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A joint venture is the formation of a single entity, by two or more separate businesses, control of which is shared by the parties involved. The ¡§parent¡¨ companies get to keep their own interests outside of the venture but within it, everything is shared. A successful joint venture can be a very lucrative business proposition. A joint venture is a strategic business alliance. The idea is to join with a business that has complementary capabilities. Finance, technology, distribution, and personnel are all capabilities. If you have great distribution channels but lack the financing, you might be able to form a joint venture with another business that has very good financing capabilities but lacks distribution. So that everyone in the joint venture gains, and gets what they want from it. But conflicting views among the parties to the venture can spoil the party. So here are some things you should look at before you become party to one: Check the Credentials Before entering into any business relationship, it is important to know whom it is you are dealing with. This is especially in joint ventures, as your reputation becomes entwined with that of your partners in the venture. Verify information with third parties, and make sure that there is a strong basis for trust. Also, ensure that the company is capable of holding up its end of the deal. Drawing up a business plan The business plan for your joint venture should be drawn up by all parties involved. The plan should include clearly defined goals for the venture as well as benchmarks for defining success. An exit strategy that is acceptable to all parties as well as terms for winding up the venture should also be incorporated. There should be a contingency plan in case for some reason the venture is dissolved before the specified date. Registering the company You can register your joint venture in a variety of different ways. A Limited Liability Corporation is one option as are other types of new businesses. Many fast growing companies choose to register their joint ventures as strategic corporate partnerships. Investigate all your options before making a decision. Availability of Property and Resources The resources and property (appreciated or depreciated) that will be made available by each partner of the joint venture need to be clearly understood in advance. The types of resources to be provided or details of any specific use of a party's property should be discussed beforehand. In this way, you will avoid any sudden financial hiccups in the future. Special Allocations In the event that special allocations need to be made, this needs to be decided beforehand. These items include special gain or loss, and also includes income and deductions. If there is a loss, some of that will need to be allocated to each of the partners. Additionally, compensation to the partners that provide specific services should also be determined beforehand. If your partners and you find it difficult to reach agreement on the above issues, it may be time to say goodbye. You should look for other partners, with whom you can work. Because when you can come to an understanding, joint ventures can yield high profits.
Article Source: http://www.financemanual.com
About the author: Vlad Ehrsam writes exclusively for Full Info on Business, visit there today for the latest Business advice, and why not sign up for the free Business newsletter. Click here for other unique business articles.
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