What is Joint Venture
When a single project is handled by two parties then it is called joint venture. The capital, time, efforts devoted by both the parties are same. Both have a control over the enterprise and both shares risk, benefits, expenses and assets. It generally has the following characteristics:-
Contribution by partners of money, property, effort, knowledge, skill or other assets to the common undertaking. Joint property interest in the subject matter of the venture. Right of mutual control or management of the enterprise. Right to share in the property.
A joint venture can help a business to grow faster, help in increasing its productivity and generate more profits. For profits the company needs not to search for outside investors or venture capitalists. Joint ventures are especially popular with businesses in the transport and travel industries that operate in different countries.
The most important thing in joint venture is commitment. If capital need to start a business is shared by both the parties then benefits should also be shared. Commitment should not be taken lightly by any of the party. A person involved in a joint venture can no longer make all of the decisions for the business alone.
Three most common types of joint venture companies may be described as follows- [a] two parties, who/which may be individuals or companies, one of them nonresident or both residents incorporate a company in India. Business of one party is transferred to the company and as consideration for such transfer; shares are issued by the company and subscribed by that party. The other party subscribes for the shares in cash. [B] Alternately, the above two parties subscribe to the shares of the joint venture company in agreed proportion, in cash, and start a new business. [C] Promoter shareholder of an existing Indian company and a third party, who/which may be individual/company, one of them non-resident or both residents, collaborate to jointly carry on the business of that company and its shares are taken by the said third party through payment in cash.
The risks of joint ventures:-
The objectives of the venture are not totally clear and communicated to everyone involved the partners have different objectives for the joint venture there is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners different cultures and management styles result in poor integration and co-operation
the partners don’t provide sufficient leadership and support in the early stages