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.