What are the elements of a good joint venture?
Joint ventures are not always successful. This can be hard to imagine especially when it promises a lot of benefits for all concerned. There is less risk. There is sharing of resources. There is more people to get ideas from. There is help around. Generally, it is like having another you working towards a goal.
Joint ventures can be entered into by two or more parties depending on the need. Often, joint ventures are created in order to produce a product or realize a project that will need different resources and these resources cannot be provided by just one person or company. Think about it as organizing an event. To plan the party and make it a success, you need a good caterer, a good party planner, great sound system, decorations and stage set-up. Each of these companies provide expertise that you cannot provide. When these people or companies come together, each putting their own products, technology, service or expertise on the table, that is what is called a joint venture.
There are several vital elements to a joint venture and you need to look into each one to make sure that it will be a success.
The first one is the partners involved. Who will be the partners in the endeavor? Do you know them? Have you researched their personal background and company history? If it is a company, have you reviewed its performance and its current CEO or its leadership in general? It is important that you know these things about the partner that you will be seeking. A joint venture can fail when two incompatible partners come together.
The next element is the contractual agreement. This is established so that the partnership, the goal, its duration and the contributions of each will be put into writing. This minimizes confusion and other potential problems in the future. Discord will also be avoided because people will know what their role is.
Another element is the purpose and duration of the contract. Joint ventures are not forever although it may seem like it. It can be long-term or short-term. Often, joint ventures do not last long, often along the duration of the project. Some though especially those who have products to sell, continue for years and years until a partner decides to back out of the contract or refuses to extend the contract. It is advisable that the duration should be two to three years after the “creation period” to give time for the product to get into the market.
Partners in the joint venture need to put into writing how long the partnership will last and if there is a provision for extending the contract for another period of time. This should be established at the start of the partnership. This way, everything is clear and each partner knows for how long the venture will be.
Lastly, there should be the joint property interest, which states which properties are shared and will be distributed to the partners in case the venture is dissolved. This states the percentage of the joint property that each partner will get depending on their initial and continual contribution.
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