A joint venture can be generally defined as a business consensus in which more than one parties – shared owners – agree to pool their individual resources for some common business purpose. In doing so, each party holds responsibility of sharing the costs, profits, losses, and risks equally or as per their shares.
The term ‘joint venture’ generally means investment and typically entails a type of strategic partnership of individuals or companies, and that a particular partnership for which the joint venture is made, is expected to grow by the parties.
Although quite similar to a partnership, it exhibits some key differences with the latter. For example, while a joint venture is oriented about a single project, partnerships are usually about the ongoing business(s) in all regards.
Some other characteristics of the joint venture which are worth mind bearing are:
- Equally shared profits, losses and expenses.
- Termination when a project is completed (unless stated otherwise).
- The death of a person (also called as a joint venture) does not terminate the joint venture.
- No joint venture holds the power to terminate the joint venture in the middle of the project and thus the project has to be completed.
- Each party has a complete control to manage all the assets designed to be used in the joint venture, and
- A contract must exist between the parties entailing the workings of the joint venture.
There can be many types and varieties of joint ventures depending upon the scenarios under which a joint venture is being executed. To understand this, let us look at some of the types with examples to not only gain a comprehensive understanding about different concepts used in business regarding to joint ventures but also their possible applicabilities.
Affiliate Partnerships / affiliate marketing
An affiliate partnership is a type of joint venture in which two individuals, programs or businesses come in league with each other to promote the products of both the parties. It has also become the most common way of earning money online, and once established it can be a good source of passive income too.
For example, a blogger can become an affiliate venturer in that it affiliates a selected company e.g., by placing a link that would lead the readers directly to the site about which the blog has been written. In this way the blogger has done the job of promoting that company’s product via the affiliate link.
Affiliate Blogs are the best examples of an affiliate venturing. This is a product review site that will publish reviews regarding different types of products available on Amazon compiling them into lists and comparison tables ordered 1 to 10. This way, this site might be funded by Amazon which in turn gains traffic from another market channel which can be Google.
Real Estate Joint Ventures
It is a type of joint venture in which two or more parties agree to compile resources and work mutually for the development of a real estate project. Most common are the scenarios in which experts in the field of real estate management work with capital providers in the business.
A real estate joint venture can be explained by a scenario in which there is a company which owns a piece of land far away from where the company is located.
So, they find a person who lives in the same place where they own land and also that person holds expertise in construction and real estate management.
In this way, a joint venture can take place between these two parties whereby the company takes the responsibility of providing the capital and the expert takes care of the responsibilities if building the office.
It is a bit riskier type of joint venture agreement because it involves getting financial assist from a private party. It helps one to execute the business which might have been halted due to lack of proper capital investment. But, for risk management, often it is advisable to hire business lawyers for insurance of one’s legal rights.
These are the agreements between two parties or organizations belonging to a production or distribution chains. These groups / parties / organizations create joint ventures thus coming together for a common goal with a given market.
It is typically a case in market between buyers and suppliers. In such cases, maximum gains are usually attained by suppliers while limiting the gains for buyers.
A suitable example for this type of joint venture comes from VitracEgypt – an Egyptian jam company. A person named Abdel Nour, the founder of his jam company, went into a joint venture with an Egyptian company Vitrac so that this company provides surplus fruits of Egypt and a French partner for providing the appropriate equipment and techniques for production of fruit jams.
A horizontal joint venture is a type of partnership in which different companies being in the same line of the business and transactions happens between these partner companies.
Moreover, these different companies may function so that e.g., if they are involved in selling a product, they will do so to their customers.