JOINT VENTURE

• A Joint Venture (JV) is when two or

more businesses collaborate on a
business project, each taking a share
of the profits, losses, and control. This
creates a separate business entity
with the purpose of accomplishing a
DEFINITIO certain task by pooling the resources
of the participating parties.
N • Joint ventures are essentially just
partnerships in the colloquial sense;
however, they can take the form of
any legal structure. JVs can be
corporations, limited liability
companies (LLCs), or general
partnerships.
 • JV’s are typically formed for the
short-term purpose of research and
development or production, they
can also be formed for the long-
term. Since the project is a separate
DEFINITIO legal entity and each partner has a
N stake in the business, they can also
sell their portion of ownership to
exit. After the entity has served its
purpose, it can also be liquidated
entirely, allowing for a simple exit
strategy.
 • 1. Shared Capital

• Forming a partnership allows companies to

share access to potentially scarce and
Advantag highly specialized resources that they may
not have had access to before. This isn’t
es of a limited to just physical capital but also
Joint applies to human capital and labor. Rather
than going out and hiring industry experts,
Venture you can work directly beside them.

(JV) • JV’s also allow companies to achieve

economies of scale as they are able to
achieve lower per-unit costs compared to
individual production. Additionally, they are
able to split marketing and labor costs.
 • 2. Risk Sharing

Advantag
• If the project fails, you do not have
es of a to bear the costs of a failed project
Joint on your own. Since you agree to
share the costs and profits, you also
Venture share the risks associated with the
project. This allows you to take on
(JV) slightly more risky projects while
having more defined risks.
 • 3. Entry Into Foreign Markets

• Cross-border ventures can allow for a company to

expand into a new demographic more effectively by
Advantag working alongside locals who have a deeper
understanding of the target market.

es of a • A poorly executed international expansion could

Joint permanently taint the brand's name in the foreign
market and make re-expansion much more difficult. An
Venture example of a successful venture is one between Kellogg
and Wilmar International Limited.

(JV) • Kellogg wanted to expand its presence in China and

introduce cereal and snack foods. Through the venture,
they were able to leverage the existing market insight
and distribution networks of their business partner for a
successful and profitable entrance.
 • 1. Unreliable Partners

• Since the venture is made up of

Disadvantag separate companies, it's possible
es of a Joint that each company may not devote
100% of its resources to the
Venture (JV) success of the project. Additionally,
delays or obstacles during the
venture may result in partners
putting in less effort in continuing.
 • 2. Limit Outside Activity

• Due to the nature of these

partnerships, members may be
Disadvantag required to sign exclusivity
agreements or non-competes while
es of a Joint the venture is in progress. This
Venture (JV) could affect its relations with
vendors and other businesses.
Before entering a venture, you
should understand these
restrictions if you want to avoid any
negative impacts on your business.
 • 3. Unrealistic Objectives

• Setting unrealistic or unclear

objectives is just asking to set
Disadvantag yourself up for failure and
es of a Joint disappointment. To avoid this
mistake, lots of research and
Venture (JV) planning is necessary beforehand,
which may be costly and time-
consuming. Setting clear objectives
that are communicated to all
involved is rarely the case.
 This agreement (or co-venture agreement) is a legally
binding agreement between two or more parties that
agree to form a partnership. The purpose of this
agreement is to outline the details of the venture and
outline clear guidelines on how it will operate once
Terms Of a running. A JV agreement should include:
• Venture structure (LLC, corporation, nonseparate
Joint entity, etc.)
• Clear objectives
Venture • Initial and ongoing financial contributions of each
member
Agreemen • Ownership of newly formed intellectual property

t • Sharing of profits, losses, and risks

• Management (responsibilities and business
processes)
• Dispute resolution guidelines
• Exit Strategy (see bottom of page)
CLASSWORK
 Franchis Joint
Factors Proprietorship Partnership Corporation
e Venture
Number of
2 – 20 partners
shareholders; private
comprising
Ownership Individual company – max 20,
individuals /
public company –
corporations
unlimited
General partners
Shareholders liability
have unlimited
Owner personally is limited to the
Liability of liability. Limited
liable for business amount of capital
Owner partners liability is
liabilities contributed to the
limited to amount of
business
capital contribution
Most costly to start.
Least costly to start. Less costly than for a Created by Statute.
Costs of starting None; other than corporation. Could Article of
business filing fees for trade incur lawyer fees for Incorporation, filing
name. partnership deed. fees; taxes, Lawyer
fees.
Capital raised only
Capital can be Most flexible.
Capital by loan or increased
brought in by Stockholders can sell
Requirements contribution by
additional partners or buy stocks at will.
proprietor.
 Licensing of  Licensing of
Licensing of Business with the Business with the
Legal
 Tom started his hardware business in Hanover as
a sole trader. He has been in the business for 13
years and now sees an opportunity to expand his
business into St. James and Westmoreland. The
expansion of the business will need Tom to raise
J$50Million in capital to purchase the additional
equipment for the business.

PRACTICE 1. Advise Tom on at least 2 two different

ways using the legal structures for the
QUESTION private sector that he may raise the
capital he needs to expand his business.
2. For each legal structure that you
recommend what are two disadvantages
that you will have to tell Tom about.
3. Tom has decided to transform his
business into a franchise. Name 3 of the
first steps that Tom will need to take to
start the franchise.
Example Question
1 What typeof Economic Activityis practicedmostilyintheBankingSector?

A. Primary C. Tertiary
B. Secondary D. All of the Above

2 ASoleTradercanbedefinedas:
A. Anyone who starts a C. The person who owns the majorityof shares
business. in a company.
B. A persons who owns all the D. A companythat is traded on the stock
assets and liabilities of a exchange with a single name
Example Question
Martinandhis brothers havedecidedtostart acompanywheretheyall haveeqal
3 parts of theassets, however, Martinis theonlyonethat has theliabilities. What
typeof legal entityhas thebrothers formed?

A. Partnership C. Limited Partnership

B. General Partnership D. Sole Trader
4 Identify3charateristics of Economic Acivity?
Creates an Income stream;
Makes a profit; benefial to society; makes
A. builds capital for business; C.
people happy.
makes people happy.
Creats an income stream; is
B. somethingrequired by D. All of the Above
humans; creates wealth.
HOMEWORK
• Research and complete following table for Co-operative:
Legal
Cost of
Liability of Requirement
Definition Example Ownership starting the
Owner to Start the
business
Business