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Every business owner looks for an opportunity to increase the market reach of his business and generate significant revenues in a shorter amount of time. In such situations, Joint Venture agreements come into play. A joint venture agreement is a strategic alliance between two or more parties to accomplish a specific goal. It is an agreement where two or more parties agree to combine their resources to achieve a common goal. A joint venture should not be confused with a merger as there is no transfer of ownership in Joint Venture agreements.
There are two types of Joint Ventures, and those are:
Equity-based Joint Venture: In this type of JV, the parties involved pool investment and other resources to create a new business entity. For example, a foreign-based company establishing a business in India may do so by signing a joint venture agreement with an Indian business partner. Through this agreement, the Indian business gets the required foreign investment and technology from its partner.
Contractual based Joint Venture: This type of JV does not require the creation of a new and separate business entity. The parties involved enter into an agreement to work on a project. For example, the franchise operation, wherein the owner of franchise and franchisee enters into a Joint Venture agreement for just this one project, while both the businesses shall continue to carry on their individual work.
The following checklist can help you in planning a successful joint Venture:
Some clauses are extremely relevant that should be included in the joint venture agreement. Joint Venture Agreements consists of provisions for:
Like small businesses, Joint Ventures are usually launched with great optimism for success. If everything falls in place Joint Ventures offer following opportunities:
However, if a joint venture is not planned correctly, certain aspects such as cultural differences, poorly drafted contracts, misunderstanding between the parties may lead to the termination of the agreement.
Generally, joint Ventures offer more benefits than disadvantages. However, before signing a joint venture agreement, certain demerits that come with the contract should be given a thought. Some of the disadvantages of entering into a Joint Venture Agreement are:
There are a number of factors that can cause the termination of a joint venture agreement. Some of the factors are as follows:
The Joint Venture Agreements should offer clear steps to manage the termination of the joint venture. If a joint venture gets terminated because of the defaults of one party, the agreement should allow an opportunity for the defaulting party to remedy the situation.
We can conclude by saying that Joint Ventures offer a variety of perks to the businesses involved in the agreement. Joint ventures provide companies with a platform to come together and pool their finances, ideas, and resources to develop a specific project. All this is possible only if a well-drafted agreement governs the parties involved in the agreement. Discrepancies in the joint venture may lead to the termination of the joint venture agreement.
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