by the parties are ones incurred in the process of undertaking such project or enterprise.Involved parties retain right of ownership to goods brought into the venture after the project must have been completed.
Joint ventures enjoys greater tax advantages when compared to partnerships. Particpants of a JV usually contribute money, property or skill, depending on angreement between parties.The relationship between Joint Venture parties is usually short term as it is not the major business of each party involved. Joint ventures allows involved parties to break into new markets, get new customers, access facilities from other parties which were unavailable to the individual or business before and gain new experiences.Goals need to be properly defined before agreeing ro a joint venture as a miscalculated and ill planned venture could result in major losses.
It is important to work with parties who share the same goals and objectives as you as this helps cohesion and allows for speed in decision making which is healthy for business.Before agreeing to a Joint venture, it is important that such association be backed by legal documents known as the Joint Venture Agreement or a Memorandum of Understanding (MoU), detailing the duties and responsibilities of involved parties, profit or loss sharing ratios, company control, management decisions, number of people to be involved and valuation process for each party’s contribution.