Things to Consider Prior to Forming a Joint Venture
A joint venture is the formation of a single entity, by two or more separate businesses, control of which is shared by the parties involved. The ¡§parent¡¨ companies get to keep their own interests outside of the venture but within it, everything is shared. A successful joint venture can be a very lucrative business proposition.
An alliance created with an eye on strategy, your joint venture partners should complement your business activities. They should capable of providing a complementary service like distribution, finance, technology or personnel. For example, you could form a venture with a company with distribution capabilities if you need one and offer your finance capabilities in return.
So that everyone in the joint venture gains, and gets what they want from it. But conflicting views among the parties to the venture can spoil the party. So here are some things you should look at before you become party to one:
Check the Credentials
Before entering into any business relationship, it is important to know whom it is you are dealing with. This is especially in joint ventures, as your reputation becomes entwined with that of your partners in the venture. Verify information with third parties, and make sure that there is a strong basis for trust. Also, ensure that the company is capable of holding up its end of the deal.
Build a Business Plan
The business plan for your joint venture should be drawn up by all parties involved. The plan should include clearly defined goals for the venture as well as benchmarks for defining success. An exit strategy that is acceptable to all parties as well as terms for winding up the venture should also be incorporated. There should be a contingency plan in case for some reason the venture is dissolved before the specified date.
Appropriate Structure
You can register your joint venture in a variety of different ways. A Limited Liability Corporation is one option as are other types of new businesses. Many fast growing companies choose to register their joint ventures as strategic corporate partnerships. Investigate all your options before making a decision.
Availability of Property and Resources
Ensure that what each partner brings in terms of land and buildings, revalued or depreciated and other resources are clearly spelt out. Remember to establish whether any conditions attached, like limitations on use of property. Clearing all issues at this stage will help avoid monetary problems down the road.
Special Allocations
In the event that special allocations need to be made, this needs to be decided beforehand. These items include special gain or loss, and also includes income and deductions. If there is a loss, some of that will need to be allocated to each of the partners. Additionally, compensation to the partners that provide specific services should also be determined beforehand.
If your partners and you find it difficult to reach agreement on the above issues, it may be time to say goodbye. You should look for other partners, with whom you can work. Because when you can come to an understanding, joint ventures can yield high profits.
About the author: Vlad Ehrsam writes exclusively for Full Info on Business, visit there today for the latest Business advice, and their free newsletter is well worth signing up for too.
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