Joint Venture (JV)
Term of the Day - 11 March 2024
Today’s Term is “Joint Venture (JV)”.
A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task could be a new project or any other business activity. In a JV, each participant retains their separate legal status, while a new entity is formed to pursue the defined objective.
Key characteristics/features of a joint venture include:
Creation of a new separate business entity owned and controlled jointly by the parent companies
Shared capital contributions, risks, operational responsibilities, and profits/losses by the JV partners
Establishment of a formal legal structure (corporation, partnership, contractual) governing the JV
Combined strengths and resources of the parent firms, such as technology, finance, expertise
Clearly defined scope, objectives, and duration for the collaborative effort
Joint management and decision-making authority within the JV entity
Ability to leverage synergies and complementary capabilities of the partners
Potential for knowledge/technology transfer between the JV parents
Limited investment and risk exposure compared to full ownership
Greater flexibility and autonomy retained by parent firms outside the JV
Joint ventures enable companies to undertake major projects, enter new markets, diversify risk, access resources and knowledge, while maintaining their core business separate from the collaborative entity. Proper governance and alignment of interests are crucial for JV success.
