Joint Ventures: Types, structure and reasons for joint ventures as well as the problems with them

What are Joint Ventures?

Joint ventures often occur between businesses for a number of reasons; most commonly where two or more businesses collaborate on a particular project or business enterprise. They may be similar businesses, which are pooling their resources, or completely merging with one another. Alternatively, they may operate in different spheres and be collaborating on a project which involves the application of both of their areas of expertise.

Types of Joint Ventures

Short-term collaborations

The length of the joint venture is of importance here as it is often that such collaborations will only take place for a particular project, rather than to create a long lasting business relationship.

Limited-function joint ventures

The powers in a limited-function joint venture are based largely on co-operation or co-ordination between the joint venture parties rather than a complete merge of businesses.

Full-function joint ventures

A full-function joint venture on the other hand is designed on a much larger scale compared to the limited function, with the intent to merge the businesses involved to create an autonomous economic entity, often a new company, in exchange for shares.

Full-scale world wide mergers

This type of joint venture is on the largest scale, which is often with the involvement of international companies, creating a new company or subsidiary, for example the merger between Shell and Texaco, to create Equilon to deal with a particular product, namely industrial lubricants.

Structures for Joint Ventures

There are a number of methods businesses can adopt when entering into a joint venture. Possible structures include; entering into a contractual arrangement, specific collaboration agreements between the parties, a corporate joint venture can be established or a general/limited liability partnership can be created.

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For more information on:

  • Reasons for Joint Ventures
  • Problems with Joint Ventures
  • Management
  • Differences
  • Competition