A joint venture is a strategic alliance or partnership between two or more parties that allows both parties, usually companies, to increase their ability to build their separate businesses. Joint ventures are commonly used by companies to become active in a new territory and return higher profits by expanding the company’s network.
Procedure:
- Determine your need for a joint venture.
- Define your business objective.
- Research potential partner.
- Determine if the partner represent a good fit.
- Prepare and sign a non-disclosure agreement.
- Decide the format of the joint venture.
- Draft the joint venture agreement.
- Determine the management of the joint venture.
- Define the role of the employees in the new entity.
Definition/Explanation:
- Need: It appear when in your regular business operations, you reach a point when you realize that your business doesn’t have the expertise, technology or operations in a specific area. One way to solve this is through a joint venture with another company that has expertise or operations in that missing area.
- Business objective: What will be the purpose of this new business? When you have an idea, you must determine the business objectives. They must be clear. Describe the purpose of the joint venture that you foresee and identify its goals. This will need to be a document that you can share with potential partners to generate interest. The need for the joint venture should be compelling and self-evident.
- Partner: You must identify some potential partners. They must be able to complementary to your activities. Maybe it’s a competitor or a distributor. Networking in the business community is a useful way to find potential partners. Shop around, meet with other business leaders, and focus on entities that provide the services or already have the expertise that you need.
- Good fit: Examine the operating structures of the two companies to see if they are compatible. Both companies must be able to work together efficiently and frictionless. Both companies must be committed to success, same things for their employees. Also, it’s important that both companies are financially strong to support the joint venture.
- Non-disclosure agreement (NDA): This is a form of a contract by which both parties agree not to disclose or take advantage of anything obtained from the other company. Because of the nature of a joint venture, it’s important to sign an NDA, because your business will share sensible information with another entity. You may choose to prepare an NDA, or confidentiality, agreement before you begin the joint venture.
- Format: Depending the project (type and size), the format on the joint venture could be different. Sometimes it’s a new corporation, a partnership, or a simple contractual agreement. Sometime, the help of an attorney could be beneficial to determine the format that suit well.
- Joint venture agreement: When drafting the contract, be sure to name the parties to the agreement, with a brief description of each party’s operations. Then introduce the name of the new joint venture and include a brief statement of its intended purpose. The purpose is often stated early in the joint venture agreement. Also, define terms that should be clearly defined. Identify the business objectives of the joint venture. The statement of the objective must be clear and defined, so that the parties to the contract can identify when their task has been met. Finally, define the structure of the joint venture.
- Management: For the success of the joint venture to succeed, both entities need to agree how they will run the new business. You need to decide if you will create a separate board of directors, elect officers, or set up a team of representatives.
- Role: You need to consider which workers will contribute to the joint venture, and in what proportions. The agreement needs to identify which employees will perform specific functions and how the work of the joint venture will get done.
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