Joint Ventures & Partnerships

A joint venture involves two or more companies pooling their resources and expertise to achieve a particular goal. The risks and rewards of the business are also shared.

Reasons behind forming a joint venture may include business expansion, new product development, or entering new markets, particularly overseas.

Your business may have strong growth potential and you may have innovative ideas and products. However, a joint venture can give you:

more resources
greater capacity
increased technical expertise
access to established markets and distribution channels
Forming a joint venture is a big decision. This guide provides an overview of the main ways to form a joint venture, their advantages and disadvantages, how to assess whether you are ready to commit, what to look for in a joint venture and how to make it work.

Types of joint ventures
Joint venture – benefits and risks
Assess your suitability for forming a joint venture
Plan your joint venture relationship
Choosing the Right Joint Venture Partner
Creation of a joint venture contract
Make your joint venture relationship work
Ending a joint venture
Types of joint ventures
How you form a joint venture depends on what you are trying to accomplish.

You can choose to agree to collaborate with another company in a limited and specific way . For example, a small company with an exciting new product might want to sell it through the distribution network of a larger company. The two partners could agree on a contract setting the terms of this operation.

Alternatively, you might want to form a separate joint venture , possibly a new company, to handle a particular contract. A joint venture like this can be a very flexible choice. The partners each own shares in the company and agree on how it should be managed.

In some situations, other choices may be more appropriate than a corporation. For example, you could form a business partnership . You could even decide to fully merge your two businesses.

In order to help you decide what kind of joint venture is best for you, you should consider whether you want to be involved in management. You also need to think about what might happen if the adventure goes wrong and what risks you are willing to accept.

It’s worth getting legal advice to help identify which is your best bet. How you set up your joint venture affects how you operate it and how profits are shared and taxed. It also has an influence on your responsibility if the adventure goes wrong. You need a clear legal contract stipulating how the joint venture will operate and how any revenue will be shared. See the page in this guide on how to create a joint venture contract.

Joint venture – benefits and risks
Companies of any size can use joint ventures to strengthen long-term relationships or to collaborate on short-term projects. A successful joint venture can offer:

access to new markets and distribution networks
an increase in capacity
risk and cost sharing with a partner
access to greater resources, including more specialized staff, technology and funding
A joint venture can also be very flexible. For example, a joint venture may have a limited lifespan and cover only part of your business, thus limiting the commitment of both parties and the exposure of the business.

Joint ventures are especially popular with companies in the transportation and travel industries that operate in multiple countries.

Joint Venture Risks

Partnering with another company can be complex. Establishing a proper relationship takes time and effort. Problems are likely to arise if:

company objectives are not fully clear and not communicated to everyone involved
the partners have different objectives regarding the joint venture
there is an imbalance in the levels of expertise, investment or assets brought into the business by the different partners
different cultures and management styles lead to poor integration and collaboration
partners do not provide sufficient direction and support at the very beginning
The success of a joint venture depends on detailed research and analysis regarding goals and objectives. This needs to be followed up with effective communication of the business plan to everyone involved.

Assess your suitability for forming a joint venture
Forming a joint venture can be a major change for your business. Whatever benefit it may bring to your growth potential, it must fit into your overall business strategy.

It is important to review your business strategy before engaging in a joint venture. This should help you define what you can realistically expect. In fact, you might decide that there are better ways to achieve your business goals. See our guide on how to assess your choices for growth .

You might also want to research what other companies are doing, especially those operating in markets similar to yours. Seeing how they use joint ventures could help you choose the best approach for your business. You could also try to identify the skills they apply to achieve a successful partnership.

You can benefit from reviewing your own business. Be realistic about your strengths and weaknesses – consider doing a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis to find out if the two companies are a good fit. You will most likely want to find a joint venture partner that complements the strengths and weaknesses of your own business.

You need to consider the attitudes of your employees and keep in mind that people may feel threatened by a joint venture. It can also be difficult to establish effective working relationships if your partner has a different way of doing things.

If you decide to form a joint venture, it could help your business grow faster, increase profitability and generate more profits. Joint ventures often allow for growth without having to borrow funds or find outside investors. You may also be able to use your joint venture partner’s customer database to market your product, or offer your partner’s services and products to your existing customers. Joint venture partners also benefit from being able to join forces in purchasing, research and development.

Plan your joint venture relationship
Before entering into a joint venture, the parties involved should understand what each expects from the relationship. Smaller companies often want access to the resources of a larger partner, such as a robust distribution network, specialized employees and financial resources. The larger company could benefit from working with a more flexible partner, an innovative partner, or simply gaining access to new products or intellectual property rights.

Similarly, you might decide to build a stronger relationship with a supplier. You could use their knowledge of new technologies and get a better quality of service. The supplier’s goal could be to strengthen their business by making guaranteed sales volume to you.

