The term joint venture refers to two or more independent business parties coming together for mutual benefit. Unlike partnerships which may contain several persons or limited companies consisting of numerous shareholders, joint ventures are usually set-up for one specific project. They are not normally created with the view of having an ongoing formal long-term relationship.
Often joint ventures are deployed in the fields of research and development, design and building projects where several parties possess differing skill-sets and seek to combine these to bring about a defined outcome.
Each party may in fact be a separate trading entity conducting its own separate business, be that as limited companies, partnerships or other trading vehicles.
One of the salient reasons why the joint venture option might be advocated is that it allows each entity to contribute to the specific project but at the same time keep its other business activities separate.
Thus the risk associated with the joint venture is thereby ring-fenced from the remaining business operations and other proprietary knowledge such as financial records, intellectual knowledge in other areas is protected.
Prior to the joint venture being set-up and operational the expected contributions to be made and any revenue shares to be received by each party are determined and usually stated in a legally enforceable agreement.
Individual contributions to the joint venture can take many forms, for example proprietary knowledge, financial assistance including business loans, Management or technical skills, premises and so on.
Once the joint venture has completed its objective (or it becomes clear that they will not be achieved) the joint venture will cease.