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What is a Joint Venture and Who Can Form One?
A joint venture is formed when two or more entities agree to combine efforts to meet a certain goal. These entities agree to share the risks, expenses, control, profits and losses involved in the undertaking.
Joint ventures may be formed between large corporations (both domestic and foreign), small businesses, individuals and government agencies. The joint venture must be distinguishable from the individual parties involved in creating it and each partner must have an ownership stake in it. Both parties should have the right to share in management responsibilities unless one party declines this right. So long as these basic requirements are met, a joint venture may be formed.
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The Benefits of Forming a Joint Venture
The actual benefits an entrepreneur can expect to receive from forming a joint venture with another entity will vary. Entrepreneurs should carefully consider the needs of the business and what requirements must be met in order to achieve goals of expansion.
Some venture partners may be able to provide entrepreneurs with hard assets like real estate that can be used to develop storefronts, components to assemble products and the capital needed for product development. Other venture partners might be able to provide distribution channels for the final product, customer support and marketing. Entrepreneurs seeking a foothold in a new market may appreciate a partnership with a business already established in the industry or locale for their expertise in those areas. The possible configurations and actual benefits entrepreneurs may receive from forming a joint venture are truly extensive and so dependent upon the businesses involved that they can only be lightly touched upon here.
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Different Types of Joint Ventures in the U.S.
Four distinct configurations of joint ventures can be found in the United States: Corporations, General Partnerships, Limited Partnerships, and Limited Liability Companies.
Corporations are by far the most common form of joint venture used in the United States. Though the complex set of rules regarding governance of corporations is beyond the scope of this article, the important thing for readers to know is that partners in a corporation are protected from any debts incurred on behalf of the corporation. For a more in depth analysis of the advantages of the corporation over other business organizations, readers are encouraged to review John Garger's article on the topic: Four Advantages of a Corporation over Other Organizational Forms.
General partnerships and limited partnerships are similar. In the case of general partnerships, all parties in the joint venture are held accountable for any debt incurred in the name of the partnership and are capable of entering into legally binding contracts on behalf of the partnership. In a limited partnership, only one party assumes these responsibilities and the other partner is limited to receiving a share of the profits in return for his contributions to the partnership.
A limited liability corporation is a cross between a corporation and a partnership. Like corporations, partners in a limited liability corporation are protected from debts incurred on behalf of the corporation, but are considered a partnership for tax purposes.
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Joint Ventures Reviewed
A joint venture may be exactly the tool an entrepreneur needs to further expand his business. With the right form of partnership and a partner that perfectly compliments the needs of his business, joint ventures just might be the entrepreneur's ticket to making his business boom.