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The JV parties agree to develop, for a finite time, a new entity and new assets by contributing

equity. They both exercise control over the enterprise and consequently share revenues,
expenses and assets. There are other types of companies such as JV limited by guarantee,
joint ventures limited by guarantee with partners holding shares.

In European law, the term 'joint-venture' is an elusive legal concept, better defined under the
rules of company law. In France, the term 'joint venture' is variously translated as 'association
d'entreprises', 'entreprise conjointe', 'co-entreprise' and 'entreprise commune'. But generally,
the term societe anonyme loosely covers all foreign collaborations. In Germany,'joint venture'
is better represented as a 'combination of companies' (Konzern)[1]

On the other hand, when two or more persons come together to form a temporary
partnership for the purpose of carrying out a particular project, such partnership can also be
called a joint venture where the parties are "co-venturers".

The venture can be for one specific project only - when the JV is referred more correctly as a
consortium (as the building of the Channel Tunnel) - or a continuing business relationship.
The consortium JV (also known as a cooperative agreement) is formed where one party seeks
technological expertise or technical service arrangements, franchise and brand use
agreements, management contracts, rental agreements, for ‘‘one-time’’ contracts. The JV is
dissolved when that goal is reached.

The Joint-Venture concept


A JV on a continuing basis is the normal business undertaking. It is similar to a business
partnership with two differences: the first, a partnership generally involves an ongoing, long-
term business relationship, whereas an equity-based JV comprises a single business activity.
Second, all the partners have to agree to dissolve the partnership whereas a finite time has to
lapse before it comes to an end (or is closed by the Court due to a dispute).

The term JV refers to the purpose of the entity and not to a type of entity. Therefore, a joint
venture may be a corporation, a limited liability enterprise, a partnership or other legal
structure, depending on a number of considerations such as tax and tort liability.

JVs are normally formed both inside one's own country and between firms belonging to
different countries. JVs are usually formed in order to combine strengths or to bypass legal
restrictions within a country; for example an insurance company cannot market its policies
through a banking company. Some JVs are also formed because the law of a country allows
dispute settlement, should it occur, in a third country. They are also formed to minimize
business,tax and political risks. The JV is an alternative to the parent-subsidiary business
partnership in emerging countries, discouraged, on account of (a) ignoring national objectives
(b) slow-growth (c) parental control of funds and (d) disallowing competition.

JVs can be in the manufacture of goods, services, travel space, banking, insurance, web-
hosting business, etc.

Today, the term 'JV' applies to more occasions than the choice of JV partners; for example,
an individual normally cannot legally carry out business without finding a national partner to
form a JV as in many Arab countries[2] where it is mentioned that there are over 500 Indian
JVs in Saudi Arabia. Also, the JV may be an easier first-step to franchising, as McDonald's
and other fast foods found out in China in the early difficult stage of development.

Other reasons for forming a JV are:

• reducing 'entry' risks by using the local partner's assets


• inadequate knowledge of local institutional or legal environment
• access to local borrowing powers
• perception that the goodwill of the local partner is carried forward
• in strategic sectors, the county's laws may not permit foreign nationals to operate
alone
• access to local resources through participation of national partner
• influence of local partners on government officials or 'compulsory' requisite (see
China coverage below)
• access by one partner to foreign technology or expertise, often a key consideration of
local parties (or through government incentives for the mechanism)
• again, through government incentives, job and skill growth through foreign
investment, and
• incoming foreign exchange and investment.

[edit] Strategic reasons of one partner

There may be strategic interests of one partner's alone:

• adding 'clout' (the influence of the other partner) to the enterprise


• build on company's strengths
• economies of (international) scale and advantages of size ('industrial hubs')
• 'globalize' without size economies of scale (e.g.Indian and Israeli pharmaceutical
industries)
• influencing structural evolution of the industry
• pre-empting competition
• defensive response to blurring industry boundaries
• speed to market
• market diversification
• pathways into R&D
• outsourcing

JVs are formed by the parties’ entering into an agreement that specifies their mutual
responsibilities and goals in an 'adventure. The JV partners can usually form the capital of the
company through injections of cash alone or cash together with assets such as 'technology' or
land and buildings. Subsequent to its formation the JV can raise debt for additional capital. A
written contract is crucial for legal provisions. All JVs also involve certain rights and duties.
Each partner to the JV has a fiduciary responsibility, even to act on someone’s behalf,
subordinating one's personal interests to those of the other person or that of the ‘sleeping
partner’. Upon its incorporation (see later) it becomes a company in most places, or a
corporation (in the US).

