Joint Venture Agreement
Let us understand the meaning of a joint venture agreement. A joint venture agreement is an agreement between two companies to develop a new entity through which both parties will attain mutual benefits.
Such benefits may include capital, physical equipment, facilities and intellectual property.
Benefits of a Joint Venture Agreement
Cross border businesses
A joint venture agreement is best suited for cross border businesses. Cross border business is on high demand and more beneficial. When there is cooperation between the parties, it becomes easier to carry out the business. Cross border businesses reduce manufacturing cost without limiting exposure.
Gaining a good market
A Joint Venture Agreement is a good way of gaining access to the market. This agreement helps in the worldwide expansion of business. In the case of cross border businesses, a presence of local ownership is required if in case the local law has certain restrictions on foreign businesses.
Flexibility in business
This agreement provides flexibility to the partners. Partners are allowed to engage themselves with other businesses taking either full or part of the business in control. Joint ventures are also used as a method by companies to gradually segregate a part of their business and then sell the whole business.
A Joint Venture Agreement reduces the risks that are involved as the business activities can be segregated to smaller investment outlays.
When the liabilities and risks are shared between both the parties, the pressure laid upon each individual will be drastically reduced.
Types of Joint Venture Agreement
- Contractual – A contractual joint venture agreement is an agreement made between two parties to collaborate in a business project. They sign an agreement that outlines the rules and responsibilities that they need to follow. Each of the members continues their business and there is no pooling of profit and loss. Each member has to keep a separate record of their account and registration is not required.
- General partnership – In a general partnership joint venture, the partners decide to share the profits and losses of the business project and each partner is jointly liable for the obligations of the partnership. This is mainly used for real estate ventures.