What is a 'Joint Venture - JV'
A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it. However, the venture is its own entity, separate and apart from the participants' other business interests.
BREAKING DOWN 'Joint Venture - JV'Although they are a partnership in the colloquial sense of the word, JVs can take on any legal structure. Corporations, partnerships, limited liability companies and other business entities can all be used to form a JV.
Regardless of the legal structure used for the JV, the most important document will be the JV agreement that sets out all of the partners' rights and obligations. The objectives of the JV, the initial contributions of the partners, the day-to-day operations and the right to the profits (and responsibility for losses) of the JV are all set out in this document. It is important to draft it with care, to avoid litigation down the road.
Using a JV to Enter Foreign Markets
A common use of JVs is to partner up with a local business to enter a foreign market. A company that wants to expand its distribution network to new countries can usefully enter into a JV agreement to supply products to a local business, thus benefiting from an already existing distribution network. Some countries also have restrictions on foreigners entering their market, making a JV with a local entity almost the only way into the country.
Winding Up of a JV
Once the JV has reached its goal, it can be liquidated like any other business or sold. For example, in 2016, Microsoft Corporation sold its 50% stake in Caradigm, a JV it had created in 2011 with General Electric Company (GE) to integrate Microsoft’s Amalga enterprise healthcare data and intelligence system, along with a variety of technologies from GE Healthcare. Microsoft has now sold its stake to GE, effectively ending the JV. GE is now the sole owner of the company and is free to carry on the business as it pleases.
Sony Ericsson is another famous example of a JV between two large companies. In this case, they partnered in the early 2000s with the aim of being a world leader in mobile phones. After several years of operating as a JV, the venture eventually became solely owned by Sony.