[edit] Downsides of a JV

Some of the downsides of a joint venture may be:[3]


• differing philosophies governing expectations and objectives of the JV partners
• an imbalance in the level of investment and expertise brought to the JV by the two
parent organizations
• inadequate identification, support, and compensation of senior leadership and
management teams or
• conflicting corporate cultures and operational styles of the JV partners

A JV can terminate at a time specified in the contract, upon the death of an active member
(unusual) or if a court so decides in a dispute taken to it.

Joint ventures have existed for many years in the US, from their usage in the railroad industry
(one party controls the sources of oil and the other party the rights of ferrying it) and even to
manufacturing and services. In the financial services industry JVs were widely employed for
marketing products or services that one of the parties, which acting alone, would have been
legally prohibited from doing so.[4]

[edit] JVs and game theory

JVs may also be formed by companies on the 'game theory' that is grounded on the
perception that of the many possible moves 'on the chessboard', a competitor cannot properly
guess the motive of the JV [5].

[edit] Finding the JV idea or partners


In the era of the Internet, finding opportunities for exploiting an idea is sizeable together with
remote, or advertised, communicating. There are also the blogging networks as well the
social networking sites and search engines. There are also other venues to find a JV partner
such as seminars, exhibitions, directories, websites such as
http://www.clickbank.com/index.html and the plain newspaper advertising of opportunities.
One should not forget websites which have become prosperous like eBay and Amazon.com,
Wikipedia, Youtube to name the most obvious. Forming JVs with distributor and marketing
agencies is possible in this flat world to market a product. But finding an entrepreneur for a
JV is another task!

Nonetheless, there are risk-takers- Venture capitalists, angel investors and venture managers
(See Carried Interest [6] - especially in the high-tech industries like IC chips or biotechnology.
Although they typically exit once an idea or an opportunity proves itself, there are watchful
funds and investors who could go in for a JV.

Joint ventures have also become more prominent in the world of alternative investments since
the financial crisis began in 2007. In an Opalesque.TV video, Tim Krochuk of hedge fund
GRT Capital Partners describes how hedge funds have begun teaming up with traditional
long-only asset managers in joint ventures to provide alternative capabilities to existing
traditional asset management firms. The emergence of these joint ventures continues the
trend of alternative investments becoming a larger piece of traditional portfolios.

[edit] Formulating the JV


Formulating the JV is a series of steps, one which needs a lot of work and yet, at the same
time, precision. One can here only underline the steps or information that will be needed by
the JV candidate. They are [7]

• the objectives, structure and projected form of the joint venture, including the amount
of investment and financing arrangements and debt
• the JV(s) products , their technical description and usage
• alternate production technologies
• estimated cost of equipment
• estimated product price(s)
• costing
• market analysis for the product, inside and outside the ‘territory’
• analysis of competition
• projected sales and methods of distribution
• details of offered site, including output projections, transport and warehousing, testing
and quality control, by-products and waste;- supply, utility, and transport
requirements;
• estimated technology transfer costs
• foreign exchange projections ( where applicable)
• staff requirements and training
• financial projections
• environmental impact
• social benefit

[edit] Selecting the partner


While the following offers some insight to the process of joining up with a committed partner
to form a JV, it is often difficult to determine whether the commitments come from a known
and distinguishable party or an intermediary. This is particularly so when the language barrier
exists and one is unfamiliar with local customs, especially in approaches to Government,
often the deciding body for the formation of a JV or dispute settlement.

The ideal process of selecting a JV partner emerges from:

• screening of prospective partners


• short listing a set of prospective partners and some sort of ranking
• ‘due diligence’ - checking the credentials of the other party
• availability of appreciated or depreciated property contributed to the joint venture
• the most appropriate structure and invitation/bid
• foreign investor buying an interest in a local company

Companies are also called JVs in cases where there are dominant partners together with
participation of the public. There may also be cases where the public shareholding is
substantial but the founding partners retain their identity. These companies may be 'public' or
'private' companies. It would be out of place to describe them, except to say there are many in
India.

Further consideration relates to starting an new legal entity ground up. Such an enterprise is
sometimes called 'an incorporated JV', one 'packaged' with technology contracts
(knowhow,patents,trademarks and copyright), technical services and assisted-supply
arrangements.

The consortium JV (also known as a cooperative agreement) is formed where one party seeks
technological expertise or technical service arrangements, franchise and brand use
agreements, management contracts, rental agreements, f or 'one-time' contracts, e.g., for
construction projects. They dissolve the JV when that goal is reached.