Whatever your goals, the arrangement should be fair to both parties. Any contract must:

recognize everyone’s contribution
ensure that you both understand the expected results of the contract
set realistic expectations and allow success to be measured
The goals you agree on should be geared towards a relationship that fosters teamwork and trust. See the page in this guide on how to make your joint venture relationship work.

Choosing the Right Joint Venture Partner
The ideal joint venture partner is one with resources, skills and assets that complement your own. The joint venture must operate on a contractual basis, but there must also be a good match between the cultures of the two organizations.

A good place to start is assessing the suitability of existing customers and suppliers with whom you already have a long-term relationship. You might also think about your competitors or other professional associates. In general, you should consider the following:

What is their performance?
What is their attitude towards collaboration and do they share your level of commitment?
Do you share the same business goals?
Can you trust them?
Do their brand values ​​complement yours?
What is their reputation?
If you choose to assess a potential new partner , you should complete some basic checks:

Are they financially stable?
Do they have credit problems?
Do they already have joint venture partnerships with other companies?
What sort of management team do they have in place?
What is their performance in terms of production, marketing and personnel?
What are their customers and suppliers saying about their reliability and reputation?
Before you consider entering into a joint venture agreement, it is important to protect your own interests . This should include drafting legal documents to protect your own trade secrets and find out if your prospective partner has contracts relating to intellectual property rights.

Likewise, it’s worth seeing if they have any other contracts in place, with their employees or consultants.

Creation of a joint venture contract
When you decide to start a joint venture, you should set out the terms in a written contract . This will help prevent any misunderstandings when the joint venture is set up and running.

A written contract should cover:

the structure of the joint venture, e.g. ex. whether it will be a separate business in its own right
the objectives of the joint venture
the financial contributions each of you will make
if you transfer assets or employees to the joint venture
ownership of intellectual property rights created by the joint venture
management and control , p. e.g., respective responsibilities and processes to be followed
how debts, profits and losses are shared
how any conflict between partners will be resolved
an exit strategy – see the page in this guide on ending a joint venture
You may also need other contracts, such as a confidentiality agreement, to protect any trade secrets you disclose.

It is essential to obtain independent expert advice before final decisions are made.

Make your joint venture relationship work
A clear contract is an essential part of building a good relationship. Here are some ideas:

Get your relationship off to a good start. For example, you could include a project that is guaranteed to be successful so that the team working on the joint venture can get off to a good start, even though you could have completed it on your own.
Communication is an essential part of relationship building. It is usually best to have periodic, face-to-face meetings with all the key people involved in the joint venture.
Sharing information openly, especially regarding financial matters, also helps to avoid suspicion between partners. The more trust there is, the more likely your relationship is to work.
It is essential that everyone knows what you are trying to achieve and works towards it. Establishing clear performance indicators allows you to measure performance and can give you early warning of potential problems.
At the same time, you should aim for a flexible relationship . Periodically review how you could improve the way things work and whether you need to change your goals.
Even in the best relationship, you will almost certainly run into problems from time to time. Approach any disagreements positively, seeking mutually satisfying situations rather than trying to score points at the other’s expense. Your original joint venture agreement should outline agreed dispute resolution procedures in the event that you are unable to resolve your disputes yourself.
For more information, see the page in this guide on how to create a joint venture agreement.

Ending a joint venture
Your business, your partner’s business, and your markets all change over time. A joint venture may be able to adapt to new situations, but sooner or later the partnership contracts come to an end. If your joint venture was created to deal with a particular project, it will naturally end when the project is completed.

Terminating a joint venture is always easier if you have addressed the key issues in advance. A contractual joint venture, such as a distribution agreement, may include termination terms . For example, you might each have the option of giving three months’ notice to end the contract. Alternatively, if you have a joint venture, one partner may have the option of buying out the other. The original contract may usually require one partner to buy out the other.

The initial contract should also outline what will happen when the joint venture ends. For instance :

how intellectual property rights will be unbundled
how confidential information will continue to be protected
who will be entitled to any future income arising from the activities of the joint venture
who will be responsible for ongoing responsibilities, e.g. e.g., debts and guarantees given to customers
Even with a well-planned contract , there are still likely to be issues to be resolved. For example, you might need to agree on who will continue to deal with a particular customer. Good planning and a positive approach to the negotiation will help you organize an amicable separation. This increases the chances that you can continue to trust each other and work together in the future. It can also raise your profile within the professional community as a reliable and productive partner.

Eleanore Frinqois

Eleanore Frinqois, Lead Editor at BusinessGrowthCoaching.co.uk is a business leader with over 30 years in both start-up and enterprise level organisations. Previously Operations Directer at a £1.8BN media group, alongside setting-up and later selling 3 digital brands - Eleanore has expertise across all aspects of business growth.

Previous Post
Next Post