A joint venture occurs when two or more individuals or businesses pool their resources to reach a specific goal. Both the risks and rewards are shared between the parties. Forming a joint venture is beneficial because you can expand your business, develop a new line of products, or move into new market segments. For example, your organization may have the capability of doing well domestically, but you want to sell products or services overseas. Finding the right party with whom to partner can help.
Forming a joint venture is a significant decision. If you decide to do so, a business law attorney in Santa Monica can provide guidance in starting the endeavor and outlining the advantages and disadvantages.
The Categories of Joint Ventures
The formation of a joint venture will depend on the goal you want to achieve.
You may agree to jointly operate with another organization in a particular way. Let us say a small company has a new and exciting product. They may want to sell it through the distribution network of a larger company. The two businesses can decide to contract terms that will allow this to happen. This is commonly referred to a limited co-operation.
Another option, one that will provide a greater flexibility, is to set up an entirely new business to manage a contract. This structure, known as a separate joint venture business, allows each of the partners to own shares in the organization. They come to terms on how the company will operate.
The owners or managers of two organizations may conclude that their companies complement each other well. In this case, it may be a good idea to form a limited liability or business partnership. If things go well, the two can be merged later.
Pros and Cons
Joint ventures can be used to bolster long-term relationships or ensure the successful completion of short-term projects.
Your business may have the potential for scalability, but you need capital and expertise. Innovative concepts and great products alone will not get you there. A joint venture can give you:
Access to more resources
Increased size and scope
Magnified technical expertise
Entrance into new distribution channels that were never an option
A partner with whom you can share expenses and startup costs
Less exposure to risk
Joint ventures especially appeal to business owners in the travel and transport industry who want to have more of a global presence.
But forming a partnership with another company can be complicated, which is why you should work with a business law attorney in Santa Monica. You will need time and a lot of effort to find the right partner and build a mutually beneficial relationship.
Problematic situations can stem from:
Parties not being 100% clear on the objective of the business
Parties having different viewpoints on the objective of the business
The existence of a gap in skill levels or expertise
A disparity between the amount of investment brought by each party
A successful joint venture depends on thorough in-depth research and analysis. The lawyers at Verhagen Bennett can help. Schedule an appointment or call (310) 917-1064 to learn how we can facilitate the forming of a joint venture.
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© 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.