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A joint venture with another business is one such way to achieve this. Joint ventures are a popular strategy for businesses looking to expand operations or enter new markets. These collaborative arrangements offer numerous advantages that can propel companies into uncharted territories and fuel rapid growth.
WHAT IS A JOINT VENTURE?
A joint venture is an arrangement between two or more businesses to combine their resources and expertise to achieve a specific significant competitive advantage and allow businesses to capitalise on market opportunities quickly. A primary benefit of joint ventures is the ability to combine the strengths of multiple entities.
A joint venture can be structured as a contractual agreement between parties or, a new company can be incorporated which is owned by both parties.
The right structure for your business depends on the specific circumstances what complimentary skills, resources, sector knowledge the businesses possess.
Quick Tip: If you are incorporating a new company that will be owned by two or more parties equally, you will need to ensure that you have adequate protections in case of a dispute. Follow us on LinkedIn for our next article on Managing Shareholder Disputes in Joint Ventures.
WHAT POTENTIAL BENEFITS ARE THERE TO A JOINT VENTURE?
Pooling Resources: Greater access to equipment, skills, technology and capital.
Enhanced Workforce: Access to combined workforces provides greater knowledge, expertise and experience.
Accelerated Market Entry: Partnering with an established business in new sectors reduces the time and effort required to enter new markets. Bypass lengthy market research, leverage existing customer relationships and navigate regulatory hurdles.
Cost Efficiency: With shared costs in areas such as administration, human resources, marketing, distribution and market research, the joint venture will likely be more cost efficient than a stand-alone entity.
Mitigating Risk: The risks of the Joint Venture are shared. Any losses are spread between the parties, limiting the impact faced by each party, and increasing the chance of success for the venture.
WHAT POTENTIAL DRAWBACKS ARE THERE TO A JOINT VENTURE?
Flexibility and Decision Making: Depending on the drafting of any agreement, decision making powers will be allocated between the parties, resulting in reduced flexibility and creating an additional layer to decision making processes.
Profit: Along with splitting any losses, profits are also shared. As a result, a lower return on investment may be received in a joint venture than if the parties were to work independently.
Disputes: Conflicts can occur with each party differing in their management styles, company culture, priorities and goals for the business.
Quick tip: Ensuring that you have the right agreements and policies in place from day one will greatly reduce the impact of any disputes.
Exit: If specific exit provisions have not been pre-agreed, exiting a joint venture agreement or company can be complex, costly and time consuming.
All in all, Joint Ventures are an exciting way to combine the expertise and prowess of two or more businesses to create a new partnership that has the combined resources and skills it needs to thrive.
If you’re unsure about whether a Joint Venture is the right choice for your business, FG Solicitors can work with you to assess the options and ensure that your project is on the right track to success.
Contact FG Solicitors today on 0808 172 93 22 or complete our quick contact form for a discussion.
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This update is for general guidance only and advice should be taken in relation to a particular set of circumstances.
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