Joint VentureDescription of Joint Venture : A joint venture is a strategic alliance or partnership between two or more parties that allows both parties—usually companies—to increase their ability to build their separate businesses. Joint ventures are commonly used by companies to become active in a new territory and return higher profits by expanding the company’s network. Joint Venture Formation:Domestic joint ventures in the United States fall under the governance of commercial transactions law, including all relevant partnership and contracts precedents. International joint ventures often have to comply with the rules in the jurisdiction where the home market is located. Some countries require their businesses to comply with international trade laws. The Internal Revenue Service (IRS) treats joint ventures like a partnership.A Joint venture status is formed by contract, express or inferred. It relies upon the mutual intent of the parties. A joint venture is a relationship voluntarily assumed and arising wholly ex contractu.A joint venture will exist solely by voluntary agreement among the parties. The intention of the parties should be to form a relationship and in this objective, the parties have a community of interest and a common purpose in performance. Every party to the agreement should have an equal voice within the manner of performance and management of the agencies. Also, one party can entrust performance to the other.Parties in a joint venture stand in the same relationship to each other as partners in a partnership. A joint venture agreement, sort of a partnership agreement, is a form of contract. In deciding the meaning of the terms of the agreement, general rules employed in interpreting a contract should be applied. However, the proper interpretation of a contract is ultimately a question of law for a court to make a decision. A joint venture agreement should be construed to effectuate the intention of the parties. The intention of the parties is proven by the language employed in the contract. Courts are bound to enforce the terms of the agreement as set down in an integrated, written instrument. once the terms of a contract are ambiguous, a court could turn to extrinsic evidence to intercommunicate the intent of the parties. Joint ventures could be created for nearly every conceivable type of business aim. Advantages and Disadvantages of a Joint Venture:Advantages of a Joint Venture: A joint venture provides the opportunity to gain new insights and expertise. Forming a joint venture give access to better resources, such as specialized staff and technology.A joint venture is only a temporary arrangement between two parties.Both parties share the risks and costs. In case the joint-group project fails, both parties bearing the costs of its failure. The chances of success will become higher.Help in building relationships and networks. And enable to create long-lasting business relationships. save money by sharing advertising and marketing costs. And that works for a lot of other types of costs. Starting a joint venture is a great way to save money and/or split costs. International joint venture eradicates the risk of discrimination.Disadvantages of a Joint Venture:The objectives of a joint venture are not very clear and rarely communicated clearly to all people involved.There is no such thing as an equal involvement. An equal pay may be possible, but it is extremely unlikely for all the companies working together to share the same involvement and responsibilities.Great imbalance. When different companies are working together, there is a great imbalance of expertise, assets, and investment. This can have a negative impact on the effectiveness of the joint venture.A clash of cultures and management styles may result in poor co-operation and integration. People with different beliefs, tastes, and preferences can get in the way big time if left unchecked.Limited outside opportunities.A lot of research and planning are necessary. The success of a joint venture highly depends on thorough research and analysis of the objectives.It may be hard to exit the partnership as there is a contract involved.Lack of clear communication. As a joint venture involves different companies from different horizons with different goals, there is often a severe lack of communication between partners.management and of a joint venture:Successful management and operation of a joint venture (JV) is a difficult accomplishment that needs a considerable quantity of designing.planning. Those charged with the management of a joint venture vehicle may find themselves in a potentially awkward situation in that they are appointed by, and expected to represent the interests of, one of the JV parties, and yet as directors of a JV company will owe fiduciary duties to the JV entity rather than to their appointee.This situation is one for the parties to recognize and address from the outset. Key elements of the management of the JV to be recognized by the parties are:the JV is a separate legal entity and its directors will have fiduciary duties to that entity. The directors have a specific duty to act in good faith to promote the success of a company for the benefit of all of its members.the JV can be managed by the parties’ appointed directors, or those directors can act in a supervisory capacity over an independent executive management team.there is a distinction between the day to day operational management decisions to be taken by the management and those decisions to be referred back to the parties for shareholder approval. The JV agreement should, therefore, identify the ‘reserved matters’ which require shareholder approval, which may well be a more extensive list than those matters which legally require approval by way of shareholders’ resolution;the directors’ duties in relation to conflicts of interest and confidentiality may mean that there cannot be a complete and transparent information flow from the directors to their appointing shareholders. The JV agreement should, therefore, address what minimum levels of reports and other information each shareholder is entitled to receive.Liability of a joint venture:In the joint venture agreement, each partner’s share in its losses and profit are equal. Partners of a joint venture could appoint one or more of the partners or a third party to act as the managing partner. within the absence of this appointment, all partners are entitled to manage the joint venture.All the joint venture’s partners are directly, unlimitedly and severally liable against its creditors. In contrast to the shareholders of capital companies, wherever the shareholders’ liability is limited by the amount of capital it undertakes, a joint venture’s partners have unlimited liability with their personal assets.Example of joint venture in Saudi Arabia:Saudi Bin Ladin GroupAl Fouzan Trading & General Construction CompanySaudi Oger
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