Characteristics and examples of a Joint Venture contract

Before we focus on developing the characteristics and examples of this type of contract, we must answer the following question:

What is a joint venture?

A joint venture occurs when two or more companies decide to pool their resources to create a new business entity in order to develop a new project or business.

The joint venture is its own entity and independent of the other businesses of the parties that form it. It is necessary to emphasize that this association does not compromise the legal independence of each of its members, that is, of the companies, people or organizations that form it. They are only united by a commercial purpose. This union or association seeks to obtain the greatest possible profit for its members, each member being responsible for the losses and costs associated with it.

While the time of collaboration lasts, the members of the joint venture will have to work in the same direction, collaborating and sharing the work team, costs , responsibility and investments. For this type of association to last, there must be compatibility among the members in the organization, in addition, both the contributions and the future benefits will be distributed in a balanced way among the members.

The joint venture usually occurs between companies that belong to the same sector and complement their resources, each contributing the experience it has on the project or business they are developing.

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The joint ventures that are generally more successful are those in which the partnership between the members occurs at the same percentage, that is, if the partnership is between two companies, each of them has fifty percent.

Regardless of the legal structure used for the creation of the joint ventures, which can assume any type of legal structure, the members are governed by the agreement signed between them, in which their rights and obligations will be established.

This document specifically sets out the objectives of the joint venture, as well as the initial contributions of the partners, the responsibility for possible losses and the right to benefits.

Characteristics of the joint venture

The joint venture can be made up of two or more companies, which must share resources, errors and profits equally. These companies retain their independence, working autonomously and each one maintaining its image and brand.

The agreement establishes the rights and obligations of each of the companies that comprise it, specifying the assignments of each one. The agreement can be of a corporate or contractual type, that is, a new company or a contract can arise.

It becomes a new entity, separate from its founders. This also implies that the liability of members is limited to the capital invested.

The joint venture is not a permanent structure, since it can be dissolved when the objectives set have already been achieved, or when any of the parties or both are no longer satisfied with the objectives, or develop new goals, or when the agreed time for the development of the same has expired, among others.

Joint ventures are advantageous for reducing risks when seeking entry into new markets and for sharing resources and expenses when undertake these projects. Sometimes large companies decide to form a joint venture with smaller companies in order to acquire technology or intellectual property more quickly.

The joint venture will only be effective if there is a true will on the part of its members to move forward together, since the signed contracts become worthless if the mutual trust between its members and the acceptance of the terms set forth therein are not present. The risks of carrying out this type of operation are easy to assess, ranging from the loss of the money invested, to the delivery of technology or intellectual property, among others.

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Examples of joint venture:

• Sony-Ericsson: Both companies worked in the manufacture of telecommunications equipment, in the early 2000s they were associated with the objective of generating greater sales of mobile phones and becoming a leader in this sector worldwide. Today the company became wholly owned by Sony.
• Nokia and Siemens: these two big companies decided to unite in 2007, in order to deal with the Asian phone manufacturers, who make much cheaper products. In 2013 Nokia bought the part of Siemens.
• Bosch and Finish: the home appliance brand has been associated for years with Finish, specialized in cleaning products for home appliances, leading the market with their partnership.
• Kellogg and Wilmar: The Kellogg Company entered into a joint venture agreement with Wilmar International Limited, for the purpose of selling and distributing food grains in the Chinese market. Kellogg brings a broad range of products and industry experience to this union, while Wilmar brought its marketing infrastructure in China with its distribution network and supply chains.

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