Risk of Joint Ventures
The national and global markets are becoming more competitive. Companies are increasingly teaming up in joint ventures to innovate products and research. Joint ventures between companies are effective in harnessing each company’s strengths and pool the sources. The risk of joint ventures do exists which can be minimum by a well prepared joint venture agreement.
What Are Joint Ventures?
Joint ventures are a type of business partnership where two parties collaborate. A contractual agreement lays out the specific responsibilities of each party and the share of profits and debts.
Joint ventures are different sfrom partnerships as they are goal specific and often dissolve once the objectives of the joint venture are reached.
The terms of a joint venture should be clearly laid out from the start. A joint venture contract should include:
- The obligations of each party
- How the profits and losses will be shared
- How much control each partner has
- The degree of authority each partner has to make decisions
- An outline of the decision-making process
- How much staff and other collaterals each party supplies
- How much capital each partner will invest
- Payment period and mode for each partner
A skilled business attorney can help you to create an effective joint venture agreement that will protect your business interests.
Risks of Joint Ventures
- Lack of clarity in responsibilities and obligations can cause issues
- Different management styles and techniques can cause conflict
- Ineffective conflict resolution
- Frequent arguments can be caused by an imbalance of investment
Most of these conflicts can be avoided by a strong joint venture agreement.
Benefits of Joint Ventures
- New investment opportunities
- Broadening market prospects
- Shared liability, therefore reduced risk
- Better and more diverse resources for each partner
- Flexibility due to limited terms