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What is Joint Venture? 

A joint venture abbreviated as JV is a type of business arrangement in which more than two or two parties agree to pool their resources for the purpose of fulfilling a specific task which can be a new project or any business activity.

All the participants in this venture are responsible for the profits and losses. Joint ventures, which actually run on a partnership basis can take the form of any legal structure. Henceforth, in this section we shall talk about the JV business, its types, characteristics, and further move on to its advantages and disadvantages. 

Types of Joint Venture

 

In this section we are going to talk about few, most common types of joint ventures:

1. Limited Co-Operation Type JV

Collaboration is done with another business in a specific way like when a small business with a new product wants to sell it through a larger company's distribution network this leads to merging of business. The two partners agree on a contract of setting out the terms and conditions of how these functions.

2. Separate Joint Venture Business

When separate joint venture business is set up by a new company by handling a contract, separate joint venture business is formed. The partners each own share individually in the company and agree on how they should manage it.

 

3. Business Partnerships

Joining business partnership or a limited liability partnership is a type of merger of two businesses. 

Corporations, Partnerships, and Limited Liability Companies and also other business entities can survive as a JV


Characteristics of Joint Venture

The characteristics of Joint Venture are as follows – 

  • Creates Synergy 

A joint venture is entered between two or more parties to merge each other's qualitative features. The company possesses a special characteristic which another company might lack.

  • Risk and Rewards to be shared 

Joint venture agreement between two or more organizations which might be of the same country or two different countries who diversifies in culture and ethics, different technology, have a chance to endure the possibility of inheriting one another’s characteristic need for each one’s requirement thus developing the target audience in their own hemisphere. 

  • No Separate Laws 

For a joint venture there is no separate governing body which regulates or refines the activities of the venture. While they are into a corporate structure, the Ministry of Corporate Affairs like any other corporate check also keeps a check on this structure as well. 


Advantages of Joint Venture 


The most important joint venture advantages which can help the business to grow faster, increase their productivity and generate profits. Benefits of joint ventures include:

  • Access to new markets and enlarge their audience.  

  • Increased the capacity

  • Sharing of risks and costs on a wide surface basis. 

  • Access to new knowledge and expertise in business which includes specialised staffing necessity. 

  • Access to higher resources, for example the technology and the finance

  • Joint venture partner's help in providing a huge pool of resources together.


Disadvantages of Joint Venture 


Joint ventures can pose significant risks, the disadvantages are like the follows:

  • The communication between partners is not great as they belong to different societal classes. 

  • The partners expect different things from the joint venture, their interest may clash. 

  • The expertise and investment level may not match well.

  • Work and Resources are not distributed equally.

  • Different cultures and management styles may create barriers to the organization.

  • The contractual limitations may pose risk to a partner's core business operations.

FAQ (Frequently Asked Questions)

1. How Do We Choose the Right Type of Venture?

Ans. While deciding the form of joint venture, one should really find out if they are interested in managing the venture. 

  • They must think of the pros and cons that are to be considered while taking up the risk of the venture. 

  • Due diligence should be assured while choosing the correct venture. 

  • They should analyse their potentiality and moreover the need of acquiring the type of business offered in each venture style. 

2. What is Meant by Target Audience?

Ans. Literal meaning of target audience is the particular audience group who are targeted by the business houses to sell their goods or services to them. A target audience is an intended audience who are targeted to fulfil their selling objectives of the business corporates. 

3. “Sharing of Risks and Costs on a Wide Surface Basis.” What is Meant by This?

Ans. The risk and the costs of the ventures are shared among the partners who form the venture. Hence if there is any fear of risk, the owner will have the confidence to bear it together rather than individually.

4. Does Joint Venture Have a Parent Company?

Ans. No! The JVs do not have a parent company. The businesses merge together to form a Joint Venture. Neither of them supersedes one another, rather they work together. This is the one of the main differences between a Joint Venture and a Wholly-Owned Subsidiary.

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