03/04/2016

JointVentures:types,structureandreasonsforjointventuresaswellastheproblemswiththem

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JointVentures:Types,structure
andreasonsforjointventures
aswellastheproblemswith
them
WhatareJointVentures?

CompanyFormation

Jointventuresoftenoccurbetweenbusinessesforanumberof

CompanyResolutions

collaborateonaparticularprojectorbusinessenterprise.They

DirectorDuties
FloatingaCompany
JointVentures

TheRoleofCompanyDirectors

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operateindifferentspheresandbecollaboratingonaproject
whichinvolvestheapplicationofbothoftheirareasofexpertise.

Shorttermcollaborations

ShareholderRolesandDuties

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WehavepartneredwithJustAnswersothatyoucan

completelymergingwithoneanother.Alternatively,theymay

Mergers

ShareCapitalRules

maybesimilarbusinesses,whicharepoolingtheirresources,or

TypesofJointVentures

Partnerships

reasonsmostcommonlywheretwoormorebusinesses

LimitedLiabilityPartnership

NamingaBusiness

Thelengthofthejointventureisofimportancehereasitisoften
thatsuchcollaborationswillonlytakeplaceforaparticular
project,ratherthantocreatealonglastingbusinessrelationship.
Limitedfunctionjointventures
Thepowersinalimitedfunctionjointventurearebasedlargely
oncooperationorcoordinationbetweenthejointventurepartiesratherthana

Franchising

completemergeofbusinesses.

Franchising

Fullfunctionjointventures

FranchiseAgreement

Afullfunctionjointventureontheotherhandisdesignedonamuchlargerscale
comparedtothelimitedfunction,withtheintenttomergethebusinessesinvolvedto
createanautonomouseconomicentity,oftenanewcompany,inexchangeforshares.
Fullscaleworldwidemergers
Thistypeofjointventureisonthelargestscale,whichisoftenwiththeinvolvementof
internationalcompanies,creatinganewcompanyorsubsidiary,forexamplethemerger
betweenShellandTexaco,tocreateEquilontodealwithaparticularproduct,namely
industriallubricants.
StructuresforJointVentures
Thereareanumberofmethodsbusinessescanadoptwhenenteringintoajointventure.
Possiblestructuresincludeenteringintoacontractualarrangement,specific
collaborationagreementsbetweentheparties,acorporatejointventurecanbe
establishedorageneral/limitedliabilitypartnershipcanbecreated.Suchpartnerships
canexistintheformofafixedterm,canbeanatwillpartnershipwhichiscontinuous
untildissolutionoccurs,oritmaybecreatedforspecificprojectwhichwillendthejoint
ventureuponcompletionoftheproject.

ReasonsforJointVentures
Oneofthemainreasonsforbusinessesenteringintoajointventureistosavecostsin
particularthecostsofresearchanddevelopment.Businessesarealsoabletoshareany

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03/04/2016

JointVentures:types,structureandreasonsforjointventuresaswellastheproblemswiththem
financialrisksinvolved,whichcanbeconsiderabledependingonthenatureofthe
business.Otherreasonsforjointventurescanincludesharingresources,suchas
providingaccesstotechnologyorsharingskillswithoneanother.Thecustomerbaseof
eachbusinesscanincreasewithajointventure,inparticularifaninternationalmarket
isinvolved,providingalargergeographicscopeandtheabilitytoutiliseonepartys
distributionorsalesnetworkwithinanotherterritory.Thepressuresofglobal
competitioncanbesignificantlyreducedasamergercanleadtowideraccessto
customersthroughouttheworldwithbetterpurchasingpowers.Aswellasentryinto
newgeographicalmarkets,jointventuresprovidetheopportunityofenteringintonew
technicalmarketsifcollaboratingwithbusinessesthathaveanadvancedtechnicalstart
inthefield.

ProblemswithJointVentures
Management
Themanagementofabusinesscanoftenleadtoconflictsinjointventureasajoint
venturerequirestheinputfrombothorallofthepartiesinvolved.However,itislikely
thatonepartymaydominatethemanagementoftheprojectorofthenewcompanyand
sotensionsmayarisewithinthejointventure.Theremayalsobeconfusionastowho
themanagementconsistsof,itmaybethateachpartybringsinhisownmanagement
team,orthatanewjointventuremanagementteamneedstobecreated.
Disagreementswillalsohavetoberesolvedbyseniormanagement.
Differences
Althoughultimatelythepartieshavethesameinterestinthejointventure,their
objectivesfortheoutcomemaydiffercausingconflicts.Jointventuresalsorequire
partiestoworkincloseproximity,whichmayhighlightdifferentworkingpatterns
adoptedbyrespectiveparties.Thiscanaffecttheharmonyamongstthemanagement
teamandmaymaketheoperationofthejointventurelengthyandcostly.
Competition
Ofthereisnoappropriateclauseinthecontractortheagreementbetweentheparties
whencreatingthejointventure,itmaybepossibleforonepartytotakethemarket
knowledgefromtheotherpartyorpartiesinthejointventureandsetupabusinessin
directcompetition.Thisisofparticularsignificancewhenthejointventurecomestoan
end,witheachbusinesstakingawayfromthejointventurewhattheyhavelearnedfrom
eachother.

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