Taken loosely, the term “joint venture” can mean a helluva of things. It is even use as a synonym for partnership especially for first-time entrepreneurs who are seeking financial or industrial partners. To those who are not familiar with the business lingo, the financial partner is one who provides the money for the company while the industrial partner is one who provides the expertise for the company.

Although the term can also be used for this, in the real sense though, a joint venture is more than just a partnership. It refers to the partnership of two or more entities who seek alliance in order to make a new product or start a project. It differs from the ordinary kind of partnership in the sense that it can also be short-term, only for the duration of the project or the product undertaken.

You see, a joint venture can be undertaken temporarily until a project is finished. Most of the time, this is done by companies, even well-established ones, because they lack the resources that they need to make a project or a product a success. The partners that are sought will be able to find additional financial backing, a service or expertise.

One example is when two companies form an alliance because one can provide the money while the other can provide the expertise. Another is when a partner has the access to the market or to the resources that another company needs in order for its plans to push through. The same goes with companies who need the additional backing of a local company in order to establish their operations in the country.

There are many reasons why a company or a person for that matter will seek a joint venture. It is one of the most viable ways to make a business a success. But this does not mean that the joint venture will be a success. Often, the failure of a joint venture is not because of the idea of a partnership but how the partnership is undertaken. What makes a joint venture fail is discord between or among the partners, incompatible partnership and betrayal in the partnership.

The secret to making it a success is in choosing the right partner as well as doing the right paperwork for the business. Every detail should be discussed if you want everything to become smooth-sailing. When you have everything in paper form, it is harder for any of the partners to slack off or to turn against their word. They may renege from their commitment but with a document that binds them to the work, they can be held liable for it.

Otherwise, the joint venture can only lead to discord and problems. Many joint ventures have dissolved even before it can launch the product or enterprise that they partnered for in the first place. In fact, although many have tried to start a venture, only a few manage to survive and become a big conglomerate. Some fizzle out while others merge together.

 

Joint ventures are a form of strategic alliance that can be described as a collaborative effort in the form of legal entity like a corporation, partnership or limited liability company. The elements common to joint ventures include community interest in the subject of the undertaking, sharing profits and losses, equal right to direct and control the decision of each other and of the joint venture, and fiduciary relation between or among the parties if participants are more than two persons. Entering into joint ventures can cause additional burdens and risks, the following are the drawbacks of this strategic alliance:

1. Loss of competitive advantage - Joint ventures, acquisitions, and alliances with an actual or potential competitor may jeopardize the cooperative advantage that a business might otherwise have developed in the absence of the relationship. As a participant, it is important for you to evaluate whether your goals and business opportunities can be achieved even without assistance of competitors or whether the price of such opportunities and goals is excessive in light of the overall business objectives of the entity.

2. Lack of control – Two or three heads is better than one, they say. But no matter how the alliance is structured, participants inevitably will lose some aspect of control over the project. In order for participants to gain, they must also give something up. If you want your business to work-out, you need to simultaneously structure the management in such a manner as to retain as much control as possible without affecting the project and carry out due diligence on the participants to ensure a level of trust amongst them. Each partner must contribute complimentary skills and resources in an ongoing relationship offering mutual benefits.

3. Governmental relations – Some joint ventures involve alliances formed with foreign entities. This kind of relationship can lead to substantial opportunities for a growing business but must also be mindful of local regulations and governmental review procedures that may affect the activities of the participants.

4. Time consuming – For some people, entering to new venture is time-consuming. Getting to know another participant also entails difficulties. If you think, adjusting to new business participant/s is tough, better drop the idea of entering a joint venture.

5. Increased managerial burden – Shared control on a business may increase management time and a risk of deadlock looms among co-venturers. Managerial burdens are heightened as the number of co-venturers increase. To avoid this kind of scenario, a business has to have a carefully drafted joint venture agreement that can minimize and even eliminate the problems twisted by shared control.

6. Loss of management autonomy – Choosing a joint venture structure entails some loss of autonomy for the co-venturers with respect to the project.

7. Co-venturers are jointly liable for each other’s negligence – Perhaps the most difficult part of a joint venture is that the law does not generally recognize joint ventures as general partnerships. This means, the selection of the joint venture business form involves exposure to liability for the wrongdoing of the other co-venturer.