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The Pros and Cons of Forming a Joint Venture

October 18, 2018

 

As the owner of a new business, it may be tempting to say yes to every joint venture offer that comes your way from what you perceive to be bigger and better companies. However, the pros to entering into a joint venture do not always outweigh the cons. It is important to be clear on what the pros and cons of forming a joint venture are in your particular case. Since there are many factors to consider when evaluating whether you should form a joint venture with another company, it is wise to consult with a local Santa Monica or Los Angeles business law attorney who can provide specific advice regarding your case.

 

What is a Joint Venture?

 

A joint venture is formed when two separate entities or individuals come together to work toward a single goal for a specified period of time. In joint ventures, there is an end date, and each entity or individual maintains its separate identity during the course of the joint venture. While the parties share profits equally (or according to the terms of their joint venture agreement), each party is typically responsible for the debts it accrues during the course of the joint venture.

 

Pros of Forming a Joint Venture

 

There are many pros to forming a joint venture. From a cost perspective, joint ventures can be advantageous to cost cutting initiatives because two entities or individuals that once had to fund their own projects can now share resources. Sharing costs of resources also means you have more opportunity to use advanced technologies that may have been out of your budget as a solo entity.

 

From a development perspective, joint ventures are a great way for both entities to gain exposure to different companies and obtain new clients. Ideally, both entities will have the same objective in mind, but different clientele. For example, if your company is based in the United States, and your goal is to expand to Europe, forming a joint venture with a European company with similar goals as yours may give you an entryway into securing European clients.

 

Finally, since joint ventures typically have an expiration date, if you do not end up getting along with the other entity or you realize your values do not align, you are not stuck in the joint venture indefinitely.

 

Cons of Forming a Joint Venture

 

Most of the cons of forming a joint venture come from a logistical perspective. It can be difficult to combine the management styles, business practices, and company culture of two entities that are vastly different in those respects. Just because two companies align on their values and goals does not guarantee they have the same company culture or management practices. As a result, the two entities may find themselves disagreeing more than agreeing on the small things, which can eventually lead to disagreements on big things, like budget allocation or business development. Finally, since joint ventures typically do have an expiration date, one concern is that one party may not be fully committed because they see the joint venture as just a temporary arrangement.

 

Contact a Santa Monica or Los Angeles Business Law Attorney Today

 

As you can see, there are numerous factors to consider when deciding whether to form a joint venture. The business law attorneys at Verhagen Bennett have years of experience consulting Santa Monica and Los Angeles business owners on the pros and cons of forming a joint venture. Contact us at 310-917-1064 or visit our website to find out how we can help you.

 

(image courtesy of Annie Spratt) 

 

 

For questions or comments about this post, please email us directly at: info@VerhagenBennett.com

 

© 2018 Verhagen Bennett LLP — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

 

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