Things to Consider Before Forming a Joint Venture
Benefits may overrule drawbacks when thinking about forming a joint venture with another business entity since you may find the process potentially viable. Nonetheless, forming a joint venture is not an easy task. It still involves a lot of considerations to many different aspects since you are betting on the future of your business. What are those? Here are the things you should consider before forming a joint venture.
Expansion, increase in product exposure, acquiring newer technology, extending contacts, reducing the risk of venturing into another business, forming business tie, expanding clientele which will bring your product to more people, or any other thing that would give your business its much needed boost are some of the reasons why businesses form joint venture.
And for every joint venture you may want to form, you have to define your goal. This will draw the line of your succeeding steps in completing the joint venture you are aiming at. Defining your goals will set you on the right track and will prevent you from stepping on the areas where may probably be a disadvantage to you and your investment. In other words, establishing your goals is like drawing your blueprint or roadmap of where you are headed to.
Aside from a defined goal, the one that provides the good chance of your success is your partner. Seeking for a potential partner therefore is crucial in any joint ventures you want to form. There are three important things to look for a potential partner: assets that match yours, resources you don’t have, and skills you need.
Finding a perfect partner is not easy but you can increase your chances by measuring your perspective partners by screening and making a shortlist out of it. The criteria should be based both on the help it can give to your venture and the 3 things mentioned above.
Screening involves checking. This reveals the things you need to know about the potential partner. Verifying on the other hand ensures that the details given by your potential co-venturer are true. Although businesses are often honest in disclosing information to a future co-venturer, it is a good practice to verify.
From the goal(s) you want to achieve, you can define the type of joint venture you want to form. There are basically three: partnership joint venture, corporate joint venture, and contractual joint venture.
Partnership joint venture is either limited or general partnership- usually with obligations and rights set under a partnership agreement. This type of joint venture is not usually used on product development or research, but rather on real estate.
The corporate joint venture is more complex and involves a far extensive document. Usually, the corporate joint venture becomes a separate legal entity for itself.
The contractual joint venture is bounded by terms, liabilities, obligation, and time.
Terms and agreement
It is equally important to discuss the things you want to achieve under the joint venture with another entity. The organizational structure, limitations, participation, share, income allocation, compensation, disputes, and everything that are bounded by the formation of the joint venture should be laid down clearly.
Forming a joint venture with another company or individual is not easy, but knowing these things may help you get off to a good start.