Joint Venture Essay

Definition

A joint venture is a contractual agreement between two or more parties executing a business undertaking in which the parties agree to share in the profits and losses of the enterprise as well as the capital formation and contribution of operating inputs or costs. It is similar to a partnership, but typically differs in that there is generally no intention of a continuing relationship beyond the original purpose.

“Generally each person contributes assets and share risks. Like a partnership, joint ventures can involve any type of business transaction and the "persons" involved can be individuals, groups of individuals, companies, or corporations.”

“Joint ventures are also widely used by companies to gain entrance into foreign markets.

The existence of partnerships have been traced back for centuries, however the first resemblance to a joint venture started in England in the 18th century, with the merchant companies for the transport of merchandise and its sales abroad. The first statutory framework was the England's partnership Act of 1890. However international joint ventures have a more prominent appearance in the 1970s and 80s with the creation of many cooperation agreements for financial, technological and commercial ends, for instance the oil industry received vast presence of JVs in the end of the twentieth century. The US created the Revised Uniform Partnership Act of 1994 in U.S. which was later refined in Colorado by Uniform Partnership Act of 1997. These regulated partnerships in general, and therefore certain aspects of JV's. The use of JV's as a tool has been increasingly used in the past decade, as a result of economic globalization, to leverage the odds in benefit of keeping ground in the era of large economic blocs, and have the advantages of being a part of them, such as improved tariffs amongst others.

Role of the Parties

Both parties contribute assets (money, natural resources, technology, intellectual property rights, machinery, etc.) and agree to face possible losses. The parties have a limited responsibility for the debts of the organization and the risk is shared between the parties. In most cases, one of the companies contributed capital and the second technology or resources. The control of the new company is in the hands of the party who had a more valuable contribution.