Joint Venture Agreement

What Is A Joint Venture Agreement?

A Joint Venture (JV) Agreement is a partnership through which two or more firms create a separate entity in order to carry out an economic activity together. Each partner takes active roles in decision-making and contribute in the form of capital, technology, marketing, and personnel levels.

The ease of doing business has brought in big investors to fund large scale profitable businesses in the country. In the growing sector of business, new opportunities are booming on a daily basis. Thus, it is not possible for any single individual or company or partnership to harness them completely, hence comes in the concept of joint ventures.

In simple, A Joint Venture is a business alliance between two or more companies, wherein the resources of the partners are mutually shared and put to use.

Different Forms Of Joint Ventures

Equity/ Corporation JV

Under Equity/ corporation JV, companies would hold shares in a company that are freshly incorporated or in existence under the Companies Act, 1956.

The advantages of using a corporate Joint Venture are:

• Given an Independent legal identity.
• Better management and employee structure.
• Company will survive as the same entity despite change in ownership.
• Limited Liability by parties and flexibility to raise finance.

Partnership Joint Venture 

A partnership JV represents the business relationship between the parties with a profit motive. This is reflected in the tax regime wherein partners are separately evaluated even though the profits are computed as one entity. Some disadvantages include unlimited liability, limited capital and no separate identity.

Co-operation Agreements/ Strategic Alliances

In this form of JV agreement, parties agree to collaborate as independent contractors rather than shareholders in a company. This type of agreement works well when parties intend not to be bound by formalities and permanence. Such a form of JV agreement allows companies to acquire products, technology and working capital to increase production and productivity. Co-operation agreements can be employed for business activities such as purchasing/ distribution agreements, technology transfer agreements, marketing and promotional collaboration.

Elements Of A Successful JV Agreement

• Each JV partner should be clear with his /her organisational goals and objectives.
• Each JV partner should recognise and distinguish between cultural gaps.
• Each JV partner must have a clear idea about the attributes sought in the other partner.
• Each JV partner should be committed and focused to the JV goals.
• The JV agreement must be clear, specific and contain a robust way of solving disputes by specifying a dispute resolution model in it.

Despite various advantages associated with a Joint Venture Agreement, a considerable amount of joint ventures do not succeed. While good joint ventures yield high profits, bad JVs can at times get no deal at all. Thus joint ventures involve dynamic relationships and circumstances in the success of a business. 

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