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Home | Work And Money | Business

Planning a Joint Venture? What You Should Look For

By: Vlad Ehrsam

A joint venture is the formation of a single entity, by two or more separate businesses, control of which is shared by the parties involved. The ¡§parent¡¨ companies get to keep their own interests outside of the venture but within it, everything is shared. A successful joint venture can be a very lucrative business proposition.

The strategy behind a joint venture is that it should be an alliance between businesses with complementary capabilities. Capabilities are factors such as finance, technology, distribution and personnel. Your company may have great distribution channels but lacks the finance. You should enter into a joint venture with a business that has the financial capability but has poor distribution.

Joint ventures should be a win-win situation for all parties concerned. Everyone should benefit. However, a joint venture can go terribly wrong if the parties involved don't share the same vision for the company. It is therefore imperative that you cover all your bases before signing on the dotted line.

Do a background check

Before entering into any business relationship, it is important to know whom it is you are dealing with. This is especially in joint ventures, as your reputation becomes entwined with that of your partners in the venture. Verify information with third parties, and make sure that there is a strong basis for trust. Also, ensure that the company is capable of holding up its end of the deal.

Build a Business Plan

The business plan for your joint venture should be drawn up by all parties involved. The plan should include clearly defined goals for the venture as well as benchmarks for defining success. An exit strategy that is acceptable to all parties as well as terms for winding up the venture should also be incorporated. There should be a contingency plan in case for some reason the venture is dissolved before the specified date.

Registering the company

There are many different ways to structure a joint venture. Limited Liability Corporations can be formed, as well as other types of new businesses. Many fast growing companies structure their joint ventures as strategic corporate partnerships. Do your research to decide the best way to register your venture.

Property and resources

Ensure that what each partner brings in terms of land and buildings, revalued or depreciated and other resources are clearly spelt out. Remember to establish whether any conditions attached, like limitations on use of property. Clearing all issues at this stage will help avoid monetary problems down the road.

Special Allocations

Decide how to apportion special gains or losses, and income and deductions to each member before you sign on the dotted line. And at the same time, establish how to recompense members who make particular services available

If you can't reach an understanding with your partner on the above issues, then perhaps you had better look elsewhere. However, if you see eye to eye with your partner on all issues, your joint venture is likely to flourish and pay handsome dividends.

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