Savvy business owners looking to expand their revenue channels will be on the lookout for opportunities that lead to growth, profitability and market share additional. Among the various growth strategies available, some business owners may want to consider the joint venture. This is the same as a joint venture.
The joint venture is a contract, a cooperation agreement between two or more companies or persons for the benefit of both. One of the parties is the associate, the one who intends to carry out or carries out an economic activity. The other part is the partner, the activity in question. Although joint ventures are often associated with large companies or international agreements, if they are used in the right circumstances, they can also be effective for owners of small Business.
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As a general rule, the contract is designed in such a way that the associated person contributes a provision of patrimonial nature and, in return, the associate continues to participate in the profits of the business, entrepreneurship, activity or company.
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In this article you will find:
Associate and associate
The associate, as mentioned above, is the person who exercises the economic activity, who operates in the market, who is in charge of managing and receiving the associates.
The associate is the person who finances the activity of a business, normally providing a cash benefit to the associate, although Another type of patrimonial benefit can also be agreed, or even another type of benefit to which a value can be attributed in cash.
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It is, therefore, a economic cooperation between the parties aimed at having a common result. The provision delivered by the associate is intended to allow the continuation of the contractual object of the associate and the Obtaining by this of profits that will later be shared between both, in accordance with the terms of the company that they agree each.
Key elements in the joint venture
1.- Contract
The relationship between the associate and associate is regulated in a contract. The purpose of this contract or agreement between the parties is to establish the conditions of participation and will stipulate, for example, the amount and nature of the participation. As are the rights and duties of information, inspection and accountability. The possible levels of intervention in the management by the associate, the situations in which the contract can be terminated and the termination of the association.
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Depending on the law, the law may not require the contract to be in writing (unless the associate wants to contribute real estate). But, for the purposes of proof, certainty and security of the parties, it is always desirable that it be reduced to writing, especially when it comes to agreements or clauses that exclude the participation of the associate in the losses of the deal. And, that in relation to these, the losses, which establish the responsibility of the associate, can only be proven if the contract was effectively concluded by that means.
2.- Good administration
The associate will always have the obligation to act as a judicious and orderly administrator and preserve the bases essentials of the association, as well as the duty not to compete, even if there is no written contract or be quiet.
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Otherwise, the partner would limit to collect the fee from the other, without any type of responsibility or guarantee, if it fails to generate profits or the expected results that motivated the performance of the associated.
3.- Submit accounts
In order for the inspection to be possible, unless the member is expressly convinced to the contrary, the associate is obliged to present accounts to the associate. In the absence of presentation of accounts, or if the associate does not comply with the accounts presented by the associate, the process of special rendering of accounts regulated in the Code of Civil Procedure, with the purpose of calculating and approving the income obtained and the expenses incurred.
Profits
Companies often decide to enter into a joint venture because they believe that combining resources with another company will lead to better growth and profitability than any of the companies could achieve by operating for their account. Some of the benefits that companies can provide to each other in a joint venture agreement include:
- Access to new markets and distribution channels.
- More expertise and specialized resources, including research and development.
- Additional financing and purchasing power.
Taking advantage of the strength of another company in an area where your company is weak and offering a benefit complementary to the other company, a joint venture arrangement can be beneficial to both Business.
Example:
If you have a product that you want to sell, but you do not have a sales force or presence in that market, you can establish a company jointly with a company that has an existing distribution channel or sales force capable of reaching customers for your product.
Through the joint venture agreement, you immediately gain access to clients and expand your presence in the market without having to hire a sales force, assume debt, seek outside investors or compromise your own resources. In turn, having a new product on the market for an existing customer base is a fringe benefit it brings to the other company.
Risks
As good as it sounds, even under ideal circumstances, there are risks in starting a joint venture. Trade associations are complicated. Be realistic about your expectations and think about whether this type of arrangement is the best option for you. You will need to ensure that the joint venture partner complements the strengths and weaknesses of your own business and also offers something to the other business.
Differences between a joint venture and a consortium
The companies in a consortium cooperate with each other and share resources as necessary. Within the consortium, each member is responsible to the group only with respect to the obligations set out in the Consortium Agreement, but apart from this, each member of the consortium retains its separate legal status and remains Independent.
A consortium is not a merger and each participant conducts its normal business operation without any interference with another member's business. The control of a consortium over each member is limited to the rights and obligations outlined in the Consortium Agreement.
However, in a joint venture, two or more parties generally share ownership of the business, along with risks, profits, losses, and governance.
