The U.S. Small Business Administration (USSBA) states a joint venture is when two or more partners (or businesses) enter a temporary partnership that will be beneficial to both parties.
Sounds simple, right? As it turns out, however, there are many things businesses fail to consider before they agree to these temporary partnerships. As a result, many joint ventures fail and do not reach the goals they were initially created for.
When Is a Joint Venture Beneficial?
Joint ventures are entered into for many reasons. For example, one business may hold the patent to a new form of technology, yet lack the resources to manufacture or distribute it on a large scale. Additionally, companies often want to enter new geographical markets, which may be easier to accomplish alongside a company with firm roots in the area.
Also, as previously stated, joint ventures should be entered into when it is mutually beneficial to both parties. However, determining this can be more difficult than it seems. Both parties must know exactly what they will get out of the joint venture, as well as what resources they must put forth in order for it to be successful. Will this better position the partners better in the future? Are the terms fair? All of this and more must be carefully considered before a final agreement is made.
Anyone having questions about joint ventures, or considering entering into one, should discuss their situation in depth with an experienced business formation attorney to ensure they are making the correct decision.
Why Do So Many Joint Ventures Fail?
There are inherent risks with joint ventures, and each one must be openly discussed between partners and their attorneys. Major reasons why joint ventures fail include:
- Inability or unwillingness to share confidential yet necessary information
- Unclear or divergent goals
- Unequal benefits (one party gains significantly more than the other)
- Lack of honesty and open communication if one party’s circumstances change
There are many more reasons why joint ventures fail, but if done properly and for the right reasons they can be very beneficial. Speak with a qualified business formation attorney to see if a joint venture can better position your company for the future.