Joint Ventures – How Are They Different and How Do They Work?

What is a Joint Venture?

A joint venture is different from a referral partner in that it’s a strategic alliance where two or more parties, usually businesses, form a partnership to share markets, intellectual property, assets, knowledge, and, of course, profits. It differs from a merger in the sense that there is no transfer of ownership in the deal.

These partnerships can work for any size business. Companies with identical products and services can also join forces to penetrate markets they wouldn’t or couldn’t consider without investing tremendous resources. And sometimes, due to local regulations, some markets can only be penetrated via joint venturing with a local business.

In some cases, a large company can decide to form a joint venture with a smaller business in order to quickly acquire critical intellectual property, technology, or resources otherwise hard to obtain, even with plenty of cash at their disposal.

How does a joint venture work?

Partnerships are a well-known, time-tested principle. The critical hit-or-miss point of what a joint venture does lies in the execution, not in the process itself. Most often, we know what needs to be done, but it’s necessary to join forces. However, it’s easy to overlook the details or get lost in the big picture so you have to focus on both.

The Big Picture

All mergers, large or small, need to be planned in detail and executed following a strict plan in order to keep all the chances of success on your side.

The Details

The details of the arrangement should be covered in a legal agreement that will carefully list which party brings which assets (tangible and intangible) to the joint venture, as well as the objective of this strategic alliance.

**Pro tip: You can find joint venture legal agreement templates online; however, consider seeking the appropriate legal advice when entering such a business relationship.

Check back later this month for: Exploring a Joint Venture? 10 Important Questions to Ask